On rates, RBI keeps status quo
The RBI on Monday kept the repo rate (rate at which it lends to banks) and CRR (cash that banks have to keep with RBI) unchanged on Monday at eight per cent and 4.75 per cent respectively, dashing the hopes of India Inc, the stock markets, which toppled over two per cent, and the real estate and auto sectors.
The RBI, in its mid-quarterly monetary policy review, debunked the theory that interest rates were responsible for the slowdown and said it played a relatively small part. So “further reduction in the policy rate at this juncture, rather than supporting growth, could exacerbate inflationary pressures”, it said, adding that the real, effective bank lending rates, though positive, remain comparatively lower than the levels seen during the high growth phase of 2003-2008.
While attributing the growth slowdown to supply-side bottlenecks and weak investments, the RBI criticised the government’s failure to pass on international crude oil prices to domestic prices, thus preventing a much-needed adjustment in demand for petroleum products.
It thereby increased its subsidy burden, crowding out public investment at a time when it is most needed.
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