Observing his birthday frugally on Tuesday by keeping key interest rates unchanged, Reserve Bank of India Governor Raghuram Rajan has put the onus on the government's first full-fledged budget on February 28 to grow the "green shoots" of economic recovery.
"Monetary policy is a long-term process. You can't hold me every 15 days saying when are you cutting rates? We have a budget coming up. Inflation data also is yet to come," Rajan told the media at the post-policy briefing, having announced that the repo rate at which RBI lends to commercial banks had been maintained at 7.75 per cent, at the level it had been cut to on January 15.
The only cut this time was in the statutory liquidity ratio (SLR) - the mandatory amount of cash, gold, bonds or other securities that banks must keep with RBI - which has been reduced by 50 basis points to 21.5 per cent of their net demand and time liabilities (NDTL) effective from the fortnight beginning Saturday.
To this, the industry reacted almost in unison, asking the central bank and the government to "nudge" commercial banks to transmit the benefits of last month's rate cut.
Clearly pointing to the upcoming union budget, Rajan said domestically, conditions for growth are slowly improving with easing input cost pressures, supportive monetary conditions and recent governmenmt measures for project approvals, land acquisition, mining and infrastructure.
Asked about the lack of a forward guidance in the policy review, Rajan said: "The guidance remains what it was when we cut rates. Further action will depend on developments on the fiscal front and on the disinflationary process."
RBI Deputy Governor Urjit Patel described the "important backdrop" to the RBI's latest move that left analysts puzzled over whether it was "dovish" or "hawkish".
"We are in the midst of the age of competitive depreciation and of a beggar-my-neighbour philosophy. It brings to mind an old African saying that when elephants fight the grass suffers," Patel said at the press conference to announce the policy review on the trend of accommodative monetary policies being adopted by developed economies.
"While the ECB (European Central Bank) and the Bank of Japan are printing money and devaluing their currencies on one hand, the US economy is reviving on the other. Anyone in the middle is getting crushed," he added.
Rajan said attaining the projected inflation target of six per cent by January 2016 is at risk due to expected "food price shocks as the full effects of the monsoon's passage unfold and from geo-political developments that could materialise rapidly."
It could be termed a coincidence that international crude oil prices re-crossed the $50 a barrel level on the eve of the RBI's latest policy review. The day Rajan had last cut rates, in January, the Indian basket of crude oil had traded at $43.36 per barrel, having already touched a five-and-a-half-year low.
Falling oil prices have been a major windfall for the government towards meeting its fiscal deficit target of 4.1 per cent of the GDP for the current financial year.
The exchequer has earned around $3.5 billion from repeated recent hikes in excise on transport fuels, while the RBI has hinted at further rate cuts if inflation declines.
Finance ministry officials calculate that lower fuel subsidies, along with recent fuel excise hikes, could together add almost $18 billion (Rs.1 trillion) to the next union budget.
With last month's rate cut, the industry too is looking at the budget session of parliament for progress on the proposed Goods and Service Bill that would absorb most central, state and local levies by April 2016. The bill has been introduced in the Lok Sabha.
"The RBI cutting interest rates and the Goods and Services Tax Bill, between them, cover almost everything major that Indian industry has been looking at," Federation of Indian Chambers of Commerce and Industry president Jyotsna Suri said.
(Biswajit Choudhury may be reached at email@example.com)