RBI’s monetary policy action today is in line with its assessment of the macro economic situation (Macroeconomic and Monetary Developments released yesterday). Inflation has remained sticky and at alleviated levels. In the absence of significant fiscal consolidation, headroom available for monetary policy action is limited. Monetary policy in isolation cannot address all the issues the Indian economy is facing. Monetary, and fiscal policy has to move in tandem to resolve the issues faced by the Indian economy.
A week Rupee, incomplete pass through of administered prices and government intention of limiting subsidies to two per cent of GDP implies, in the short-run, an upward bias on already sticky inflation.
Softer interest rates are necessary but not a sufficient condition to spur investment demand. Going forward, monetary policy action would depend on how fast the government is able to take policy initiatives to address bottlenecks in project clearances, improve investment climate etc.
Devendra Kumar Pant, Director , Fitch Ratings India Private Limited