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Containing inflation and anchoring inflation expectations is clearly the primary focus of the Reserve Bank of India. Price stability has taken precedence over growth. This is, however, necessary to maintain a sustainable growth momentum in the economy over the medium term.
The move towards a single independent policy rate, which would be the repo rate, is a welcome step and will improve the transmission mechanism of RBI's monetary policy stance. In addition, by leaving the cash reserve ratio and the statutory liquidity ratio unchanged, the RBI has ensured that liquidity in the system remains in balance and maintained within the prescribed range. The higher provisioning for certain categories of assets continues RBI's moves towards a general increase in provisioning levels for banks to improve the resilience in their balance sheets through the cycle. In summary, the policy stance is in alignment with a growing economy that is experiencing inflation concerns, some of which can be addressed only through structural improvements over the medium-to-long term.
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