A most appropriate step: Prabal Banerjee

In my opinion, in spite of continuous requests by India Inc to reduce the repo rate, the Reserve Bank of India (RBI) took the most appropriate step to keep the status quo in interest rate. Not just because it is related to economic parameters of the country, but also because of the fact that the elections are round the corner. And rightly so, because economic direction will be visible only after the results are out. We will possibly have clear visibility regarding future economic policy and its consequent impact on growth and interest rate.

Meanwhile, there are certain positive factors that have developed in the Indian economy such as a substantial drop in current account deficit, downward trend in global crude pricing, and tapering down of inflation.

The pause in the repo rate increase is well-timed to assess if such steps stimulate growth. With growth blips appearing on the economic radar along with the disinflationary tendency and resumption of forex inflow (through foreign direct investment, foreign institutional investors and external commercial borrowings), India should ensure that while growth is bound to happen, the seismic structure should not fall through because of deficiency in supply chain management. This is something we forget to address quite often, because of structural issues.

From a moderate viewpoint, such a wait-and-watch policy by RBI is also calibrated with the projected CPI-based inflation and projected growth rate for the next 12 months. We are all aware that growth brings in inflation, but should be of a moderate nature.

I believe RBI would possibly wait for another one or two quarters to see which way the growth rate or inflation rate is directed. We will re-calibrate the interest rate and liquidity direction depending on how the growth rate as well as inflation rate is panning out over the next three-to-six months. With such a fine balancing act, the central bank is opening up the international angles of the money and the capital markets currency movements, which is very positive for the Indian corporates.

We are all waiting with deep breath to see how the macro economic factors open up the pandora's box in next two or three quarters and RBI policies will have a major contributor to such long term growth of our economy. Kudos to RBI!

Prabal Banerjee
Group President (International Finance), Essar Group