The RBI’s monetary policy for 2012-13 is a sentiment booster, according to an economist.
Terming it as a positive surprise, Dr Biswa Swarup Misra, Associate Professor, Xavier Institute of Management, Bhubaneswar, told Business Line that before the policy, the expectations were that it will be a 25 basis points cut or the rates will be kept unchanged.
“Now, the RBI has gone for a 50 basis points repo rate cut. If not anything, it will act as a sentiment booster,” he said.
According to Dr Misra, growth was strangulated in 2011-12. The central bank did not go for rate cut because it wanted to play cautiously.
“The bold decision of the rate cut today is guided by the decline in core inflation. That might have given them the courage to go for this,” he said.
Stating that the next round of rate cuts will be few and far placed, he said between April and October, one does not expect any further rate cut.
Inflation target
The RBI has projected for an inflation target of 6.5 per cent for 2012-13. There are significant upside risks to inflation.
Asked if banks can resort to interest rate cuts, he said it depends on the cost of funds of banks. It will take at least a quarter for the average cost of funds to come down. Some banks may do it as a feel-good factor, and they may reduce the rates now.
Financial inclusion
Commenting on the financial inclusion roadmap, he said one has to see how realistic such an approach would be. No transaction is taking place in many ‘no-frill’ accounts.
Though the RBI policy says that 99.7 per cent of villages with a population above 2,000 are covered under financial inclusion plan, it is to be seen whether they are functional or not.