'Monetary authorities have chosen stability over uncertain growth'

Indian Overseas Bank MD says moderation in headline inflation had raised hopes of a rate cut to stimulate growth

Indian Overseas Bank Chairman and Managing Director M Narendra’s said that the Mid-quarter review of monetary policy has maintained status quo as expected. "As a good captain who can keep the ship steady in a storm, the monetary authorities have chosen stability over uncertain growth".

He added, the moderation in headline inflation had raised hopes of a rate cut to stimulate growth. However, global financial conditions and speculative tendencies have vitiated the forex market and thereby shifting the focus of the monetary authorities.

The recent liquidity tightening measures by the Reserve Bank of India (RBI) aimed at checking undue volatility in the foreign exchange market have started showing results and only after a certain amount of stability is brought to the forex market can the monetary authorities revert to concerns of growth with durable decline in inflation.

The priorities now are to bring the CAD down to sustainable levels on the one hand and to tweak the effecive demand for consumption and investmenton on the other.

The global developments, CAD and forex movements USD/INR will be more closely watched by the market for any roll back of liquidity measures. Till such time, the short term money market rates are expected to continue to be elevated and deposit rates will also rule higher. The bond yields will also remain at elevated levels.