Public RelationsRight long-term steps
Business Standard / New Delhi October 28, 2009, 0:02 IST
RBI’s decision to adopt a passive exit strategy, through the closure of some non-standard liquidity provisions, while maintaining a status quo on key policy rates, is a move in the right direction. RBI highlighted inflation concerns, but it also provided an upward bias of 6 per cent to GDP growth for FY10. RBI is, rightfully, reluctant to move aggressively on the rate front at this juncture, given that an aggressive tightening can hamper the nascent growth recovery.
Jan cement sales in high double-digit
Going forward, I think RBI would continue with its cautious and calibrated approach to monetary policy. However, it would keep raising the provisioning levels of banks in these good times as a buffer for any sharp global downturn ahead. As the Governor said, green shoots have not blossomed into full-fledged foliage yet.
However, if demand side pressure manifests in higher consumer and asset price spikes, a CRR increase could take place earlier than the January policy meeting. Having said that, I think RBI would wait till April (or till clear evidence of a solid recovery) before considering an outright interest rate increase.
RBI has liberalised the branch licensing for domestic banks. Directional liberalisation of branches for foreign banks, however, would be most welcome.
As RBI focuses on giving a boost to infrastructure, development of a corporate bond and Credit Default Swap market will be critical to generate longer term financing.