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    View: Growth not a monetary policy problem, says RBI

    Synopsis

    By refusing to cut rate by 35 bps or more the RBI wants to make it clear that liquidity availability is not the binding constraint on growth.

    Agencies
    The RBI stands committed to the process of reinvigorating the economy with lower interest rates and greater liquidity, should that be needed.
    By lowering the policy rate by another 25 basis points to 5.1% and lowering the growth forecast for the current fiscal to 6.1%, the RBI sends two signals. One, the RBI stands committed to the process of reinvigorating the economy with lower interest rates and greater liquidity, should that be needed, thanks to its accommodative stance. At the same time, by declining to do a repeat of the 35 basis point cut in the repo rate that it had carried out two months ago, even while accepting that growth will slow to 6.1%, the RBI wants to make it clear that liquidity availability is not the binding constraint on growth.

    The need is to generate demand, by pouring concrete. Investment must pick up in the short run, to revive confidence that growth is on the horizon and induce people to consume more. Instead of waiting for private investment to pick up following the offer of a 15% corporate tax rate, the government should step up investment directly, increasing the fiscal deficit if necessary. The need is for immediate action.

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    3 Comments on this Story

    Sanjay Chowdhury423 days ago
    Demo was policy decision of RBI. Whether RBI was used or not is a separate issue. We are entering into recession is a truth and RBI has to accept it today or tomorrow.
    Kochar Bipin423 days ago
    Wow! No matter how much fiscal simulation the Government provides, growth will not happen unless there is sufficient liquidity at grassroot level to support it - who largely depend on NBFCs and HFCs for their funding.
    What is astounding is that RBI has not realized that in spite of 4 rapid rate cuts, funding costs for most NBFCs actually moved up and funding availability from CPs dried up for most of them and many corporates too - clearly highlighting the need to directly fund NBFCs and make dysfunctional money market functional again.
    RBI repo rate cuts have only benefit AAA corporates cut interest costs - but they hardly create significant number of jobs or spur growth.
    It is high time Nirmala Sitharaman acts firmly by sacking the pack of fools running RBI - and brings in bright people from top banks and NBFCs.
    avbhadra423 days ago
    Very true no monetary policy tweaking can help if RBI sleeps and fails to regulate the financial institutes. It is nit the amount of interest that is the cause. It is the skeletons like IL&FS and PMCs that were allowed ti fraud the system. What is RBI doing when these frauds are happening for the over five years now.
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