The pace at which the Indian central bank was announcing measures in the past fortnight made it almost obvious that there would be hardly anything left to do at the mid-term policy review on Friday.

Most of the measures that the central bank had announced—in coordination with or prompted by the finance ministry—aimed at infusing liquidity into the system and maintaining financial stability but with one eye always kept on the equity market.

An uncharitable way of looking at Friday’s development could be of RBI reclaiming the ground lost to the finance ministry, which virtually hijacked the policy-making task of the central bank.

On Friday, for the first time in recent weeks, it looked like RBI had gathered the courage to say no to what the market, and the ministry, want it to do.

Also Read Tamal Bandyopadhyay’s earlier columns

By not following an expansionary policy, Subbarao seems to be continuing with the stance of his predecessor Y.V.Reddy, with the focus back on price stability and anchoring inflation expectations after a brief interlude when RBI cut banks’ cash reserve ratio (CRR)—or the proportion of deposits that commercial banks need to keep with the central bank, releasing Rs1 trillion—and the policy rate.

Other priorities of the central bank now are financial stability and sustaining the growth momentum of the economy—in that order—along with credit quality and credit delivery.

That shouldn’t surprise anyone as bank credit continues to grow at a much higher pace than what RBI wants and the growth in money supply, too, is way ahead of the central bank’s projection.

So, RBI has not moved away from its original stance of fighting inflation and asset bubbles, and stability continues to remain the theme of the policy.

This is a sensible thing to do at this juncture as one needs to see the impact of the series of policy announcements made since mid-September when Wall Street icon Lehman Brothers Holdings Inc. announced bankruptcy, plunging the global financial system into an unprecedented crisis.

There is adequate liquidity in the system now. Besides, a cut in policy rate will put more pressure on the local currency, which is already trading at its lifetime low, as rupee assets will become less attractive for foreign investors.

However, it needs to be seen how long RBI can maintain its stance.

With the global financial system undergoing a severe liquidity crunch, Indian corporations will find it difficult to raise money overseas, despite the relaxation in overseas borrowing norms and being allowed to pay higher interest rates to raise such loans.

RBI will face the challenge when large Indian corporations will turn their focus to the local banking system for raising money.

So, a cut in CRR and policy rate is inevitable in the medium term. In that sense, the measure-less mid-term review of the monetary policy is also an interlude.

Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as the Mumbai bureau chief of Mint. Please email comments to