Letters: Can the RBI innovate?

This refers to the editorial "Horns of a dilemma" (April 30). Given the present economic and political conditions, the Reserve Bank of India (RBI) has no option but to reduce the policy rate at least by 25 basis points (bps) - if not by 50 bps - to satisfy the finance minister and honour market sentiments. Except, perhaps, a small reduction in the wholesale price index, all other parameters are not according to the RBI's expectations. Thanks to the recent fall in gold and crude prices, the current account deficit may register a fall, but that alone cannot be expected to strengthen the other fundamentals of the economy, particularly the fiscal deficit, investment and growth. Savings have not been picking up and the banks face liquidity constraints where the RBI cannot be of any assistance. An increase in credit is based on market borrowings, and how far the credit expansion will help to improve production and expansion of the economy is a matter of serious concern. Recycling of credit does not happen in the context of accumulation of non-performing assets and restructuring of assets. As rightly pointed out, the RBI is in a dilemma, and how it is going to face it is worth watching. Maybe the RBI has some innovative ways to rescue the economy from the situation with positive results.

T V Gopalakrishnan Bangalore

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