, Group General Manager and Country Head, HSBC India The Reserve Bank of India should be congratulated for managing a difficult situation so dexterously. On one hand, the signs of slowing growth are clearly visible "� on the other, inflation numbers have reached unacceptably high levels for policy-makers' comfort.
In its annual policy, the RBI has clearly emphasised that it remains committed to maintaining price stability (seen as the immediate situation) while ensuring that growth (a longer-term concern) doesn't suffer.
Acknowledging that inflation has gone up significantly in the recent weeks, largely driven by supply-side factors on account of rise in fuel and food prices, the RBI clearly feels that there is a risk that demand side pressures could combine with supply side constraints to further increase inflationary pressures.
The hike in the CRR which followed the recent hikes in mid-April is clearly targeting the build-up in surplus system liquidity that has built up in recent times and addresses the worry that the liquidity could bring back the demand side pressures. At the same time, interest rates have been left unchanged in view of slowing growth.
While the growth/inflation trade-off is one that is challenging monetary authorities globally, in India's case, the RBI has clearly indicated that policy is going to be dynamic "� specially in light of global uncertainties. Perhaps, one of the clear messages to the market is that policy change could happen at any time on necessity "� thus intra-meeting actions on rates and CRR cannot be ruled out.
Apart from the monetary stance, the policy also covered a range of interesting issues. There is clearly a focus on transparency of balance sheets. There is also the message of financial inclusion that can be seen within the policy statement.
Of particular interest to the market will be the bits relating to product development and deregulation. The introduction of interest rate futures, currency futures, ability to strip govt. securities, repos of corporate bonds et al will be awaited eagerly.
The evolution of the OTC derivatives market also finds mention and the market will take comfort from the RBI's statement on the sanctity of transactions undertaken within the letter and spirit of the RBI's comprehensive guidelines.
