Letters to the editor

Published: December 10, 2016 6:29 AM

The market earlier was expecting a rate-cut of 25 bps, though anything above would have been a surprise. However, the Monetary Policy Committee of RBI on December 7, after taking a cautious view of the prevailing economic situations both at home and abroad, came out with a bigger surprise by holding the rates for now.

MPC’s stance is the right one

The market earlier was expecting a rate-cut of 25 bps, though anything above would have been a surprise. However, the Monetary Policy Committee of RBI on December 7, after taking a cautious view of the prevailing economic situations both at home and abroad, came out with a bigger surprise by holding the rates for now.

This was totally unexpected, and yet, it is an audacious step in the context of the mounting pressure from various quarters vis-a-vis the pressing need to spur growth. Global economic situations, as perceived in the short- to medium-term, are expected to remain fluid and volatile. Concerns over upside risks to inflation linger, to be sorted out though the increase may not be too high.

Again, it will be some time before we get to understand the real impact of demonetisation on the economy, and the resulting uncertainties will have to be closely monitored. That warrants exercising caution. RBI had already indicated earlier that the incremental CRR announced was purely a temporary measure. The banks had already acted on it, and therefore they can heave a sigh of relief. Pausing is a step forward; allow things to stabilise before beginning with rate-cuts. Overall, the monetary policy stance remains accommodative.

Srinivasan Umashankar, Nagpur

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