Given the strong trends of industry needs and increasing realization on the part of the Government that liquidity crunch needs to be tacked on priority, there was a general expectation in financial circles that the imminent monetary policy due in April would certainly provide relief to the businesses and industry. The economists and industry watchers were hopeful that there would be rather a limited,perhaps even mute response of RBI in this regard. But the announcement made by RBI Government D. Subbarao of cut of Repo rate by 50 basis point and corresponding reduction in the Reverse Repo rate took everybody pleasantly surprised. The stock market went ecstatic and there was euphoria in industry and trade circles.
A major risk to our growth and inflation projections stems from the outlook for global commodity prices, especially of crude oil. Though inflation has moderated in recent months, it remains sticky and above the tolerance level,even as growth has slowed. These trends are occurring in a situation in which concerns over the fiscal deficit, the current account deficit and deteriorating asset quality loom large. The challenge for monetary policy will thus be to maintain its vigil on controlling inflation while being sensitive to risks to growth and other vulnerabilities.
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