Monetary easing ends for now, onus of reviving growth now on govt

The Reserve Bank of India (RBI) on Monday signaled that the step-by-step easing of monetary policy it had followed over the last 18 months has come to an end.

The onus on reviving the pace of economic growth has been put on the union government, while the central bank keeps its powder dry to deal with the  growing risk to the economy from the external environment.

The external environment worsened recently with securities markets across the world feeling the impact of rebalancing of portfolios in anticipation of a gradual roll back of the US's four-year old monetary stimulus named quantitative easing (QE).

In its fourth monetary policy in 2013, announced on Monday, the RBI for the first time this year did not cut interest rates.

In three preceding policy announcements in 2013, the repo rate (the rate at which RBI lends money to banks) was cut. In addition to reducing the repo rate, RBI had also been injecting liquidity into the system to ease monetary policy.

On Monday, the RBI indicated that liquidity conditions have eased, partly on account of its policy actions and also because the government has begun running down its cash balances at the beginning of a new financial year to meet its expenses. Typically, a lot of government spending is front-loaded while the lion's share of its tax revenue flows into its coffers in the second half of the financial year.

The needle on the economy now needs to be moved forward by Prime Minister Manmohan Singh and Finance Minister P Chidambaram.

After 18 months of monetary easing with an eye on boosting economic growth, the RBI is likely to switch over to playing a defensive role in guarding against external risks.