The rate cut debate
In the column “The rate cut debate is over” (FE, December 1), only one side of the coin has been considered—that rate has to be cut purely looking at inflation which is providing the positive real interest rates and that too everyone knows that the cut can’t be more than 100 bps and still the interest rate is going to be positive. But what about REER, it is still overvalued. Foreign liquidity is high because the rupee is not depreciating for a long time and interest rate differential is significant. There must be a demand for money when interest rates are being reduced. The interest rate cut can’t affect the investment as the way to investment is choked due to some other reasons. For RBI, either devaluing the rupee or relaxing the interest rate should be the theme.
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