Apropos the editorial “Beyond a baby step” (Business Line, January 25), the reduction in cash reserve ratio doesn't signal changes in the monetary stance of the central bank. It only alleviates strained inter-bank liquidity. In the past, CRR was used to convey changes in the monetary stance. Continuing the policy rates at the existing level (repo and reverse repo rates) implies that the central bank still isn't comfortable with the patterns in inflation. Credit demand won't change during 2012 due to a complex business environment prevailing at present, and so changes in CRR wouldn't improve the investment sentiment. At best, the RBI has taken care of the supply side of funds. Has the RBI utilised the opportunity to merely infuse liquidity into the banking system? As monetary easing isn't desirable due to continuing inflation on the manufacturing front, the central bank is in an unenviable place.
- K. V. Rao, Bangalore (HBL)
