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The RBI’s credit policy has nothing new and has maintained the status quo as it had already taken measures in the last two months of lowering of the CRR by 2.5 basis points and repo rate by one basis point.

This helped augment liquidity in the banking system by more than one lakh crore rupees and enabled the banks to lower interest rates for lending.

But further action lies in the hands of the individual banks which, again, depends on their margins and creditworthiness of borrowers. The supply augmentation will not take care of the demand side for credit. The objectives of the RBI are financial stability, price stability and growth, which are all interconnected.

The policy initiatives taken so far by the RBI are in the right direction, but what is ignored is the quality of liquidity, namely lowering the interest rates, which is inadequate, and stimulus for investment, which again falls in the domain of fiscal policy.

Monetary policy functions effectively in conjunction with the right fiscal policy. Right now the fiscal deficit is high and government money is flowing into populist schemes, in the run-up to election year.

Efforts at boosting the market are better left to the Securities and Exchange Board of India (SEBI) and the Finance Minister should concentrate on the fiscal incentives to boost the investment climate and the sentiment conducive to the growth of the capital formation.

Stock market behaviour depends on FII activity and external factors. The Government should be more proactive in this matter than the RBI as inflation is caused more by supply-side factors and international factors.

The present obsession with the stock market and with the RBI monetary policy is, therefore, uncalled for. Inflationary expectations and the growth considerations should guide monetary policy.

V. A. Avadhani Machilipatnam, AP

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