The liquidity conundrum

Only credit growth can help banks to get out of this liquidity drag. That can happen when growth is secured (and not through loan melas). But if it takes longer, risk of higher inflation becomes real

In an interview with this paper last week, Jayanth R Varma, the lone voice of dissent in the Reserve Bank of India’s (RBI’s) six-member Monetary Policy Committee (MPC), said the “effective interest rate in the economy is not 4 per cent, but 3.35 per cent… lower than what is desirable”. He has pitched for the removal of “some of the accommodation which is no longer needed” to “reduce the risk of loss of credibility (for MPC)… inflation becoming more entrenched and ultimately the need for higher rates in the future”.

Two days later, RBI Governor Shaktikanta Das, in an interview