• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Our Bureau

Thiruvananthapuram, Oct. 12 The huge pressure on the rupee to depreciate may in all probability have forced the Reserve Bank to act the way it did on Friday, according to Mr Abheek Barua, Chief Economist, HDFC Bank.

The 50-to-a-dollar mark would have been a major psychological barrier to break with serious consequences, which the RBI tried to ward off by cutting the CRR.

“We had expected the regulator to stay neutral but concerns about a freeze on interbank deals spilling into the economy may have been roiling the mind of the RBI brass.” The respite on the inflation front gives some headroom, and Mr Barua did not rule out a token cut in the repo rate in the short-to-medium term. But inflation is expected to stay in double digits until December.

Dr Subhada Rao, Chief Economist, YES Bank, said that there had been no demand destruction on the domestic front and this would help the economy make a soft landing. The current crisis has been precipitated by the liquidity crunch and exacerbated further by frenetic RBI intervention in the currency market from September 15 to 30. There is a downside risk to the economy but YES Bank retained its GDP growth forecast of 7.2 per cent for the current year.

According to Mr Pinaki Chakraborty, Senior Fellow at the National Institute for Public Finance and Policy, CRR was by far the most effective weapon for managing the market.

Inflation would have to come down to the sub-10 per cent level to make any material difference to the aam admi, he said. There are nascent signs for the downward correction in the context of supply side pressures easing, but it would take some more time for inflation to oblige.

More Stories on : Forex | RBI & Other Central Banks | CRR & Bank Rates

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line