Optimum choice

Empirical studies on effectiveness of monetary policy have always shown that all else equal, the best monetary policy instrument is interest rates. By raising policy rates further by another 25 bps, the RBI has reiterated its commitment to contain inflation and anchor inflationary expectations. At the same time, the policy document has reduced uncertainty in the minds of investors by stating distinctly that the possibility of a rate action in the December mid-quarter review is relatively low. This should help in reviving the investment sentiment and growth, going forward.

Deregulation of savings bank rates is a move to protect the real earnings of depositors which are fast getting depleted due to sustained inflationary pressures.

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M D Mallya
CMD, Bank of Baroda