......With the Consumer Price Index ( CPI) over 10%, on a year- on- year basis, the need for a cautionary monetary policy by the RBI is understandable. The Mid- Quarter Review of September 17, 2012 has reduced the cash reserve ratio ( CRR) from 4.75% to 4.50%, thereby releasing Rs 17,000 crore of liquidity. The policy move seems to be driven more by monetary- fiscal policy co- ordination rather than any need for enhancing liquidity. The RBI would now be under greater pressure to further liberalise policy at the time of the next review on October 30, 2012. The RBI should not liberalise the monetary policy any further unless there is a visible reduction of the fiscal deficit and a significant and enduring reduction in the CPI inflation rate. The RBI will be in an increasingly difficult bind and resisting political economy pressures would be easier said than done given the RBI- Government power equation......
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