A good thing about the stock exchange is that it has virtually insulated itself from the central bank’s monetary policy. Whether the PLR is raised higher or cut lower, the Sensex keeps marching on its own trajectory. Marketmen are busy playing the market, such is the robustness of faith in the future of the economy. We might feel bold enough to assert that given a modicum of professional management of the Finance Ministry the inherent growth potential of the Indian economy is bound to be realised — sooner than most people may believe. Despite often a broken polity, a highly confrontationist Opposition and the usual complement of nature shocks such as floods and droughts, etc., in recent years economic growth has come to easily surpass the early decades of the Hindu rate of growth. Now, a 6-plus percentage growth seems to be normal, though in good years we have surprised ourselves growing the GDP at 8-plus percentage as well. While at the outset acknowledging the professional manner Nirmala Seetharaman has led the Finance Ministry all these years, the contribution of a large number of economic actors, big or small or micro, cannot be ignored. It is they who are directly concerned with the changes in the PLR since the decision of the RBI’s Monitor Policy Committee eventually trikcles down to the agri-based cooperative financial institutions as well. Last Friday, the MPC, as widely expected, left the policy rate unchanged at 6.5% for the 11th consecutive time. Given that the consumer inflation was still ruling above the MPC’s comfort level of 4% plus-minus 2%, it did not want to risk an uptick in the consumer price-line just when the pressure on it was beginning to ease somewhat. At its next scheduled meeting in February next year, a few days after Seethraman’s annual budget for 2025-26, the MPC might consider revising down the lending rate provided by then inflation has suitably come down within the RBI’s parameter. Meanwhile, to compensate for the relatively high PLR, the MPC lowered the cash reserve ratio by 50 basis points to 4%. This is set to release additional Rs 1.2 lakh crore in the hands of the lending banks which in itself would relieve the stress of a higher PLR to an extent. CRR obliges banks to keep a portion of their deposits with the RBI as a hedge against unforeseen conditions in the market as also to regulate liquidity in the economy. Shaktikanta Das, the RBI Governor whose extended tenure is due to end this week, said that by all indications the slowdown has bottomed out and the second- half growth is likely to be higher . Expectations of a 6.5% growth in the current financial year remained high. Which could mean a growth rate of nearly 7% in the remaining two quarters. Unsurprisingly, the central bank ignored broad hints from North Block for even a wee-bit cut in the PLR, choosing to stick to its primary remit of keeping inflation in check. With good kharif crop arrivals in the market and hopes of a bumper Rabi sowing, and, above all, with the onset of winter prices of vegetables and fruits beginning to ease, hopefully MPC will take up rate-reduction at its mid-February meeting next year. Whether Shaktikanta Das gets another extension by then would have become known. More importantly, the Trump factor on the global economy too would have begun to become apparent.
