RBI rate cut signals shift in monetary policy direction: CEA Arvind Subramanian

By: | Updated: January 15, 2015 6:42 PM

Confident that RBI's decision to cut interest rates would give a major fillip to the economy, Chief Economic Advisor Arvind Subramanian...

Confident that RBI’s decision to cut interest rates would give a major fillip to the economy, Chief Economic Advisor Arvind Subramanian today said it signals a shift in the policy stance and direction going forward.

“It will provide a fillip to the economy, both directly and indirectly,” he said, adding that directly it will increase spending by private sector – both consumers and firms- and indirectly it should help by improving both balance sheets of private sector and banks.

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“It’s a really welcome move and consistent with the strong ongoing disinflationary pressures in the economy. It is a significant move because it signals a shift in the stance and direction of policy going forward,” Subramanian added.

The Chief Economic Advisor said that the RBI Governor Raghuram Rajan had earlier said he does not want to cut rates and therefore this rate cut is consistent with strong disinflationary pressures.

In pics: Check out what happened last month when Raghuram Rajan refused to cut rates

However, any further rate cut will be depend on aggregate demand on economy, he added.

Meanwhile, Union Road and Highways Minister Nitin Gadkari described the RBI rate cut as a “good step”.

“It is a good start. We were expecting this for a long time. This is a good step because interest cost in our country as compared to dollar and yen is higher. So the RBI decision is very helpful for the road and shipping sectors. We welcome this decision and our industry is expecting more,” Gadkari said.

Also read:

* Lone ranger Raghuram Rajan fights for RBI autonomy amid rate cut rants

* Dec 2 meet: When Raghuram Rajan refused to cut rates

* Dec 2 meet: On interest rates, markets proposed, RBI Guv Raghuram Rajan disposed

* RBI can’t flip-flop on interest rate: Raghuram Rajan

Check out the reactions to the poll on RBI rate cut we asked on January 14, 2015:

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