Comment: M D Mallya

Fighting inflation without hurting growth

A rise of 25 basis points each in the policy rates was expected, given the high level of headline inflation for February and the Reserve Bank of India’s own estimates of inflation being around eight per cent by March-end. In the context of the evolving inflation scenario, RBI has decided to continue with its anti-inflationary stance in the interest of broader macroeconomic stability. A rise in policy rates is not likely to dent credit growth as the lean season would start from April. This is the time when credit demand generally moderates.

The policy, as usual, has protected growth wisely without diluting focus on managing inflation. RBI’s favourable assessment of growth — the emerging liquidity outlook and current account balances — would go a long way in improving investors’ comfort level.

The policy document has also highlighted the critical importance of attracting long-term components of capital inflows, including FDI and a committed effort to reduce subsidy-related spending, to create more space for private investment and future growth.

However, the underlying message of today’s policy is pretty clear. India’s structural growth story continues to remain strong despite some headwinds from West Asia, North Africa and Japan and the monetary authority would continue with its “tried and trusted” approach to control inflationary pressures without hurting economic growth.

M D Mallya, Chairman & Managing Director, Bank of Baroda