REGULATE INTEREST RATES
Abheek Barua: Can the new RBI governor be a dove?: To cut interest rates, the central bank head has to open up a debate on inflation target revision...
M G Warrier, Mumbai
Regulate interest rates
Apropos Abheek Barua’s article “Can the new RBI governor be a dove?” (July 22), let us be clear thatthe issues raised have very little to do with the individual who heads RBI. The policy formulation apparatus at Mint Road has been tampered by a blind Financial Sector Legislative Reforms Commission. The damage was controlled by the presence of one person called Dr Raghuram Rajan at the helm in RBI.
GOI forced inflation targeting on Reserve Bank of India even before there was consensus among stakeholders on the parameters that should form the basis for computing inflation! A governor whose tenure was too short to be apprehensive of any problem in meeting a target with enough leeway (4 plus or minus 2 percent) accepted the challenge. Now, experts are telling media that inflation can be controlled by changing the ‘measure’ used to quantify it.
As the main worry seems to be about ‘high interest rates’ why not go back to regulating interest rates? Such a change in approach will solve several issues GOI is confronting now. Differential interest rate for different categories of savings and differential rates of interest for borrowers from different sectors and different loan size groups can help cross-subsidisation and containing the losses of banks.
Perhaps, it would be easier to manage interest rates in the short term. This is not to argue that Reserve Bank of India’s role in keeping inflation under control should be diluted in any manner.
Perhaps, it would be easier to manage interest rates in the short term. This is not to argue that Reserve Bank of India’s role in keeping inflation under control should be diluted in any manner.
M G Warrier, Mumbai
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