Blitz Bureau
NEW DELHI: The Reserve Bank of India’s decision to hold the repo rate unchanged at 5.5 per cent reflects its unwavering commitment to price stability and financial prudence. Yet, while caution has its virtues in an unpredictable global environment, there is growing concern that the central bank’s conservatism may be constraining growth at a time when the economy could benefit from a calibrated dose of monetary stimulus.
Inflation remains within the target band and GDP growth is projected at a healthy 7 per cent. Under such conditions, a modest rate cut could have sent a powerful signal of confidence, reducing borrowing costs and invigorating private investment.
Instead, RBI has chosen to rely heavily on regulatory and structural reforms to ease liquidity and improve credit access. These measures are valuable, but they cannot fully substitute the stimulus that cheaper credit can provide.
By maintaining the status quo, the central bank may be missing an opportunity to boost domestic demand and accelerate capex cycles, especially as global headwinds, soft exports, and uneven rural recovery continue to weigh on momentum.
The steady policy may also limit the impact of its well-intentioned initiatives — such as easing current account norms, widening export payment windows, and simplifying compliance rules — which address operational friction but not the underlying challenge of high credit costs that continue to hold back smaller firms and entrepreneurs.
RBI’s decision to remove outdated lending restrictions, expand credit limits against securities, and support corporate acquisitions reflects a reformist approach that favours flexibility and innovation.
However, these steps are likely to benefit larger corporates more than small and medium enterprises, which remain burdened by high financing costs and limited risk appetite among lenders.
For smaller firms, the cost of borrowing often determines whether they can expand operations, hire more workers, or even sustain day-to-day business. Without lower rates, these enterprises may find themselves sidelined in a credit environment that remains cautious and unevenly distributed.
The move to lower risk weights on infrastructure lending by NBFCs is a positive signal for long-term investment, yet its success ultimately hinges on stronger credit demand and investor confidence — both of which could be reinforced by lower policy rates. Without a reduction in the cost of capital, many projects may still struggle to achieve viability despite improved access to funds.
The current approach, while well-calibrated, could delay the revival of private capital expenditure that policymakers are eager to see and that is essential for job creation and sustainable growth.
RBI’s focus on stability and reform is understandable, particularly amid volatile crude prices, fluctuating currencies, and shifting global monetary trends. A gradual but forward-looking rate reduction could have complemented the structural reforms, improving business sentiment and accelerating the recovery of investment and consumption.
Structural reforms can enhance efficiency, yet monetary policy remains the most potent lever to stimulate growth, unlock pent-up demand, and revive private sector confidence. Caution may preserve stability, but conviction drives expansion.