Tuesday, April 5, 2016

Bi-monthly Monetary Policy can lower borrowing rates

RBI Governor in his first Monetary Policy during the current financial year has cut the key policy rate by 0.25 percent to 6.50 percent and sends the message louder than ever that banks should pass on the rate cut to their clients to pump prime the economy.

In the backdrop of a supporting fiscal policy and pressures built on the cut in interest rates by the government on its savings schemes all the eyes were on the RBI for a cut in key policy rates. The Governor proved that he is not going to be political but economic.

Growth of domestic savings has hit the lowest rate during the last three years. Inflation - particularly food inflation - still is a cause for anxiety in the backdrop of series of monsoon failures. Weather is weather and the hopeful forecast for the current year by the Met Department has to be taken with a grain of salt.

Banks have been provided a liquidity window should they need to use it, easier than ever. He recognized also the inability of banks to go beyond a point in lowering the interest rates due to their pile of NPAs, which he stressed shall move down southwards day after day if not hour after hour.

Banks should discipline themselves and discipline their borrowers and promote growth is the clear message of the policy.