RBI Policy Package Could Help in Stabilizing Financial Markets in the Near term

Comments on RBI Policy by Mr. GS Sundararajan, Managing Director, Shriram City Union Finance

  

The policy review today (Sep. 20. 2013) is a carefully calibrated approach to influence market expectations and perceptions about RBI's policy priorities. It tries to strike a balance between supporting / encouraging economic activity in the near term while leaving itself scope for policy appropriate to the economic situation in the period ahead.

The move to simultaneously increase the repo rate but significantly reduce the marginal standing facility rate could help in easing banks' funding costs in the near term. This could,

in the near term, be supportive of credit expansion and the incipient pick up in industrial / infrastructure activity.  But, the RBI also has clearly signalled that future policy moves could be either way, clearly indicating that is neutral on this front. Its actual stance is to be determined by evolving market and economic conditions.

 

GS Sundararajan, Managing Director,
Shriram City Union Finance

The RBI also has conspicuously reiterated its resolve to moderate inflation and inflation expectations.  It says there is no room for complacency on the inflation front.

All in all, the policy package could help in stabilizing financial markets in the near term. It could thus build on the breathing space provided for many emerging market economies by the US Fed's decision to postpone its QE tapering. At the same time, the RBI is also preparing for the inevitable end of QE down the road. One can therefore expect that when the inevitable taper and capital outflows from emerging markets take place, domestic financial markets may not be as volatile as they have been in the past few months.

 

Share: