Time fast running out for a rate cut | Business Standard Financial X-Ray

Time fast running out for a rate cut | Business Standard Financial X-Ray


September 26, 2015
Impact of rate cut
This refers to the piece “Time fast running out for a rate cut” by Malini Bhupta (The Compass, September 26). In all probability, RBI will, on September 29, or a little later, cut the base rates by 25 basis points. The finance ministry, which has happily accepted
a dividend cheque of over Rs66,000 crore for 2014-15 from RBI(an organisation with a subscribed capital of Rs 5 crore since inception, till date!) and is, according to media reports, expecting a whopping one lakh crore of rupees from the central bank during FY 2017, also has been clamouring for a rate cut, ignoring the fact that rate cuts also bring down RBI’s income.
The percolation of ‘benefits’ to the ground level in respect of the three earlier cuts aggregating 75 basis points has been less than 50 per cent so far. Some banks, of course reduced their cost on resources by reducing deposit rates.
Probably, a 25 basis point cut may not have much impact on any of the economic indicators including inflation till end FY 2016 and such an option will help Dr Rajan to bargain with FM on other issues at a better comfort level and also silence the economists who accuse him for going slow on ‘cuts’ for the time being.
RBI should consider reverting to quarterly schedule for Monetary Policy Review. There are enough fora for RBI to share its mind on policy issues between such reviews and technically, monetary policy measures including revision of base rates need not always coincide with such reviews. Lesser frequency of reviews may reduce scope
for external pressures and lobbying also to that extent.

M G Warrier, Mumbai


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