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RBI cut necessary, not sufficient
To create a conducive climate for investment, the revised repo rate (8 per cent) and bank rate (9 per cent) announced in the annual monetary policy 2012-13 by RBI Governor on April 17 are necessary steps but not sufficient. For making monetary measures sufficient, we need to create faith and confidence among the people at large and investors in particular. The RBI governor’s comments that ‘inflation remains sticky and above the tolerance level’ is not in good taste for the stake holders particularly middle class consumers who are affected more than any other category. We need to understand, analyse, interpret and adopt inflation targeting as a tool for management and control of inflation which is otherwise measured by adopting wrong methodology of point to point basis every month (earlier every week). The March rate of inflation 6.89 percent is calculated by comparing Wholesale Price Index (WPI) with that in March 2011 with base year of 2004-05 consisting of 676 goods in its basket. Let the banks treat the old and new customers equally for reduced borrowing cost of housing loans which is essential for enhancing the credibility of the respective banks with egalitarian outlook. Dr MM GOEL, Kurukshetra
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II After a gap of almost three years RBI has finally resorted to a positive monetary measure with an eye on improving industrial growth (editorial ‘Towards cheaper loans’, April 18) which indeed is a welcome step. Till now the RBI was jostling with a sharp north bound rate of inflation by trying to restrict money supply through frequent interest rate hikes. These kind of monetary measures act as a double edged sword which should be used with utmost care and caution. Clear vision, unambiguous thinking and immaculate execution make such steps effective in the real sense. The cut in the lending rates is sure to increase money supply, leading to increased demand and corresponding boost to industrial sector in the form of inducement to invest. The bullish tendencies witnessed by the stock markets should not be taken as indicators of sound health of the economy. Economy can be said to be on the growth track if actual growth rates start matching the projected ones besides keeping the inflationary trends under control. This can be done by giving encouragement to the industrial sector in the form of monetary and non-monetary motivation. Money flow in stock markets does not impact industrial growth therefore north bound sensex and nifty should not be seen as catering to industrial growth. Government should come out with economic package for industries too. Cheaper loans for industry would certainly lead to increased production and supply of goods along with the demand. It would facilitate proper and much required balance between demand and supply and would restrict inflationary trends. The need of the hour in the present scenario is to address both demand and supply effectively. SANJEEV TRIKHA, Fatehabad III
Let us not expect too much from RBI’s rate cut. Much will depend on delivery of bank credit and infrastructural development impetus by the Centre and state governments. RBI has limited control over micro economy problems. To quote: DRI (differential Rate of Interest) of RBI where, interest rate is simple 4% PA for loans upto Rs 15,000. Every bank is mandated to ensure that at least 1% of total credit is at 4% out of which 40% is to be given to SC/ST beneficiaries including housing loans upto Rs 25,000 for this category. None of the banks publish data on such loans in their annual returns for the progress made and target achieved. Let the defaulting banks be penalised for non-disbursal. Managing macro economics is the planners’ game and facing micro economics falls in the poor man’s kitty. Rate cuts should spur entrepreneurship at micro level to relish increased growth rates. B B GOYAL, Ludhiana
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