No news is good news. That seems to be the major takeaway from the mid-term review of the monetary policy of RBI, as there is no pain caused to anyone. And even no gain in a way, as the status quo prevails. No change in the repo and no cut in the CRR, either. Maybe this is what the economist would call a Pareto optimal situation. The markets remained unmoved to begin with, before turning whimsical, and the rupee was fairly stable as RBI?s action on cancellation of forward contracts had its effect on the day of the policy. The only possible loser could be SBI, which fancied a cut in CRR would release the capital it so badly needs. But again, maybe the government will borrow a bit more to meet SBI?s immediate requirement?at least R4,000 crore. For the larger body of retail and large borrowers, that RBI plans no more rate hike is a welcome news. But the pause is no indication that cuts could be in the offing. Individuals could grumble that inflation is still high at 9% with real return on deposits in the negative zone, but then this is secondary in the larger scheme of things. We seem to have reached the end of the interest rate hike spiral in this cycle.
What are we to infer from these ?no moves?? RBI is evidently waiting and watching before doing anything. Growth is down, the advance tax numbers are flat, meaning corporate India expects worse times ahead, though RBI is still non-committal on the number. Inflation is deceptively moving down in the area of food, though manufactured goods prices are still wobbly. The global scenario is uncertain and, therefore, it does make sense for a pause in all policy action before a clearer picture emerges. So, practically speaking, there is no impact on anyone through these non-measures. But the way the India story is coming apart at the seams, North Block has to begin movement now that RBI has finished with its.
This means a clear view of the future in terms of reforms and policy responses as we move into FY13. It is also time to take on board the lessons from the strong dollar, food inflation and oil price spiral. These are crucial lessons to avoid the usual knee-jerk reactions to circumstances that begin with denial only to end with helplessness. The PMEAC has not ruled out less than 7% growth, which is a far cry from the 9% spoken of by the FM in February. We need to have the policymakers sort out growth and inflation issues to avoid these contradictions. Neither of them is the prerogative or responsibility of just the government or RBI. Evidently, both have to speak to each other to make things work, which is important at the end of the day.