There’s more to banking than repo rate | Business Line

There’s more to banking than repo rate | Business Line


The opinion makers have successfully sold the idea that monetary management is all about reducing or increasing base rates of the central bank. The anxieties being expressed in some quarters about a possible change of 25 basis points in Fed Reserve's benchmark rate give credibility to this idea. Whatever be the case in developed countries, in India RBI and GOI have to manage Montary and Fiscal policies by mutual consultation (recently Apex Court has reminded that 'consultation' in legal parlor implies consent!) in a harmonious manner. Several regulatory and developmental roles assigned to RBI over time cannot be taken away in one go by mimicking practices elsewhere.
M G Warrier, Mumbai

Excerpts from the article by S S Tarapore:

"Norms on marginal cost of funds

The policy statement stresses that since the rate reduction cycle that commenced in January 2015, less than one half of the cumulative policy repo rate reduction of 125 basis points has been transmitted by banks (the median base lending rate has come down only by 60 basis points). The Reserve Bank of India is on the verge of finalising the methodology for determining the base rate based on the marginal cost of funds. In the days of yore (1990s) the RBI did not hesitate to explicitly tell the banks as to what should be the reduction or increase in lending rates. But we have come a long way since and the RBI would do well not to use strong suasion to get interest rates down."

Use the link above to read the full article

M G Warrier


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