RBI hints at changing policy stance based on Govt actions

Moneycontrol Bureau

As expected, the Reserve Bank of India (RBI) did not slash its key policy rate (or repo rate) in its mid-quarter policy review. The measure was on expected lines. At the same time, it hinted at the government for more reform measures. This in turn, will help the central bank to tweak its monetary policy stance.
"Mitigating the growth risks and taking the economy to a higher sustainable growth trajectory requires concerted policy action across a range of domains, a process to which last week’s actions made a significant contribution," RBI said in the credit policy statement.
"Monetary policy also has an important role in supporting the growth revival. However, in the current situation, persistent inflationary pressures alongside risks emerging from twin deficits – current account deficit and fiscal deficit - constrain a stronger response of monetary policy to growth risks. Accordingly, as this process evolves, the stance of monetary policy will be conditioned by careful and continuous monitoring."
The banking regulator will continue to keep watch on the evolving growth-inflation dynamic, management of liquidity conditions to ensure adequate flows of credit to productive sectors. Also, it will provide appropriate responses to shocks emanating from external developments.