Though guarded, RBI's stance shifts to growth: Rana Kapoor

YES Bank's MD & CEO reacts to CRR cut

"In a sequence with the substantive measures announced by the Government since mid September, it was widely expected that to accelerate growth, the Reserve Bank of India will reciprocate by easing policy rates.  Sticky inflation at elevated levels however constrained the RBI's policy options.

"Given this backdrop, in its Second Quarter Review of Monetary Policy 2012-13, the RBI appropriately maintained a status quo on policy rates, reiterating its vigil against inflation. However, to augment economic recovery, maintaining conducive liquidity conditions was an imperative which the RBI supported by announcing a further cut in the Cash Reserve Ratio by 25 bps to 4.25%. 

"Today's policy guidance marks a clear shift in RBI's monetary policy stance towards addressing growth risks whilst not de-emphasizing the objective of containing inflation and anchoring inflation expectations. In addition, the stance is likely to complement and in some sense amplify the positive spillover impact of recently announced government reforms on growth.
 
"On the prudential guidelines, the announced increase in provisioning on restructured standard loans from current 2% to 2.75%, in line with recommendations of the Mahapatra Working Group, is a welcome move. By raising provisioning in a calibrated and gradual manner, the RBI aims to ensure banking sector financial strength, in the current phase of challenging global and domestic macroeconomic backdrop.

"Government's ongoing efforts towards fiscal consolidation are expected to create further headroom for easing policy rates as signaled by the RBI. This, I expect would allow the RBI to ease repo rate by 50 bps in Q4 2012-13 in addition to other supportive liquidity measures."