RBI in several dilemmas

This refers to your editorial (Business standard dated 1/04/15). The fact that the two rate cuts effected by the RBI in quick successions in the first quarter of this calendar year have not had any positive impact in the interest rates charged by the banks is a serious issue to be introspected both by the RBI and the Government to evaluate the influence of monetary policy as such in a fast changing economic scenario where availability of funds do not appear to be a constraint to trigger industrial growth in particular. Further high interest rate which itself is a result of inefficiency of banks to reduce their cost of funds  due to ever increasing non performing loans, establishment expenditures, poor asset liability management and lack of accountability of the non professionalism shown by the  banks’ boards alone cannot influence credit growth is an established truth from the  experience for decades. The  risks on inflation expectations continue to be on the high side as the oil price stability is at stake thanks to  unexpected changes in international markets and the possible inability of the government to contain both current and fiscal deficits, and the adverse effect of unseasonal monsoon on the prices of food items. No doubt RBI cannot remain a silent spectator when there is an all around hue and cry particularly from the market and the Government to soften its policy stance but to fall in line and bring some relief’s. The policy may announce changes to ensure comfortable liquidity to banks and also some incentives to enhance the credit off take; they may perhaps be in the form of some concessions in the CRR, SLR rates and forex area. This ensuing policy also will be an indicator as to what should be the future stance of RBI to protect and retain its otherwise limited and sagging operational autonomy. Its dilemmas are very many.          


Dr T.V. Gopalakrishnan

(This comment is in response to the editorial RBI's dilemma appeared in Business Standard dated 1/4/15).