Further easing of rates warranted

Rana Kapoor,
Managing Director & CEO, Yes Bank

RBI’s demonstrative cuts in its key policy rates – both repo and reverse repo – underlines the central bank’s pro-growth posture

These are extraordinary times, presenting exceptional challenges and seeking unexpected policy measures. Clearly, the global financial crisis and the follow-on economic downturn has been wider, deeper and longer than anticipated. The India growth story has resultantly suffered.

While RBI regularly emphasised its commitment to boosting real economic activity while preserving financial stability, the slowdown in India’s growth momentum in the wake of an adverse external environment has been sharper than expected.

In his maiden Annual Monetary and Credit Policy review, Governor Subbarao has strongly emphasised the Central bank’s commitment to boosting domestic drivers of growth and preserving financial stability, even as the overall stance of monetary policy has evolved to recognise and confine the downsides from a degenerating global economy.

The RBI’s demonstrative cuts in its key policy rates – both the repo and the reverse repo – underlines the RBI’s pro-growth posture.

The key challenge for the monetary policy has been to accommodate higher government borrowing along with ensuring adequate credit flows to productive sectors to stimulate the economy at reasonable costs. The RBI has emphatically addressed this by providing huge comfort on the liquidity front.

With inflation now a receding concern, the verdict is clear – banks need to expand lending; however prudently. The ongoing economic downturn will warrant further easing of interest rates. The key question centers on the effectiveness of the monetary transmission.