Amidst growing uncertainties, the Reserve Bank of India (RBI) unveiled the mid-term review of credit and monetary policy on August 4. Turbulence in global financial markets, weakened pace of economic recovery, uneven spread of monsoon and persisting upside risks to inflation have, perhaps, induced the RBI to maintain the status quo on key policy rates.
The RBI's stance gives the impression that past rate cuts have not translated into contribution towards the required level of growth. Hence the central bank want banks to act fast by cutting lending rates.
There are concerns about the diminishing asset quality of banks, which is consequentially affecting their profit margins. Raising capital also demands attention.
When globalisation started taking root in the early 1990s it was predicted that it would lead to more uncertain times and thus require the market regulator to consistently realign policies in tune with market forces. India has long been striving to prop up its growth rate. The RBI's latest move may appear conservative, but it is assertive of the tasks that lie ahead.
R Prabhu Raj Bengaluru
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