MONETARY POLICY

of this factor in the rest of this year is unlikely to be such as would upset the rhythm of domestic credit policies.
However, in view of the massive governmental deficit budgeted for 1978-79 and the further buffetting administered to government finances by expenditure on flood relief and considering the runaway credit expansion to the commercial sector, the prospects on the monetary front are far from encouraging. The only redeeming feature is the acceleration in time deposits in the past few weeks. Clear ly, stable development of the economy requires moderation of the growth of money supply. In formulating the monetary policy for the busy season, the monetary authorities should, therefore, address themselves to these questions: (a) what should be the non- inflationary level of monetary expansion and how should actual monetary expansion be restricted to that level? (b) Is the very large credit expansion witnessed in the current year warranted by production requirements? (c) How can some limits be enforced on borrowings by the government from the Reserve Bank?