A crucial and out of expected step has taken by Reserve Bank of India regarding basic points reduction of bank’s interest rate that has accepted by businessmen and the finance minister. It is of the first time in three years that RBI cut of rate repo.
In his statement, RBI Governor Duvvuri Subbarao told that the bank had decided to raise economic growth through a 50-basis-point cut in interest rates. This is unexpected by marketers and investors who had seemed a 25-basis-point cut from government officials.
From past many years, fact of reduction was going in mind of Governor, a former finance secretary, who had also advice from an internal panel to reduce rates.
“I don’t think you should read us by what people are expecting us to do, or should read us by whether we deliberately want to surprise the market. That’s a professional judgement. We have taken into account both growth and inflation dynamics,” governor told source.
This unexpected reduction is completely based on growth and fight against inflation, but if by this action, price pressure revive then govt. will raise rates again.
Welcoming the Governor’s decision, Finance Minister Pranab Mukherjee said, “The growth which has weakened in past months should now improve. The monetary policy announcement should help in investment revival and contribute to strengthening of business sentiments.”
Along with plan to raise investments, RBI also enhance liquidity measures because it directed to increase the banks’ borrowing limit by double amount to 2%.
Now meanwhile, it has said that money market will run smoothly and effectively in the track of market, helping to raise more investments to govt. but one doubt is that it may kept the governor’s creditability under risk and is the corporates and individuals benefit immediately.
