The Reserve Bank seems to have struck the right balance between the need to contain inflationary pressures and to provide some incentive for growth. With the SLR cut, the near-term liquidity has become very comfortable, which is likely to help net interest margins in the shorter tenor lending businesses.

We expect the cut in SLR could be followed or accompanied by open market operations (OMO). This could, to some extent, mitigate the effect of expected increased levels of government borrowing. A repo rate may not have been most appropriate at a time when inflation is not under control.

The ball is now in Government's court to respond and help the economy. Fiscal consolidation will have to be first step for any monetary action.

(The author is President and Whole-time Director, L&T Finance Holdings.)

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