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Chief Executive Officer,
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| Tata Mutual Fund
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| Monday was one of those rarest of rare days when the equity markets stood up and unabashedly cheered the credit policy.
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| One was left with the feeling that the economy stands on the verge of a few exciting years. Global analysts are predicting that in a few decades India will be among the largest economies. There is euphoria in the equity market.
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| Forex reserves are booming by the day and inflation rate seems to be under control. The credit policy was thus presented in a rather euphoric background.
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| The one sentence that can characterise the policy is continuity but with some early signs of a change.
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| The policy stance, which was maintained in the past, has served our economic cause well. Thus, it is no surprise that the policy emphasises that in most areas continuity has been maintained and we still look forward to a soft interest rate bias.
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| However, a reading of the fine print and in between the lines of what is stated possibly throws up four important takeaways.
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| The first and foremost is the lack of any immediate good news for the bond markets; secondly, the focus on enhanced credit delivery, the focus on prudential norms in a euphoric environment and an emphasis on flexibility of stance.
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| This policy had significant lack of any immediate good news for the bond markets. Notwithstanding a downward revision of inflation expectations, the market expectations for bank rate cut were not met.
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| Thus, in a way possibly the policy aims to temper extreme euphoria prevailing in the capital markets.
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| One of the defining themes of the policy has been the focus on enhancement of credit delivery and pick up in investment demand.
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| There is also a focus on prudential norms with respect to lending norms, creation of an investment fluctuation reserve and hedging of open forex positions.
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| Above everything else, one of the key things which has possibly been left unsaid in the policy but can be read between the lines is the flexibility of stance.
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| Enough has been left unsaid to indicate that with enhanced liquidity and a soft bias, the doors remain open for such a move.
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| Though the bond markets have expressed some immediate disappointment, there is a clear indication that a watchful eye is being kept on how the busy season inflation rate shapes up and doors remain open for an intermediate review of interest rates.
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| The equity markets on the other hand have cheered the outlook of buoyant economic growth and continued resurgence for corporate India. |
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