Reserve Bank of India (RBI) had announced its first quarter review of Monetary Policy 2010-11 on July 27, 2010. Of late, especially after Mr D. Subbarao took over as Governor in September 2008, RBI has taken some kind of fresh approach towards issues relating to Monetary Policy and Indian Economy – right from taking a lot of bold measures between September 2008 and January 2009 to save the Indian Economy from the aftershocks of sub-prime crisis in the US to the latest first quarter review. Let us examine what are the important aspects of this new and fresh perspective in the latest monetary policy review.
There are four new areas which RBI has focused on in the latest policy review. They are:1. Change in policy Stance; 2. Reduction in LAF corridor; 3. Introduction of mid-quarterreview in addition to quarterly reviews; and 4. Expected Outcomes.
1. Change in Policy Stance:
RBI is deeply concerned about rising prices and double-digit inflation in India andrenewed uncertainty in global economic recovery owing to Greek Sovereign debt crisisand high employment in the US. India’s inflation measured by Wholesale Price Index(WPI) has been more than 10 per cent since February 2010. However, RBI is optimisticabout the India’s GDP growth in 2010-11 reinforced by the good progress of the South-West Monsoon, expansion in India’s exports and imports, and double digit growth in theindustrial production. Taking these into consideration, RBI has increased its projectionfor India’s GDP growth in 2010-11 to 8.5 per cent from 8 per cent projected in its April2010 Annual Policy review.Against this backdrop, the RBI has changed its policy stance decisively to containinginflation and anchoring inflationary expectations.
2. Introduction of mid-quarter reviews:
Till Now, RBI was undertaking Monetary Policy reviews at quarterly intervals in April,July, October and January every year. From now onwards, it will carry out mid-quarterreviews in June, September, December and March; in addition to quarterly reviews. Mid-quarter reviews will be conducted roughly one and a half-month after each quarterlyreview. The rationale behind the introduction of mid-quarter reviews is to inform RBI’sassessment of economic conditions more frequently to the market participants in linewith major central banks, like, the US Fed and the ECB.