Comment: Gunit Chadha, Deutsche Bank (India)

RBI takes a stance on inflation in the policy review

The Reserve Bank of India (RBI) in its mid-quarter policy review has reiterated its confidence in the growth prospects for the Indian economy, driven by a strong industrial sector, sustained growth in the services sector and better performance in the agriculture sector aided by good monsoons. RBI has also expressed confidence on the fiscal deficit remaining within targeted levels.

Monetary policy actions in the recent past have been driven by liquidity, inflation and normalisation of monetary policy stance considerations. In the current review, clearly the dominant concern has been the continued high levels of inflation, notwithstanding the moderation in August 2010. The increase in repo and reverse repo rates was in line with market expectations.

Further, RBI has also stated that the current policy rates are close to normal levels, indicating that the reversal from the accommodative stance adopted following the global financial crisis is almost complete. Overall, RBI has continued with its calibrated approach and this augurs well as the efforts are clearly aimed at guiding the Indian economy on its high growth trajectory and maintaining financial stability over the long term.