The Reserve Bank of India has clearly chosen not to upset the recovery and growth momentum for now by keeping key policy rates unchanged in the second quarter review of the monetary policy for 2009-10. This comes as good news for the corporate sector and industry in general, which has been making gradual strides to get back on the growth path after the most challenging year.
The general consensus this time was that the central bank would not tinker with rates just now, despite the mounting concern over inflation. There have been quite a few factors favouring a status quo on rates for the time being. The economic recovery is still not on very firm footing, and needs to be helped along. Credit growth is still less than desirable and there are still no clear signs of a firm global recovery. However, the RBI has kept the growth projection for FY10 unchanged at 6 per cent, which reflects its confidence on the continuing economic revival. The concern over inflation has been expressed rather unequivocally by RBI this time, with the inflation projection being raised significantly from 5 per cent in the Q1 review to 6.5 per cent (with an upward bias) now. The good thing is that even as it turns distinctly hawkish, RBI has chosen the calibrated path to disengaging from its current posture.
With things bound to get tighter on the interest rates front, industry will have to seize the opportunity now and step on the accelerator as far as the road back to profitability is concerned.
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