• 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

Perhaps no single initiative of the Reserve Bank of India (RBI) or even the Finance Ministry in the recent past has evoked such optimism as Monday’s cut of 100 basis points in the repo rate that now stands at 8 per cent. The manic-depressive Sensex surged past 10,000 points again and bankers, with varying degrees of confidence, were hopeful of cutting their own lending rates; most asserted that the central bank had ushered in a trend of softer rates. This should be c lear on Friday when the RBI releases its mid-year review of monetary policy. With events unfolding at breakneck speed, fire-fighting initiatives have to look beyond the immediate to the structural aspects of the economy. Trimming the repo rate is a step in the right direction but much more needs to be done to restore the level of confidence that prevailed two years ago.

Luckily for the RBI, help is at hand. No sooner had the central bank announced the cut than the Finance Minster, Mr P. Chidambaram, sought supplementary grants of more than Rs 2,00,000 crore in Parliament. The timing could not have been more propitious; meant to meet the requirements of the government’s prior commitments such as the farm waiver, Sixth Pay Commission, fertiliser subsidies and oil bonds, the request for out-of-budget expenditure at a time when most governments around the world are looking to step in and boost their national economies in like fashion will send positive signals of a commitment to fight the worst effects of the global crisis. Further, the Prime Minister, Dr Manmohan Singh’s admission of an economic slowdown, the first by New Delhi, carries the hallmark of statesmanship just as the assertion that it is “temporary” is reassuring for investors. Under the circumstances what will the RBI’s mid-year policy review offer apart from analysis of the past six months?

Hopefully, the emphasis will continue to be on easing interest rates and the central bank will look for ways to boost liquidity on an on-going basis from its vast store house of locked reserves such as the market stabilisation scheme funds. To overcome the recently acquired risk aversion of bankers the central bank may need to take a closer look at deposit rates as well with a view to overhauling the five-year run of high rates. Reductions in interest rates may affect government borrowing and its commitment to higher spending but as the Prime Minister hinted in Parliament, increased tax revenues would help fill the gap. For the RBI, the agenda could not be clearer: monetary policy must henceforth be growth oriented. That is the only way the present slowdown will be “temporary”.

More Stories on : Editorial | 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