FIRST QUARTER REVIEW RBI MONETARY POLICY: 08-09

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Dear Sir/Madam It gives us great pleasure to present you ready reckoner of First Quarter Review of RBI Monetary Policy 2008-09 The live coverage of the policy, its impact and real-time information on financial markets is exclusively available to our clients through NewsWire18 Workstation. Please refer NW18 workstation for news, views and analyses by market experts on the Policy. Please feel free to call us for any clarifications. Thanks & Best Regards, Helpdesk 022-66378787

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NW18: Highlights of first quarter review of FY09 RBI Annual Policy NewsWire18, Tuesday, Jul 29 MUMBAI - Following are the highlights of Reserve Bank of India's first quarterly review of 2008-09 (AprMar) Annual Policy Statement: MAIN HIGHLIGHTS * Repo rate hiked 50bps to 9% with immediate effect. * CRR hiked 25bps to 9% from Aug 30. * Reverse repo, Bank Rate kept unchanged. * Have option to do overnight or long-term LAF. * FY09 GDP aim cut to 8%. * End-FY09 inflation target close to 7% * There is accentuation of inflationary pressures. * Mid-term review of FY09 policy on Oct 24. STANCE * To continue active demand management of liquidity. * Global developments threatening monetary policy credibility. * Policy has to deal with structural factors driving inflation. * Cyclical inflation factors impervious to demand mgmt tools. * Need to consolidate gains seen in boosting supply capacity. * Financial markets are still fragile. * Impairment to balance sheets up vulnerability to instability. * Threats to fincl stability continue to rule * Inflation pressures likely to intensify further GROWTH * Global growth expected to slowdown further * Slowdown in advanced nations becoming broad based * "Heightened" vigil on macro developments maintained. * Heightened vigil for swift response with apt steps. * More than anticipated moderation in activity of industrial, svcs sector. * Monsoon should support medium term farm growth trend. * Industrial activity moderation to persist short-term.

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* Slower demand growth may temper commodity prices * Slower demand rise may temper inflationary pressures INFLATION * Highest priority to cut inflation from current level. * Global inflation pressure from food, crude, commodity prices. * Recent developments show accentuated inflation pressure. * Monsoon augurs well for domestic supply expansion. * Domestic food prices may soften in months ahead. * Inflation to decline noticeably in Jan-Mar period. * Domestic factors main challenges to policy going forward. * Domestic factors warrant reinforced policy actions. * Volatile FX flows, govt cash balances necessitate active liquidity mgmt. * Banks should be vigilant on credit quality, pursue credit penetration. FISC * Govt's fiscal position has strained somewhat. * Fiscal developments warrant close monitoring. * Fisc condition amid inflation pressure challenge to policy. * Fisc condition policy challenge if supply inelasticity stay. GLOBAL * Remote possibility of big decline in crude oil prices globally. * Other commodities including metal prices may also moderate. * Prudent to assume commodity prices to stay at current elevated levels. * Increase in India inflation similar to other countries.

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First Views on RBI Monetary Policy Review:

NW18: First View: Lehman Brothers' Paul Schulte on RBI Policy review BANGALORE - Paul Schulte, chief regional strategist, Lehman Brothers, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar). The central bank today announced hike in repo rate by 50 basis points to 9% and banks' cash reserve ratio by 25 bps to 9%. . This is a good start. India's inflation levels, in alliance with very high off-budget subsidies of nearly $70 bln for this fiscal year, presents serious challenges. The high level of inflation and the way in which the deficit problems themselves create inflationary pressures is problematic. NW18: First View: ICICI Securities' Prasanna on RBI Policy review NEW DELHI - A. Prasanna, vice president, ICICI Securities, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar): The central bank today announced hike in repo rate by 50 basis points to 9% and banks' cash reserve ratio by 25 bps to 9%. Clearly, the Reserve Bank of India is not taking a chance as far as commodity prices are concerned. The central bank believes that commodity prices will not ease in the near term. While the hike in both repo rate and cash reserve ratio have surprised markets, it is not completely a bolt from the blue. I think banks will start raising lending rates and they could rise by another 50 bps. The yield on the 10-year sovereign bond is likely to rise to 9.75% by next auction. A rise to 10% also cannot be ruled out. NW18: First View: PNB Chairman Chakrabarty on RBI Policy review NEW DELHI - K.C. Chakrabarty, chairman and managing director, Punjab National Bank, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar): The central bank today announced hike in repo rate by 50 basis points to 9% and banks' cash reserve ratio by 25 bps to 9%. After reading yesterday's macro-economic report, it was obvious things were difficult, and RBI was going to take some action. If things do not improve, there would be more tightening. But, definitely, RBI may be reaching the saturation stage on monetary tightening as they have said inflation is likely to come down by the fourth quarter.

