......The RBI’s action should be seen as the absolute minimum it could do in order to express support for the apparent increase in activity from the Central government on reform and fiscal consolidation, without compromising the fight against inflation. Indeed, the RBI’s statement says as much. On its future course of action, the central bank says that “as policy actions to stimulate growth materialise, monetary policy will reinforce the positive impact of these actions while maintaining its focus on inflation management. Only this will ensure that the economy derives the maximum benefit from the recent, and anticipated, fiscal and supply-side policy measures.”......
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I am wondering, are we not putting too much pressure on Dr Subbarao by pressurizing for CRR reduction and rate cut? Some aspects like excess SLR maintained by banks, NPAs caused by mismanagement of corporates and ‘business houses’, guidance to banks to bring down Net Interest Margin(NIM), improving customer service which will result in chanelising more of household savings to banking channel, increasing direct outreach of banks to semi-urban and rural clientele and so on are concerns which are these days being addressed in inaugural speeches of seminars or some review meetings of banks. These aspects, if addressed with support from GOI and political leadership, together, will release much more funds for providing credit for economic development than a quarter percentage point reduction in CRR.
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