After weeks of singing a tune scripted in New Delhi, India’s central bank finally did the right thing on Friday in its policy review — nothing. By doing so, the Reserve Bank of India (RBI) sent out a strong message that its focus is more on inflation (high, but gradually declining to less alarming levels) and the rupee (at historic lows) than credit. Sure, the Indian financial system, much like the global one, could do with an infusion of trust and confidence, but what’s left unsaid in the bank’s policy review is that the responsibility for such things lies with the government, which needs to build these without taking recourse to monetary management tools.
RBI’s call is a good one and, as the performance of the stock markets on Friday shows, it is an unpopular one. Still, monetary policy cannot be made the slave of either market sentiments, or the preference of industry lobbies. Liquidity, or the lack of it, is more a symptom than an illness in itself. The bank should address the ills, and ignore all calls asking it to address the symptom.