The measures initiated by the Reserve Bank of India (RBI) in the mid-term policy review on Friday have reiterated the importance of low and stable inflation for sustained economic recovery, according to P. Jayarama Bhat, Managing Director of Karnataka Bank Ltd.
Bhat told Business Line that the RBI was more hawkish in the undertone of the policy, and the premises of the policy is targeted to bring down inflation even with the sacrifice of short-term growth prospective.
The policy also envisages that Fed tapering in the US, which is now being delayed, is inevitable at a later stage. More measures have to be taken by keeping that into consideration, he said.
Bhat said that cautious unwinding measures of liquidity will help ease short-term interest rates. But raising repo rate might increase the interest rates in the long term.
Short-term interest rates may slightly come down, he said.
On the future measures of RBI, he said it is very clear that further measures are dependent on the future inflation trajectory.
“Even though the kharif harvest is continuously good, there is a small risk of continuous risk in the harvest area. That may adversely impact the productivity and supply,” he said.