This refers to your edit “No excuses left for Centre” (April 18). The Reserve Bank of India’s (RBI’s) monetary policy measure of effecting a sharp reduction in the repo rate by 50 basis points sends out a clear message to the government that it has to initiate action on several fronts to stimulate growth and give the much-needed sentiment boost to the investor community. No doubt, RBI has surprised the market and shocked theorists by demonstrating that monetary policy can deviate from fundamental requirements and adopt a different approach if the situation demands it. The economy has been lagging for the past three years and the government has failed to show any fiscal discipline despite several bold measures from the central bank. Though the rate cut may have an adverse impact on inflation, if RBI’s gamble pays off, renewed economic growth may have some softening effect on prices.
T V Gopalakrishnan Mumbai
(This appeared in Business Standard dated 19/04/12).
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This monetary policy demonstrated that central bank is losing its independence. Although the Governor has put on a bold face, he has clearly indicated that the rate hike is not ruled out if the inflationary spiral demands in his post-policy interview.
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