The Reserve Bank of India’s reduction of one per cent in the Statutory Liquidity Ratio in its first-quarter review of monetary policy is a welcome move.
In the near term, this will make about Rs 65,000 crore of additional liquidity available to the banking system. This will help to make credit available to retail and corporate borrowers and also keep interest rates under control.
Over the long term, the gradual reduction of pre-emption of bank resources through the Statutory Liquidity Ratio is desirable, and this reduction may be seen as a step in that direction.
The monetary policy statement comes in a challenging environment, globally, with concerns over loss of momentum in the United States, slowing or contraction in many European economies and a slowing in growth across emerging markets.
India is also experiencing a moderation in some of the domestic growth drivers. There is uncertainty around inflation outlook in the context of the progress of the monsoon, as also the volatility in global commodity prices.
As always, the monetary policy statement has made a comprehensive assessment of these factors while determining the policy stance.
The Reserve Bank of India has sought to anchor inflationary expectations, while ensuring liquidity to facilitate credit availability.
India’s long-term economic growth drivers continue to be in place. The domestic orientation of the economy would provide a core level of growth even in the volatile global environment.
However, there is a need for certain administrative and policy measures to facilitate investment which will spur growth, revive capital flows and also address the supply-side causes of inflation over the medium term.
Global developments in the next few months in terms of growth, commodity prices, monetary measures and risk appetite among investors will also need to be monitored closely.
MD & CEO, ICICI Bank