Prosaic pronouncement

Guest Columns

 Managing Director,

 Prudential ICICI, AMC Ltd

 At a time when the equity markets are soaring, the RBI credit policy has been virtually a non-event.

 Needless to say, participants in debt markets have been disappointed, with none of the key rates being cut, that is, bank, repo, and CRR rates.

 Nonetheless, the reaction was relatively muted, with the 10-year bond initially coming close to a yield of 5.25 per cent, but then settling at levels around 5.15 per cent.

 The RBI in this policy has actually done its best to disturb things as little as possible. Thus, they have left interest rates unchanged, made no announcements on the rupee exchange rate, made no progress on rupee convertibility, and made only limited progress on the ticklish issue of bank prime lending rates.

 What they have actually done is to paint a very positive picture of the economy, raising estimates of GDP to 6.5%-7 per cent, while simultaneously reducing estimates for inflation rate to 4-4.5 per cent.

 They have also highlighted the improved global environment, as well as the possible beginnings of a pickup in credit demand in India.

 They have also reiterated their view that rate changes need not be confined to the Credit Policy reviews, but could happen at any time as and when the need arises.

 So, the key question for the market is that is this a shift in RBI