Wave of liberalisation sweeps banking industry

Those who were expecting a pre-Diwali gift from the Reserve Bank of India (RBI) on Wednesday are disappointed, as the central bank’s Monetary Policy Committee (MPC) has decided to leave the policy repo rate unchanged at 5.5 per cent.

- TAMAL BANDYOPADHYAY

But not too many will be surprised if RBI Governor Sanjay Malhotra plays the Santa Claus in December, bringing an early Christmas.

Yes, after the status quo at two successive monetary policies, there could bea rate cut at the next policy in December.

Indeed, the RBI has left both the policy rate and stance of the policy unchanged, but there isa not-so-subtle change in the governor’s statement. Malhotra has made a point that the current macroeconomic conditions and the outlook have opened up policy space for further supporting growth.

Why did the RBI not bite the bullet now? Well, the impact of the frontloaded monetary policy actions and the recent fiscal measures are still evolving. Besides, trade-related uncertainties are unfolding too. At this juncture, the MPC thinks itis prudent to wait for the impact of past policy actions to play out, and greater clarity to emerge, before charting the next course of action.

Aftera one-percentage-point cut in the repo rate in three tranches —between February and June this year —the MPC had left the rate unchanged at5.5 percent in August.

Ithad also stuck to the “neutral” monetary policy stance. Both decisions of the six-member rate-setting body were unanimousat the last policy. This time around, two MPC members were in favour of changing the stance to “accommodative”.