Contrary to predictions made by interested quarters, the Reserve Bank of India has sent a strong message that it is a tough monetary regulator. It has not changed the policy rates for valid reasons. The corporate world, advocating reduction in interest rates, cannot expect to drive the central bank as per its desire. The RBI indirectly blames the Government — by saying its decision to cut rates in April was based on the premise that the process of fiscal consolidation would get under way, along with other supply-side initiatives. It also conveys that the government has not implemented oil sector decontrol and reforms, with “the consequent subsidy burden on the Government crowding out public investment at a time when reviving investment, both public and private is a critical imperative”. We have to see whether the Government gets the message and addresses these issues. The RBI is clear that it will not relent. Its priority is management of liquidity and it will use Open Market Operations to this end. Hats off to the RBI.
- S. Kalyanasundaram Chennai (HBL)
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