Not everyone thinks lower interest rates are here or that RBI's just announced rate cut is a very good thing. Amidst the chorus of welcoming hurrahs, some economists pointed out that the repo rate cut was unlikely to be very effective.
T.B.Kapali, Financial & Economic Consultant, Chennai, said, "These repo rate cuts are completely irrelevant in the overall environment. Indeed, they have been irrelevant for a long time now, both when they were being hiked and now being lowered. For, the size of the central bank's balance sheet completely overwhelms these minor moves."
He held the unbridled expansion of the RBI's balance sheet at nearly a fourth of the country's GDP, responsible for the current quagmire -slack output performance but with high inflation expectations.
He said, "From a medium term perspective, the RBI should seriously look to reducing the size of its balance sheet. That will be the best contribution it can make to delivering a low and reasonably stable price environment. This, in turn, is critical for producing economically healthy household consumption and business investment decisions".