Zooming credit: The main problem is that the brakes havent worked so far. Banks have raised interest rates repeatedly and the RBI has been stamping hard on liquidity, but all these moves have had little impact on credit growth. RBI data on Saturday showed that as of March 16, 2007, credit growth was nosing 29%. Thats just a shade below the average credit growth of 30.38% for the last one year, according to Bloomberg Data.
More importantly, the number is 400 basis (4%) points above the RBIs stated comfort zone of 25% or less credit growth.
Banks and corporates continue to mop up money through floating rate notes and yen borrowings abroad. This is a double whammy for the RBI: the resultant forex inflows upend the RBIs efforts to slow down credit growth and infuses additional rupee liquidity, which feeds inflation.
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