For the record, RBI confirmed that the Rs 5.6 trillion of funds that it has released since September is enough for the time being and maintained a status quo in its 2009-10 monetary policy review announced. The bank has kept its benchmark interest rates – repo, reverse repo, bank rate, and CRR – unchanged.
The RBI is of the belief that quick and aggressive policy responses both by itself and the government have mitigated the adverse impact of the global financial crisis. It adds that the large domestic demand bolstered by government consumption, provision of forex and rupee liquidity coupled with sharp cuts in interest rates, a sound banking sector and well-functioning financial markets have helped cushion the Indian economy from the worst impact of the crisis. And now it is seeing signs of an upturn in industrial production and revival of credit demand.
In line with my expectation (my articles written for DSJ to be published this week) RBI expects the economy to grow by about 6% in this financial year. RBI is cogniscant of the risk still facing the domestic economy, epecially on the exernal front as well as on the likely impact of monsoon (or the lack of it) on food price inflation and rising commodity prices. Overall, while the risk for the economy has been mitigated to a great extent, signs of stability are yet to emerge. However, RBI seems to be more positive on the economy thant I currently am
The bank also expects inflation to climb upto 5% by March 2010. This is a more realistic expectation, given the following:
1) Low base effect kicking in
2) Rising commodity prices
3) Revival of domestic demand, which will translate into a 6% GDP growth
Overall, it is a step in the right direction as the RBI allows the true impact of its accomodative stance to play out. But with the economy still not out of the wood yet, it can ill afford to tighten the policy stance soon.