Immediately after presenting his budget speech in Parliament, the finance minister said in his first televised interview on Doordarshan that his fiscal policy initiatives had "created the environment" for the RBI governor to effect a further cut in interest rates. Most expected Mr Jalan to follow suit, but few thought he would do so the very next day. In the event, the deed is done. This, however, is only a facilitating exercise. The real impact of the reduction in the bank rate can be felt on the economy if banks transmit this signals downwards, which some have started doing. But more importantly, the final cost of funds for corporates will remain way above the bank rate floor of 7.0 per cent as long as the market is littered with customers with questionable credit-worthiness of varying proportions. There are few companies which are in fact eligible for funds at such favourable rates. While the RBI has responded to market expectations on rate cut, it must remain equally alive to public concern aboutinflationary pressures. If the rate of inflation is allowed to accelerate any further, it will be difficult for the central bank to stay the course on interest rates.