ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Appropriate Monetary Stance

The quarterly review of monetary policy suggests a deft handling of the various elements of risk and uncertainty.

The rst quarter review of monetary policy announced by the governor of the Reserve Bank of India (RBI) – D Subbarao – should be commended for setting out an appropriate monetary stance against the backdrop of various risks and uncertainties, which are generally on the upside on several fronts. Monetary policy is essentially a short-term instrument; its transmission, unlike scal policy, is indirect and comes with a time lag. Thus, while scal policy can afford to be reactive, monetary policy perforce needs to be proactive, but herein resides the complexity of managing risks and uncertainties that makes the job of the monetary authority much more difcult, requiring more the nesse of art than the precision of science.

Risks, to a certain extent, are predictable and handled as such with some element of preparedness; but uncertainties can only be handled in a contingent manner, depending upon emerging situations. Therefore, some “ifs” and “buts” have to be taken into account in formulating an appropriate monetary stance. Overall, the RBI’s position is clear: maintain a monetary and interest rate regime consistent with the goals of price and nancial stability, while supporting the return of the economy to its high growth path. This calls for (i) active liquidity management – so that the credit demand of the government is met (i e, smooth conduct of the large government borrowing programme) – while also ensuring the ow of credit to the private sector at viable rates, and (ii) being prepared to respond quickly and effectively through policy adjustments based on a vigil over ination trends and signals (inationary expectations).

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here


To gain instant access to this article (download).

INR 59

(Readers in India)

$ 6

(Readers outside India)

Support Us

Your Support will ensure EPW’s financial viability and sustainability.

The EPW produces independent and public-spirited scholarship and analyses of contemporary affairs every week. EPW is one of the few publications that keep alive the spirit of intellectual inquiry in the Indian media.

Often described as a publication with a “social conscience,” EPW has never shied away from taking strong editorial positions. Our publication is free from political pressure, or commercial interests. Our editorial independence is our pride.

We rely on your support to continue the endeavour of highlighting the challenges faced by the disadvantaged, writings from the margins, and scholarship on the most pertinent issues that concern contemporary Indian society.

Every contribution is valuable for our future.