For all the dovishness of the monetary policy statement, the fine print of the Reserve Bank of India’s (RBI’s) communication shows that rate cuts will be hard to come by. Markets being markets have already pencilled in one in August as bond yields fell five basis points.

Yes, the central bank lowered its inflation forecast for fiscal year 2018 and even pruned its forecast for gross value-added growth a bit. Deputy governor Viral Acharya said that accommodation would be looked at if data is conducive, which means the central bank is keeping the option open.

However, a look at paragraph 17 of the policy statement suggests that RBI believes rate cuts won’t help the economy get its mojo back. “The current state of the economy underscores the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks. Monetary policy can play a more effective role only when these factors are in place," said the statement.

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What this means is that it is imperative to resolve the bad loan mess of banks and kick-start private investment demand before RBI steps in with a vitamin dose of a rate cut.

Also, unless there is a fiscal policy push to remove infrastructural bottlenecks, a rate cut will serve no purpose at all. All of these tasks are easier said than done and could stretch beyond the current fiscal year.

For instance, efforts to resolve the bad loan problem began almost two years back and the resolution process is nowhere near conclusion. In fact, it has barely nipped at the problem. In another part of the statement, RBI says that “targeted intervention to create greater lending capacity for healthier sectors" will work better than a blanket rate cut.

To its credit, the central bank is willing to do its bit. RBI lowered standard asset provisioning for the housing sector as home loans are the fastest growing segment and the healthiest on banks’ books.

While RBI has no manual on how to kick-start private investment, it seems that the central bank is willing to wait out the effects of government measures including the goods and services tax. Here, RBI has thrown in a warning that the overleveraged corporate sector and stressed banking sector may delay the revival in private investment demand. This brings us full circle to resolution of bad loans.

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What a rate cut will do is stoke an already robust consumption demand and this has inflationary impulses. The policy statement notes the strong year-on-year growth in consumption expenditure in the latest GDP (gross domestic product) data.

Finally, another strong line in the policy statement is this: “Premature action at this stage risks disruptive policy reversals later and the loss of credibility." The central bank is unwilling to put its credibility at stake by cutting rates when it is unsure of the outcome. The fact that all members of the monetary policy committee declined to meet finance ministry officials is another feather in its credibility cap.

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