Though widely anticipated, the Reserve Bank of India’s (RBI) decision to keep the key policy rates unchanged may have upset many a mind.
The Raghuram Rajan-led team, however, must be lauded for not giving into popular demand. It did well to resist pressures from its political masters. Often time, the RBI found to its dismay that rate cut or liquidity easing takes a longer time to transmit, and reach the tail-end of the customers. In today’s policy statement also the apex bank pointed to the weak transmission by banks of the recent fall in money market rates into lending rates. The weighted average call rates as well as long-term yields for government and high-quality corporate issuances have moderated substantially since end-August.
Yet, to RBI’s frustration, these interest rate impulses have not yet been transmitted by banks into lower lending rates. Corporates, too, go for commercial papers and external public issues. Not surprisingly, there has been only a slow growth in bank credit. Clearly, the issue is more than availability of credit. Infrastructural constraints remain a key hurdle for revival of investment demand. Shortage of critical inputs such as coal and power has aggravated the problem. This is further accentuated by the non-availability of land. All these have combined to magnify the predicament for the economy. The fiscal bosses need to realise their responsibility, and swing into action to rectify these ‘mal-functioning’ or ‘non-functioning’ spheres to bring confidence back. Onus is no less on the political bosses just now. Given this, the RBI is right in asserting that “a change in the monetary policy stance at the current juncture is premature.’’