Letters: Give RBI room to act

The editorial, “Central bank dithers” (June 8), analyses the disappointing stance of the Reserve Bank of India (RBI) quite well. The monetary policy review statement has been dissected to understand why the RBI refrained from cutting rates and continued its neutral stance despite low inflation and moribund revival of the economy. The fact that the decision of the Monetary Policy Committee was not unanimous provides more food for thought. 

But the RBI is mandated to guide the inflation trajectory close to four per cent around which other interdependent forces of economic revival spin. Therefore, it is important for the RBI not to be swayed by a single inflation data point unless its sustainable pace is well established. Moreover, several policy initiatives that have already been taken need to show positive results. The RBI perceives an upside risk in inflation, taking domestic and external headwinds into consideration. By its own admission of the inflation estimate being close to the gliding path, the RBI opens up the path for softening interest rates once its indicators strengthen further. 

Asset quality stress in the banking sector, slow transmission of earlier rate cuts, sluggish flow of credit to productive sectors of the economy and recapitalisation of banks are some of the factors that inhibit growth prospects. These work-in-progress issues have to be tackled by collective action from stakeholders so that their impact on the economy is visible. In the meantime, the RBI should be given more space to act until inflation indicators can stabilise to its satisfaction.

K Srinivasa Rao   Noida Letters can be mailed, faxed or e-mailed to: 

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