Reserve Bank of India Governor Raghuram Rajan had to set out the second bi-monthly monetary policy for 2014-15 on June 3, playing his cards blind. Normally, by this time of the year, the Budget is announced and the task of the RBI becomes clearer. This year, because of the general election, the Budget has been scheduled for early July. As such, the RBI had a tough call to make. Given the circumstances, the RBI cannot be faulted for its somewhat emollient monetary policy stance.............
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The timing of Elections, 2014 did cause some dislocation in work relating to Budget, 2014-15 in Delhi and finalisation of Monetary Policy for the current year in RBI. While Reserve Bank of India could factor in the uncertainties and move forward with policy formulation, at ministerial level, things will stabilise only after Finance Minister finalises his maiden budget. As results of any policy measure by the central bank will be dependent on the supportive policy initiatives from the central government, RBI Governor cannot be blamed for the ‘wait and watch’ approach he has opted for the time being. Still, to the extent possible, RBI has made clear its expectations and has not stopped from doing what the Bank considered best in the given circumstances.
In the context of the new government’s commitment to honour election promises, many of which will have an impact on resources availability and prices, RBI’s expectation about level of inflation at 8 per cent by January 2015 and at 6 per cent a year later are predictions based on prevailing situation. Depending on the measures by the government to fuel growth and improve the financial position of less privileged, the impact of inflation too will vary, making numbers less relevant.
The silver lining is the better coordination between finance ministry and RBI as is evident from the more cordial language used in communication by both. Let us wait and watch.
M G Warrier, Mumbai
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