RBI's cautious approach and impact on rates!

Last Updated: Mon, Jun 17, 2013 07:10 hrs

Further easing of the monetary policy in the shadows, as the cautious approach of the RBI surfaces again! The RBI has revealed that most of the experts on its primary panel were against any reduction in the repo rate, in the policy revision concluded on May 3, reiterating the cautious approach that the leadership is maintaining.

bankbazaar.comThe supreme monetary authority of India, has been trying extremely hard to get the economy back on track, but in its trademark style. The cautiousness of the Reserve Bank of India is not an unfamiliar aspect to the market, as most experts have always maintained that the tending to conservative approach followed by it has always been one of the major reasons that the growth has not been more than that of China. But there is a contrarian point of view as well, and it justifies completely, the supposedly conservative and deceivingly inhibitory approach of the apex organization.

The insulation that the old school financial structure of India, has provided to the economy, is something that can be credited to the resilience and persistence of the Reserve Bank of India against the business organizations operating in the nation calling the shots. The wisdom of the best financial minds, working together in order to achieve the optimum mix of profitability and sustainability, so as to pass on the benefits to the average person, is something that should be looked up to by the rest of the world. Although the views are completely different, one cannot deny the relevance that both of them carry.

The recently concluded policy revision which saw the repo rate being reduced by 25 basis points, managed to make the headlines for quite some time. But once again, the RBI wasn't being praised, and the reduction was termed as conservative in the most conventional terms as possible, because the finance sector was looking for something much more substantial. The apex organization though, has for the first time released facts that give the average person an insight into the mentality that prevailed when the decision was taken. According to the RBI, most of the members of the primary advisory panel, responsible for passing crucial recommendations in the most serious of matters, were for maintaining status-quo with respect to the rates prevalent during the policy revision. The organization however, went through with a 25 basis point rate cut, which brought some reason to cheer for the financial world.

The amazingly stern approach being opted for by the top economists in the country, who occupy the esteemed positions on the advisory panel of the Reserve Bank of India, is a result of the concern that they possess for the future of the nation in the economic gloom, putting in doubt any policy easing in the times ahead. The bank was wary of the importance that low rates of inflation possess, which is why it was resisting a further rate cut since it could have triggered the recently subsided inflation levels. All these factors have played a part in the previous decisions taken by the coveted organization, which is why the cautious approach followed by it is thoroughly justified.

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