The RBI had its job cut out over last few Monetary Policy reviews. To turn down the government's appeal for aggressive rate cut. After all, it saw little sense in cutting rates when inflation was nowhere near its comfort zone. More so because the government did little to assuage its fiscal deficit and inflation worries. Hence review after review the RBI stuck to its dovish stance. Rate cuts though few and far between, hardly offered enough growth stimulation to the economy. However, the Union Budget and several other economic indicators seem to suggest that the RBI might have to explain itself more. Especially if it chooses to stick to the current interest rate levels much longer. For one, the government reiterated its commit ment to fiscal consolidation. The FM is targeting fiscal deficit below 5.2% for FY13. FIIs and foreign investors will continue to be welcomed. The risks of government's massive borrowing programme may also be mitigated if the proposed inflation linked bonds find wide acceptance. Fall in oil prices could be lower inflation in the days to come. Rise in Chinese exports gives cues of global economic recovery. Thus the RBI will have to articulate the next Monetary Policy review carefully to justify its stance. Having said that, we believe, as in the past, Dr Subbarao and his colleagues should not give in to undue pressure. 

                                                                                                      Courtesy:- Equity Master