Letters: Cautious optimism

Last Updated: Thu, Nov 01, 2012 19:53 hrs

Apropos the edit “Steady as it goes” (October 31), the Reserve Bank of India (RBI) has once again preferred not to tinker with the key policy rates, but reduce the cash reserve ratio another 25 basis points to infuse more liquidity into the banking system. Consequently, banks will be left with more lendable funds and earn interest.

There are, however, differences in RBI and government perceptions on the rate cut. RBI’s action clearly suggests that it will not risk cutting the repo rate for now for the sake of growth. In this context, RBI deserves a pat on the back for sticking to its commitment to bring down inflation, before cutting rates. The government, on its part, must strive to ensure greater fiscal discipline in a consistent manner that will effectively support RBI meet its goals.

Again, in the backdrop of a sharp increase in the number of restructured loans, a rise in provisioning from two per cent to 2.75 per cent on such restructured standard loans is a good step forward to expand the safety cushion and ensure financial stability. As the saying goes, “No pain, no gain.” The policy initiatives might not raise cheers in the short term, but have the potential to turn the economy around in the medium to long term. In a nutshell, it is a well-documented policy aimed at striking the right balance between growth and inflation.

Srinivasan Umashankar Nagpur

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