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The unintended fallout of RBI's loose money

Since the high cost of funds is holding up lending, if the RBI forcibly reduces bond yields, banks will borrow cheap under LTROs and lend more

Debashis Basu 

Debashis Basu

When economic growth falls, the customary expectation is that the Reserve Bank of India (RBI) would cut interest rates. And indeed, all mainstream economists, especially those working directly and indirectly in the financial markets, have been ranting that interest rates are too high (set against benign inflation).

Poor growth is seen as a direct consequence of slow lending; banks have been parking their surplus funds with the RBI instead of lending and so credit growth has gone down to 7 per cent. Only if the RBI cuts rates would the banks be enthused to lend and the economy would boom ...

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First Published: Sun, February 16 2020. 23:30 IST
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