Mumbai: RBI Governor D Subbarao on Tuesday said its monetary stance is aimed at reinforcing the government's policy actions that will have a "positive impact" on growth.
A revival in investment activity, which is key to stimulating growth, depends particularly on the recent policy announcements by the government being translated into effective actions, Subbarao said while announcing the second quarterly review of the monetary policy.
"Yesterday's statement by the Finance Minister reaffirming commitment to fiscal consolidation will open up space for monetary policy to restrain inflation and support growth," he said.
Among other factors, Subbarao said, the stance of the credit policy is to reinforce the "positive impact" of the government policy actions on growth as inflation risks moderate.
He said that as recent policy initiatives by the government start yielding results in terms of revitalising activity, they will open up space for monetary policy to work in concert to stimulate growth.
"However, in doing so, it is important not to lose sight of the primary objective of managing inflation and inflation expectations," Subbarao added.
Finance Minister P Chidambaram yesterday announced a five year roadmap for fiscal consolidation to promote investments, contain inflation and take India to high growth trajectory.
Besides, the government has announced a slew of reforms measures, including raising diesel price, capping supply of subsidised LPG cylinders and further liberalising FDI policy, to stimulate economic growth.
Since April 2012, the RBI's monetary policy stance has sought to balance the growth-inflation dynamics through calibrated easing.
"The transmission of these policy impulses through the economy is still underway. In conjunction with the fiscal and other measures recently announced by the government, the Reserve Bank's monetary policy stance should work towards arresting the loss of growth momentum over the next few months," Subbarao said.
The RBI is in the process of strengthening the regulatory framework for dealing with Systemically Important Financial Institutions (SIFIs) which may come under stress and may require resolution, he said.
"Accordingly, the government and the Reserve Bank are setting up a High Level Working Group to recommend a comprehensive resolution regime for all types of financial institutions in India," he added.