The Reserve Bank of India (RBI) is more concerned about inflation and managing liquidity rather than the economic growth by keeping the major policy rates unchanged. Atleast, this is what was revealed from the review of the annual policy statement issued by the RBI on Tuesday.
However, the apex bank has left enough room to revisit the credit policy and step in to address issues concerning the economy, in case of any change in the global and domestic scenario, the market players said.
Commenting on RBI?s decision, Lehman Brothers said in a statement that the apex bank has left the repo, reverse repo and cash reserve ratio (CRR) rates unchanged. ?The RBI noted the downside risks to GDP growth steaming from overseas, but balanced this by sounding hawkish on the upside risks to inflation,? the investment banker said.
The outlook is more fluid than usual and it will depend heavily on external conditions. ?We expect India to attract strong capital inflows, resulting in 100 basis points of hikes in the CRR by March 2009 to mop up excess liquidity. At this juncture, we expect the RBI to keep policy interest rates unchanged in the financial year 2009 (FY09), but in case there are some signs of US recession, there is a possible rate cut by the RBI in April ?08 itself,? it stated.
Taking a cue from Lehman Brothers, Reliance Capital said that the apex bank will monitor the RBI?s actions across the globe and specially the US Federal Reserve in particular. It will also monitor global economic and credit developments before taking any major decision with respect of its policy framework.
This apart, the apex bank will also have an eye on the capital inflows and pressure on liquidity management and inflation, it added.
Similarly, Navneet Munot, executive director, Morgan Stanley MF said that the apex bank aims to bring down long-term inflationary expectations and it cannot afford to squander the gains accumulated over the last few years.
?Asset markets might be disappointed in the short term, however, central bank?s resolve in bringing down inflation expectations will ultimately be far more positive for every asset in the longer run,? he said.