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Banks would soon look into hiking rates next month. We have a meeting this month-end to decide on hiking rates. NW18: First View: YES Bank Chief Economist Rao on RBI Policy review NEW DELHI - Shubhada Rao, chief economist, YES Bank, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar): The policy is broadly beyond market expectations. It focuses on heightened concerns over inflation. Clearly, some growth is likely to be given up. This is possibly the end of rate tightening. But, the cash reserve ratio could be hiked, depending upon the liquidity conditions. NW18: First View: CEAT Managing Director Chowdhary on RBI Policy review MUMBAI - Paras Chowdhary, managing director, CEAT Ltd, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar): There will be more tightness in the system and so would affect sales of vehicles and then the OEs (original equipment makers) would slow. It has been a bad quarter (Apr-Jun) for OEs and it looks like it is going to continue. Rubber prices are already high and there has been very heavy pressure on margins. The tough phase is likely to continue and this is going to be a very challenging year for us. NW18: First View: Puravankara Projects director on RBI Policy review BANGALORE - Ravi Ramu, director, Puravankara Projects Ltd, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar): The hike in repo and cash reserve ratio was expected and already built-in. It would have been a surprise if RBI had not hiked the rates. I don't think end-users demand will be affected as a result of this because people were already anticipating rate hikes. It is healthy for the (real estate) industry, as this will drive away whatever little speculators are left in the market. Further, I think genuine homebuyers' demand will continue to be there for projects that are reasonably priced.

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NW18: First View: Omaxe VP Finance Malhotra on RBI Policy review NEW DELHI - Sunil Malhotra, vice-president finance, Omaxe, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar): Reserve Bank of India's decision to hike repo rate by 50 basis points to 9% will increase the cost of borrowings for real estate developers. It will also put further pressure on home loan rates, which are already high. RBI's latest move will further squeeze the margins of realty companies. NW18: First View: KRIS Director Kejriwal on RBI Policy review MUMBAI - Arun Kejriwal, director, Kejriwal Research & Investment Services,on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar). The central bank today announced hike in repo rate by 50 basis points to 9% and banks' cash reserve ratio by 25 bps to 9%. The hikes are more than expected, so it has been like a double whammy and we are seeing a knee-jerk reaction (in equities) right now, but markets are likely to recover in the next two-three days. Now India-specific triggers like the trust vote and RBI policy are over, so we will once again be dominated by world markets. Equities are likely to be under pressure. Also, crude oil price is not likely to fall in a hurry NW18: First View: DSP Merrill fixed income head on RBI Policy review NEW DELHI - Jayesh Mehta, managing director, head fixed income, DSP Merrill Lynch, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar): The central bank today announced hike in repo rate by 50 basis points to 9% and banks' cash reserve ratio by 25 bps to 9%. . The policy action is surprising. A further hike in repo rate would depend purely on oil prices. Going forward, we might see more CRR hikes. A level of 9.50% on the 10-year 8.24%, 2018 bond looks a good level to buy, though it can be stretched by another 10 basis points. The five-year Overnight Indexed Swaps could rise to 10%.

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NW18: First View: Union Bank of India ED Prabhu on RBI Policy review MUMBAI - T.Y. Prabhu, executive director, Union Bank of India, on Reserve Bank of India's first quarter review of Annual Policy for 2008-09 (Apr-Mar). The central bank today announced hike in repo rate by 50 basis points to 9% and banks' cash reserve ratio by 25 bps to 9%. . RBI's action will increase pressure on margins of banks. In order to protect their net interest margins, banks have to hike prime lending rates soon

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