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RBI says monetary policy not free of govt's fiscal compulsions

Hyderabad: The Reserve Bank of India (RBI) has said its ability to conduct the monetary policy freely has again come under threat due to the influence of the government's fiscal policies, reports PTI.

"Like in most countries, in India too, fiscal stimulus was part of the crisis response and monetary policy had to acquiesce in elevated government borrowing.

"Going forward, the challenge for the government is to continue the fiscal consolidation and for the Reserve Bank to regain the space to conduct monetary policy free of fiscal compulsions," RBI governor D Subbarao said in the D Deshmukh lecture here on Thursday.

He said world over, central banks' monetary space has come under the dominance of fiscal policies of the governments and India followed the global trend.

"It will be less than honest not to acknowledge that the autonomy of monetary policy from fiscal compulsions is once again under threat, and resolving that threat requires credible efforts by both governments and central banks," Mr Subbarao said.

As the Centre cut duties and stepped up expenditure as part of stimulus measures to boost the slowing economy since the late 2008 as a result of the global financial crisis, its outlay overshot receipts by a huge amount, leading to widening of fiscal deficit, which crossed 6.5% of the gross domestic product (GDP) during 2009-10.

As the government partially rolled back stimulus in the budget for the current financial year, its fiscal deficit is pegged to come down to 5.5% of GDP.

To finance its increased expenditure, the government has to resort to huge market borrowings, pegged at over Rs4.5 lakh crore this fiscal.

The RBI has to manage the government borrowings in such a way that it does not lead to resource shortage for private players.

As such, the RBI may not be able to increase its rates to desired level even if it wants to contain inflation since that would push cost of borrowing for private players.

In fact, an RBI official had recently said that more aggressive tightening of monetary policy is required to tame inflation. The central bank has hiked short term borrowing (reverse repo) by 50 basis points and lending (repo) by 25 basis points to control inflation, which has been in double digits for five consecutive months.

The government, meanwhile, earned over Rs1 lakh crore from auction of spectrum, which many thought would be used for reducing fiscal deficit further. However, the government recently sought Parliament nod for additional expenditure of Rs54,588.63 crore and said its additional receipts will not lead fiscal deficit to widen.

In his reply to the debate on inflation in the Rajya Sabha, finance minister Pranab Mukherjee also said RBI is framing its monetary stance in coherence with the Centre's fiscal policies.

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Personal finance Friday

ICICI Prudential MF launches ICICI Prudential FMP - Series 53 - 3 Years Plan A

ICICI Prudential Mutual Fund has launched ICICI Prudential Fixed Maturity Plan (FMP) - Series 53 - 3 Years Plan A. The scheme in close ended debt fund. The scheme has opened on 5 August 2010 and will close on 18 August 2010. It has two plans-growth and dividend option with payout facility. The scheme will offer units at Rs10 each during the new fund offer (NFO) period. The minimum subscription amount is Rs5,000 and in multiples of Rs10 thereafter. The investment objective is to generate regular returns by investing in a portfolio of fixed income securities/debt instruments which mature on or before the date of maturity of the plans/scheme.

IDFC MF floats IDFC Fixed Maturity Plan - Yearly Series 32

IDFC Mutual Fund has introduced IDFC Fixed Maturity Plan - Yearly Series 32. The scheme is a close ended debt scheme. It has two plans-growth and dividend option offers payout facility. The scheme opens on 10 August 2010 and closes on 12 August 2010. It will offer units at Rs10 each during the new fund offer (NFO) period. The minimum subscription amount is Rs10,000 and in multiples of Rs10 thereafter. The investment objective of the scheme is to generate income by investing in debt and money market instruments maturing on or before the maturity of the scheme.

SBI MF launches SBI Debt Fund Series - 180 Days Fund - 11

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DSP BlackRock MF introduces dividend option under DSP BlackRock Micro Cap Fund

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CRISIL launches 'Star Ratings' for the realty sector
 
CRISIL has launched 'CRISIL Real Estate Star Ratings', its latest offering for the realty sector. CRISIL Real Estate Star Ratings will provide a city specific all round assessment of real-estate projects and help buyers benchmark and identify quality projects within a city. Such ratings will provide a comprehensive evaluation of all project specific risks which could impact the quality of the project: CRISIL Real Estate Star Ratings would thus be different from credit ratings, which comment exclusively on the credit worthiness of the borrowing entity.     

Bank of Baroda to increase BPLR by 20 bps

Bank of Baroda has decided to increase its benchmark prime lending rate (BPLR) by 50 basis points (bps) from existing 12% per annum to 12.5% per annum with effect from 6 August 2010.

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