Like a good batsman who keeps an eye on the field positions, Yaga Venugopal Reddy played a defensive stroke on Tuesday, avoiding a tit-for-tat interest rate cut after the US Fed slashed its benchmark rate by 0.75 percentage points last week.
With his eyes on domestic monetary and economic developments, particularly an inflation rate which has not yet absorbed high global oil prices, he kept both interest rates and cash ratios unchanged. In that masterly inaction, he left room for future cuts as well as sufficient liquidity for businesses to take loans and pursue growth.
He left it to cash-flush commercial banks to play their own game in cutting rates. RBI has kept its target of containing headline inflation rate based on wholesale prices below 5 per cent, and seeing a moderated growth to 8.5 per cent, it decided to watch global uncertainties pan out.
“In balancing between growth and price stability, we are reinforcing the stance on price stability as growth is on the expected lines," Reddy told reporters. “Inflation is apparently comfortable. There is some suppression of inflation because the pass through of oil prices has not happened. The consumer price index is also at 6 per cent.”
However, he hinted that overall economic growth rate may still be at 8.5 for fiscal 2009. “We have not done detailed work on that. The rate can be same as now despite a possible global slowdown,” he said.
Talking about the slowdown in the industrial sector, Reddy said an independent analysis would be done on how to improve credit availability to the employment-intensive sectors. “It should be possible for the banks to be more proactive in extending credit,” Reddy said adding that there is enough liquidity in the system. At the same time RBI wishes the balance between savings and investments in India should not be disturbed.