In its credit policy announcement today the RBI kept the policy rate unchanged, as expected by markets. It has, however, reduced the SLR by 50 basis points giving banks greater leeway to lend. As the economy picks up and demand grows this will allow an increase in bank credit. Recent data on inflation shows that inflation is moderating. On its part, the government remains committed to the path of fiscal consolidation and reviving the investment cycle that will help bring down inflation and pick up growth. Governor, RBI has already stated that RBI will not hold interest rates high any longer than is necessary and if disinflation proceeds as warranted, there will eventually be room to cut rates. Going forward, the RBI should examine the liquidity situation, inflation and growth in setting policy rates.