Monetary Policy on Right track.

Monetary Policy on Right track.

RBI's monetary policy announced today in the background of the demonetisation  has surprsied many and it is  definitely not as per the expectatiomns of the market. On the contrary,  RBI has firmly stood its ground and  the policy is on sound lines to favour the economy. It has kept the policy rates unchanged  and withdrawn the incremental CRR of 100 % introduced to suck the excess liquidity caused in banks due to steep increase in deposits consequent on the withdrawal of old notes of Rs 500 and Rs 1000 which can be  well taken care of by the Market Stabilisation Fund.  RBI has also well clarified through its policy  that the withdrawal of old notes would not add to the dividend of the Government and the remonetisation can bring in  some potential benefits over a period of time in the transparency and enhanced digitisation of transactions. RBI expects to have a moderate fall in GDP growth by 0.5%  in the current fiscal year  and the inflation to be benign. It is clear from the polcy that the augment of GDP is dependent on the polcy initiatives of the Government to attract investment, credit pick up and esae of doing business.        

Dr T V Gopalakrishnan

(This letter appeared in ET dated 8/12/2016)