Rate hike inevitable

This refers to your editorial ‘Back with a bang’ (May 5). Looking at domestic factors like WPI and CPI going out of bounds and with US Fed indicating several more hikes after resorting to a steep hike of 0.5 per cent, RBI’s repo rate hike was inevitable. But the RBI’s approach to rate hike was expected to be calibrated and measured instead of going for a 40 basis points hike in one go which had rattled the market with Sensex falling over 1,300 points.

Rising fuel and commodity prices had forced RBI to act in a decisive way with both the Central and State governments failing to address the rising fuel prices in terms of reduction in tax rates. Though this could bring cheers to depositors who had to endure negative returns on their bank deposits, the dual measures of RBI in terms of CRR and repo rate hikes will put enormous pressure on banks to raise the MCLR making retail and corporate loans a costly affair. The rise in bond rates will push up the interest cost of government borrowings leading to further rise in real interest rates putting pressure on fiscal deficit.

One needs to wait and see if the rate hike leads to a reversal in the outflow of foreign capital which had led to a drastic fall in the value of rupee. Now that RBI has focussed its monetary measures on taming inflation, it is the fiscal measures of the government which need to be set in motion to ensure growth in the long run.

Srinivasan Velamur

Chennai

Transmission is key

The Monetary Policy Committee’s unanimous decision to enhance the repo and CRR rates, though belated, will be helpful in bringing down the prices of essential goods and commodities. Yet, the translation of the action into reality depends on how fast the financial intermediaries transmit the hike to the market. Controlling further credit expansion and taking out the excess liquidity without affecting investments are crucial to the revival and growth of the economy. The ongoing dynamism needs to be accelerated to achieve the envisaged goals.

VSK Pillai

Changanacherry, Kerala

Long overdue

The RBI dropping a bombshell by pronouncing a hike in the repo and CRR rates was long overdue. So far the central bank was holding its punches by not going ahead with the much needed hike despite runaway inflation. The RBI’s hawkish approach ought not be limited to repo and CRR as there are other grey areas under its watch and it needs to be Argus eyed so as to minimise NPAs.

Deepak Singhal

Noida

Make two-wheeler EVs safe

This refers to ‘EV registration dip 6% in April over March as 2W fires play spoilsport’ (May 5). This was expected as fire incidents in two-wheeler EVs have risen at an alarming rate in the last month or so. Many EV two-wheeler manufacturers have already recalled a quite a few vehicles from the market. The Government has set up an inquiry committee to probe the firing incidents and asked OEMs to adhere to safety standards. People will not mind paying a few thousands more if they know the product they are buying is safe.

Bal Govind

Noida

Kick-start industrial credit

This is with reference to ‘High growth sectors not getting enough credit’ (May 5). Bank credit is the predominant source of finance for various sectors of the economy in a developing country like India though market-based sources of finance have also gained in importance in recent years. Adequate and equitable distribution of bank credit among productive sectors of the economy has been an abiding concern among academics and policymakers The RBI has taken several measures to facilitate credit flow to various sectors of the economy, especially to MSMEs and NBFCs.

The need of the hour is to kick-start industrial credit and use the impetus therefrom to regenerate a virtuous cycle of capex, investment and growth. Proper risk pricing in lending is of prime importance so that the health of the banking sector is not compromised while ensuring adequate credit to the productive sectors of the economy.

S Muthulakshmi

Virudhunagar, TN

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