Modest Ambitions

The mid-term review of the monetary and credit policy for the current year springs no major surprises. It has, in the main, lowered the Bank rate by 50 basis points to 6.5 per cent and proposes to bring down, over the next two months, the cash reserve ratio to 5.5 per cent from the current effective rate (taking into account various exemptions and variable reserve ratios for particular segments of liabilities) of 6.3 per cent for the banking system as a whole. It has made further refinements of the various processes of strengthening prudential regulation of the banking system. More pertinently, it serves to highlight the constraints within which monetary policy operates in India, even going to the extent of drawing explicit reference to some of the structural impediments arising from government policy.