This refers to the report “Little room to cut interest rates: RBI” (May 9). The economy seems to be facing a new impossible trinity of money supply, inflation and growth. In its Monetary Policy Statement for 2012-13, the Reserve Bank of India slashed the short-term lending rate by 0.5 per cent to eight per cent. This was done with the avowed objective of boosting liquidity and growth. However, neither liquidity nor growth has improved since then. Many banks reduced both their lending and deposit rates simultaneously after the annual policy announcement. And, consequently, banks’ liquidity position worsened thanks to poor deposit growth owing to reduced deposit rates. The liquidity adjustment facility (LAF) borrowing exceeded Rs 1 lakh crore as on May 8.
As for economic growth, it is a function of many variables of which adequate supply of cheaper credit to the industry is just one aspect. The other components of economic growth strategy, like fiscal reforms and the removal of supply-side bottlenecks in agriculture still remain elusive.
G K Murthy Bangalore
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number
