RBI's justified caution

Banks will have to earn recapitalisation funds

As expected, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) concluded its two-day meeting with an announcement that the headline repo rate would stay constant at 6 per cent. The government may be disappointed with this outcome. Two members of the recently reconstituted Prime Minister’s Economic Advisory Council argued just before the MPC sat down to deliberate that real interest rates were too high for sustained economic recovery. There was a “high output sacrifice” being imposed by the RBI’s view on inflation, it was argued. However, it is difficult to see what other choices the committee