By keeping key rates unchanged in the first quarter review of its Annual Policy 2009-10, the Reserve Bank of India (RBI) has demonstrated its clear preference for status quo, given the current economic conditions.

Devoid as it is of hard monetary measures, this policy review, however, is a very important document since it sends out some clear signals for the corporate and financial sectors. It is pertinent to discuss some of them.

Growth for the full year has been projected to be at 6% with an upward bias, a slight improvement from the projection made in the Annual Policy in April. The good news is that the business confidence outlook has also improved, which is the first pointer of a possible economic recovery, going forward. Corporate earnings in the first quarter of 2009-10 have been showing an improvement too.

This, therefore, is a critical time to keep the growth momentum going and public and private sector investments chugging along. The financial sector must aid that process and ensure that this momentum, coming after a hugely challenging period, is not disrupted.

What is laudable is that the RBI has done just that. The central bank is clear that the economic recovery process should be helped along, and that credit availability for both government and the private sector is ample. The government, on its part, has already put its might behind the recovery effort by way of the recent stimuli packages and the sops given to the real estate and manufacturing sectors.

Importantly, however, RBI?s review does flag off some challenges, the key among them being the spectre of inflation. With the fiscal deficit looming large at 6.8%, and the monsoon still not up to the mark, there is a real fear of inflationary expectations in the near term. RBI has made it clear that the accommodative monetary policy stance can change, depending on the need to attack inflation in future.

From a corporate sector standpoint, the RBI?s statement that there is further room for banks to reduce rates is welcome. The banks must heed this signal from the central bank and help spur growth further. This would complement the monetary and fiscal measures already taken. On its part, by not tinkering with rates, the central bank has given a strong signal of its commitment to the growth process.

?The author is chairman, RPG Enterprises