Focus on stability to support sustainable growth

COMMENT: Chanda Kochhar, MD & CEO, ICICI Bank

The Reserve Bank of India’s first quarter review of monetary policy for fiscal 2011 has endorsed the strong growth fundamentals of the Indian economy. The GDP growth projection for fiscal 2011 has been raised to 8.5 per cent, despite the continuing uncertainties in the global economy. This indicates RBI’s confidence in India’s domestic fundamentals, and the relative ease with which India has weathered the global economic storm.

With confidence in growth firmly in place, RBI has focused on the price stability objective. While taking cognisance of some moderation in inflation in recent months and the potential positive impact of a normal monsoon, RBI has taken steps to address the increasing generalisation of inflation across food and non-food items.

The monetary measures announced are a continuation of the normalisation of policy rates that RBI has been bringing about over the past few months, and are broadly in line with market expectations.

At the same time, RBI has left the cash reserve ratio unchanged. This would ensure that the system has adequate liquidity, and is in consonance with measures adopted by RBI in the recent past to enhance systemic liquidity in anticipation of advance tax payouts and telecom auction-related outflows. This approach, along with the narrowing of the LAF corridor in this policy review, would serve to maintain stability in financial markets even as monetary policy in general is tightened to normalise policy rates and contain inflation.

In summary, the policy stance is in alignment with a growing economy that is experiencing inflation concerns.

Chanda Kochhar, MD & CEO, ICICI Bank