Changes Announced by RBI Complement Government’s Efforts to Steer Indian Economy to Grow better and Harness Inflation: FM

The text of the Finance Minister Shri Pranab Mukherjee’s comments on Monetary Policy Review of the RBI, announced today, is as follows:

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“There are times when all informed observers have a common view of what the imperatives of monetary policy are. In such times the RBI’s decision is easy. Today is not such an easy time. The signals from the economy have been mixed. Industrial growth showed a slight slowing down in August, which is the last month for which we have detailed data. Inflation, while less than what it was some months ago, is still not in a zone where we can sit back.

In the latest Monetary Policy Review, the RBI has decided to leave the SLR and CRR unchanged and raise the repo and reverse repo rates by a small amount, namely 25 basis points. I respect this decision made in a difficult time. This will create some monetary tightening in the country, without narrowing the LAF corridor.

This tightening may have a small negative impact on the growth rate but I expect such an effect to be only a short run one. In the medium to long term, the changes announced by the RBI today should actually help Indian Economy to do better in terms of growth.

Last week there was concern about liquidity shortage, when RBI was injecting a lot of credit through the repo window. Let me clarify that this is a very short-run phenomenon, caused by the huge oversubscription to the IPO by Coal India. In some sense this liquidity shortage shows the market’s confidence in our industry and its eagerness to invest in it. I am glad that the RBI has risen to the challenge and used a very careful combination of policies to complement what the Government of India is doing to steer our economy to grow better and harness inflation.”

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