RBI has cut REPO rate by 25
bps to 7.5% from 7.75% and left CRR (Cash Reserve Ratio) unchanged at 4% in its March 2013 Monetary policy review
(19.03.2013), which clearly indicates a dovish stance to negate the external
pressures on India’s Central Bank, especially when it’s front end
macro-economic indicators like Current Account Deficit and Inflation are at alarming
levels.
Appropriately, the RBI plans to infuse liquidity in to the system through OMO’s (open market operations) and obviate the necessity of a CRR cut, which is a step in the right direction, as liquidity crunch is expected to ease in April 2013.
RBI Governor has indicated that there is limited head room in future for monetary policy easing to spur growth due to hawkish economic environment, expected to last longer than anticipated by Government and some economists. Moreover, RBI must be sensing that the Current Account Deficit may not narrow, as expected, as Government may not be able to take firm steps in reducing subsidy burden as envisioned in the 2013 budget, due to current political compulsions and developments. Diesel price increase which was widely expected during mid March, 2013, was surprisingly with held raising doubts about Federal Governments commitment and firmness in implementation of tough policy measures to reduce the Current Account Deficit.
Many top bankers are comprehending that this rate cut is not going to percolate to end consumers through a reduction in bank loan rates since the quantum of bank deposits are precariously low and cost of funds for banks are getting higher and higher. Perhaps, this policy stance may be a step to boost the sentiments of stock market domestic and foreign investors rather than to actually prop up the growth of Indian economy.
Appropriately, the RBI plans to infuse liquidity in to the system through OMO’s (open market operations) and obviate the necessity of a CRR cut, which is a step in the right direction, as liquidity crunch is expected to ease in April 2013.
RBI Governor has indicated that there is limited head room in future for monetary policy easing to spur growth due to hawkish economic environment, expected to last longer than anticipated by Government and some economists. Moreover, RBI must be sensing that the Current Account Deficit may not narrow, as expected, as Government may not be able to take firm steps in reducing subsidy burden as envisioned in the 2013 budget, due to current political compulsions and developments. Diesel price increase which was widely expected during mid March, 2013, was surprisingly with held raising doubts about Federal Governments commitment and firmness in implementation of tough policy measures to reduce the Current Account Deficit.
Many top bankers are comprehending that this rate cut is not going to percolate to end consumers through a reduction in bank loan rates since the quantum of bank deposits are precariously low and cost of funds for banks are getting higher and higher. Perhaps, this policy stance may be a step to boost the sentiments of stock market domestic and foreign investors rather than to actually prop up the growth of Indian economy.