Timely action better than waiting for policy day
MID-TERM MONETARY POLICY 2008-09/ VIEWPOINT
Though the credit policy has kept all the key rates unchanged, most of the fireworks took place before the Diwali. RBI has already given enough impetus to ease the liquidity conditions by cutting CRR and the repo rate, relaxing ECB guidelines and increasing rates on FCNR deposits.
In the current policy, RBI has taken growth into consideration, while keeping a close watch on inflation. Though the market is disappointed with no major announcements for increasing liquidity or slashing interest rates, I believe it is far more important for RBI to take action as and when required rather than wait for the policy day. The central bank has demonstrated this very clearly in the past and I am sure, going forward, one will not be disappointed.
An interesting fact is that in the past, RBI has been foreseeing such global instability, to which India is not immune. RBI has kept an active vigil on macro- and micro-economic parameters and has taken actions appropriately. Going forward, I am certain that active vigil will continue.
We are in an unprecedented time of the global turmoil. Liquidity is tightening due to foreign outflows and domestic stimulus is undoubtedly required. RBI needs to balance financial stability, inflation and growth and restore confidence in the banking system.
India is the only country, where bank deposits are not guaranteed by the central bank, unlike in developed countries. Sanctity of the financial system is extremely critical and the strength of our regulatory system compared with that of various developed markets speaks volumes.
Nilesh Shah, Deputy MD, ICICI Prudential AMC