RBI Credit Policy: Cautious monetary easing, policy stance on growth

The Reserve Bank of India's policy repo rate cut by 25 basis points (bps) is in line with India Ratings & Research's (Ind-Ra) expectation. While the headline inflation and current account threats of destabilising macro-economic fundamentals exist, the decline in core inflation and sluggish growth resulted in monetary policy stance shifting to growth. Ind-Ra expects 50bps-75bps monetary easing in FY14.

The fiscal policy and monetary policy are now moving in tandem to address growth concerns. Fuel price reforms, especially in diesel, will continue to exert pressure on headline inflation. Ind-Ra expects core inflation to decline further. A normal monsoon, the central government's policy initiatives through cabinet committee on investment, elimination of bottlenecks by faster project clearances and supportive roles by state governments (approval falling in their policy domain) will help revive growth and control inflation.

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