RBI's credit policy to guide price stability: IndusInd Bank

>> Wednesday, July 29, 2009

The concerns ahead of July Monetary Policy was the capability of RBI to manage contradictions with limited resources at its disposal. The aggressive growth plans of the Government will lead to more demand for funds from the system; increased domestic consumer demand will put pressure on rates; cost and demand push factors will be inflationary and sluggish off-shore demand will hit exports to put pressure on exchange rate.
While all these factors will lead to liquidity squeeze and interest rate pressure, the impact on adverse movement of crude oil price is beyond RBI’s control. The task for RBI was tough to manage expectations of the Government; market participants and vote bank, with the ultimate objective of providing momentum to growth with limited price volatility. The market awaited the monetary policy with bullish stance on growth and hawkish stance on inflation (and rates)!

The no-change stance was as expected given the easy liquidity with over Rs.1 trillion flowing into Reverse Repo counter at 3.25% and stable term money market rates. RBI has also provided comfort to address price-stability to minimise impact of growth and inflationary pressures leading to liquidity squeeze and rate reversal. The market remained stable post-monetary policy as there were no surprise elements in the policy. The no-change stance will keep the expectations of the market alive (on cuts in policy rates and/or statutory reserves, whenever such need arises) to guide price-stability in the short term.
Source : Money Control