The increase in repo and reverse repo rates by 25 basis points is in line with expectations. These are steps towards taming inflation and may not affect the pace of economic growth at this juncture.
A person like me, managing a global business with Indian costs, looks to the credit policy for a favourable influence on two economic indices. With a large Indian employee and operations base, we need the monetary policy to effectively address the imperatives of inflation control and favourable exchange rates. The successive credit policy measures have attempted to curb inflation, but with little impact so far. These policies and measures attempt to influence the domestic economic factors to achieve the necessary adjustments in investor and market behaviour.
The question is whether we are the masters of the economic environment in this globally-linked scenario. Despite the fragile global recovery, international commodity prices have risen in recent months due to strong demand from the emerging markets. Given that growth prospects in emerging economies, including India, are expected to ride on high economic growth trajectory, the efforts by developed economies to ease quantitative restrictions will lead to generation of surplus liquidity that will flow into the emerging markets.