Considering the upward trend in inflation, rising crude and a possible reversal of monetary accommodation by major Central Banks, the status quo in policy rates was widely anticipated. For the banking sector as a whole, credit growth is slightly higher than deposit growth, signaling an end to easy liquidity conditions. Taking a cue, some banks increased the rates on wholesale deposits. Both domestic and global growth is on a rising trend. However, higher growth overseas also carries the risks of upward movements in commodity prices, not really good news for a major oil importer like India.
The MPC would have probably kept this aspect in mind as well. Moreover, interest rate policy should also ensure that yield generating opportunities available to overseas funds are not wiped out significantly or else there is a risk of fund outflows and a steep INR depreciation. The $ 31 billion forward position built up by RBI may be seen as a cushion against such an eventuality. Growth estimates, however, has been kept unchanged. India is now at a juncture where on the real sector, Government is undertaking reform measures while the MPC ensures monetary stability through its rate setting policies.
This complementarity between monetary and fiscal policy is conducive to growth and overall macro-economic stability. The proposal to rationalize MDR charges and permitting overseas subsidiaries and branches of Indian banks to refinance ECBs of AAA rated / Navaratna companies are welcome developments.
Shri Dinabandhu Mohapatra, MD & CEO, Bank of India