Amidst the challenging global environment, the onus is on the government and its policy makers, to keep India in a position that lures investors, both local and foreign. The supreme monetary authority of India, the Reserve Bank of India (RBI), has indulged in rate slashing which has begun with a reduction of 25bps in the repo rate taking it down to 7.5%.
The action clearly suggests the orientation of the monetary policy of the apex organization, which is to prioritize the support for growth in the coming days. It is plain and simple logic, that for providing the much needed support to the economical processes, the revival of investments, particularly foreign, is inevitable, which is only possible if the cost of capital is brought down significantly. While the investor can expect some sort positivity to creep into the market, further repo rate moderation, seems to be unlikely.
A basic structural imbalance in the demand and supply, coupled with factors such as the impact of rising fuel prices, is primarily responsible for the limiting of repo rate moderation. While the situation is complex in the aforementioned scenario, inflation is an attribute, the average Indian can breathe easy on. Inflation has continued to moderate since the latter half of the previous financial year, and the moderation still looks strong. This has traditionally been a factor, which has affected the end user significantly, with any significant fluctuation, having a direct impact on the prices of essential commodities.
Reducing the fiscal deficit, getting the economy crucial foreign investment, keeping the inflation in check and all this done with the primary objective of getting the economy back on track with a higher GDP growth rate, is the set of characteristics, which define the mid-quarter monetary policy. For the masses, it translates into cheaper products and a better economic environment which means a higher employment rate. Considering the tough situation that RBI is currently in, the policy seems to be cleverly thought out, and sufficing the needs of the economy.