Predictably, the Mid-quarter Monetary Policy Review has pared the repo rate (that is, the rate at which the RBI lends short-term funds to banks) to 7.5 per cent from 7.75 per cent in a bid to cut the cost of funds of banks, which further lend to productive sectors of the economy.

In the run-up to the policy review, both Finance Minister P. Chidambaram and RBI Governor D. Subbarao sounded optimistic about reviving growth impulses. But with its focus still on ensuring price stability, the RBI has taken a cautious stance on monetary easing. It sees food inflation still ruling high, driving “a wedge between wholesale price and consumer price inflation”. This, it said, is “exacerbating the challenge for monetary management in anchoring inflationary expectations”.

For the UPA Government wedded to inclusive growth and uplift of the aam aadmi , the double-digit consumer price index is a stinging reminder that it has all but failed in keeping retail inflation at a bearable level.

The apex bank has listed that macroeconomic priorities on the domestic front would be to “raise the growth rate, restrain inflation pressures and mitigate the vulnerability of the external sector.” But as the review concedes, the key to reinvigorating growth is accelerating investment.

It made no bones about underlining the rather “critical role the Government has to play by remaining committed to fiscal consolidation, easing supply bottlenecks and improving governance surrounding project implementation.” To return to a high-growth trajectory, competitive interest rates are indispensable but not sufficient, the RBI affirms. In its view, sufficiency conditions demand staying the course on fiscal consolidation, both in terms of quantity and quality.

The quality of fiscal consolidation is important because, in its review, the central bank has noted that the gross fiscal deficit in 2012-13 was contained around its budgeted level mainly by scaling down Plan and capital expenditures. Development of the real sectors of the economy would suffer if the Government does not provide sufficiently for these expenditures.

For all the fiscal-monetary policy coordination that the mandarins in North Block have been stressing, they have stopped short of prodding the central bank to ease its tight-money policy.

The review ends by forcibly arguing that “even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited”. The ball is in the Government's court, policy analysts say.