Now that the RBI has provided a diwali gift to India Inc in terms of cutting rates by a generous 50 basis points, it may be time for Governor Rajan to reduce the policy reviews to twice or thrice a year (from the six that he does currently). That may be needed if only to reduce the frenzied and Pavlovian cries of India Inc to cut rates every few weeks. Give us more — or else apocalypse is just around the corner, seems to be their message every five weeks or so.

The idea of holding regular reviews of monetary policy emerged in the backdrop of the global financial crisis. Financial markets were roiled and needed calming and assuaging that policymakers and the RBI had things under control. The frequency of policy reviews has been gradually increased from what used to be twice a year to firstly once a quarter and then another review every mid-quarter taking it to a total of 8 times a year. Now it is down to about 6 reviews after the RBI moved to a bi-monthly review process last year.

The increased frequency of reviews did not preclude the RBI from acting between policy reviews if the situation so demanded — which it did a few times. It bears mentioning that even the bimonthly reviews have not made the decisions easier. The RBI has often been hampered by patchy, contradictory or puzzling data flow with regard to industrial production, GDP numbers, inflation or even the spread of monsoons. Sometimes, the RBI had to wait for the impact of some external developments to become clearer — say, a Fed Reserve decision.

It may be worth stepping back a bit and signalling a ‘return to normalcy’ by holding a review less frequently. The RBI has the goal of not only bringing down inflation but also inflationary expectations. That can happen only if India Inc stops lobbying for lower rates and gets down to running its business well. Or the euphoria of this cut will last just a few days and the chant will begin all over again.

NS Vageesh Associate Editor