Letter to BS: Repo rate increase by 25 bps signals RBI's intent

Letter to BS: Repo rate increase by 25 bps signals RBI's intent: This time around, the welcome change is, RBI chose to explain what MPC meant by saying 'the hike in base rate was consistent with neutral stance'...

This refers to the report “Rate hike cycle is back” and your editorial “All options open” (June 7). The second bi-monthly monetary policy statement issued by the Monetary Policy Committee (MPC) after a three-day sitting, as expected, attracted media attention for the hike in base rate.
On the other hand, the ‘Statement on Developmental and Regulatory Policies’ which claims to set out various developmental and regulatory policy measures for strengthening regulation and supervision; broadening and deepening financial markets; improving currency and debt management; fostering innovation in payment and settlement system; and, facilitating data management released independent of the monetary policy statement didn’t get adequate media space.
One feels that important policy initiatives like expansion of the payment system, opportunity for urban banks to become small finance banks, relief provided for certain categories of MSMEs and to banks in regard to avail certain reliefs while managing bond portfolio did not get the attention they deserved from the media with the exception of a couple of financial newspapers like Business Standard.
 Traditionally, Reserve Bank of India’s (RBI) monetary policy documents have the look of research documents and beyond base rate changes and their impact on prices including bank interest rates, discussions in the media do not go much further. This time around, the welcome change is, RBI chose to explain what MPC meant by saying ‘the hike in base rate was consistent with neutral stance’.
Though the RBI may hold on to the position that its priority will continue to be retaining inflation within the accepted band, the need for harmonizing monetary policy and fiscal policies will continue to be a challenge for the government and the RBI. Here, while several initiatives to professionalize the functioning are evident in the RBI, the Ministry of Finance continues to be guided by tradition.

M G Warrier Thiruvananthapuram

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