Propping up the RBI’s credibility—-सविस्तर माहितीसाठी इकॉनॉमिक टाइम्स मधील बातमी वाचावी.

While considerations of growth would have made a rate cut a positive gesture of accommodation, the Monetary Policy Committee’s (MPC) decision to hold its policy rates is, on the whole, welcome.
What holds up investment and growth is not the cost of borrowing, but the combination of overleveraged firms and the banks’ bad loan portfolio. So, cutting rates would have no immediate, direct impact on growth. Further, what the MPC seems to be focused on is reinforcing the RBI’s credibility, dented by the demonetisation exercise.
Its refusal to oblige the finance ministry with a formal meeting to receive ministry instructions, and to stick to its inflation focus, both enhance central bank credibility. So does the 50-basis-point cut in the statutory liquidity ratio, the share of total deposits banks are obliged to invest in government bonds, to 20 per cent effective June 24. That call rates have been marshalled firmly into the policy rate corridor is proof of enhanced monetary policy effectiveness.

via Propping up the RBI’s credibility

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