The Reserve Bank of India (RBI) and its governor, Y.V. Reddy, have had to face a lot of unfair criticism in recent months, especially when they raised interest rates and the cash reserve ratio to fight inflation. A mere week before Reddy revisits his monetary policy, it is worth noting that he has succeeded in what he set out to do.
Inflation is already down. Part of the credit for that may be justly claimed by the government, because it cut import duties on many goods earlier in the year, when high inflation was a clear and present danger.
But RBI deserves most of the credit. The latest data shows that bank credit has shrunk by Rs14,386 crore since April, against a rise of Rs33,818 crore over the same period last year. And growth in M3, a measure of broad money, is down from 21.9% to 19%.
Enough reason for RBI not to raise interest rates this time around?