RBI is in a catch 22 situation. The Government wants RBI to ease the rate and this has been well argued by the Economic Adviser, Ministry of Finance, and economists attached to various Financial Institutions. The market and industrialists always cry for lower rates although the rate of interest has an insignificant share to contribute growth . The fundamentals do not really support for a reduction in rate ,but the market forces indirectly force the RBI to favour a rate cut to give psychological boost to the present political and economic environment . The deposits and credit growth have not been picking up and the reasons are not due to the policy rates of RBI are not being understood or analysed by the group who fight for a rate cut. The real rate of Interest and real rate of growth are at risks because of uncertainties of the macro economic factors and other variables like international economic scenario which need to be factored into by the RBI before deciding a rate cut.
Dr.T.V.Gopalakrishnan
(This comment appeared in Business line dated 30/5/15)
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