No Real Need for a Rate Cut

Though it might be alright for industry and commercial banks to advocate for a rate cut by the Reserve Bank of India (RBI), it seemed the coverage given in the newspapers to the issue has been more than is probably necessary.

The Indian situation is quite different from the conditions in other countries. Here, due to the existence of a large black-money economy, the effects of rate cuts are not obvious and might not result in an increase in credit. Rather, the reduction in interest rates between the central bank and commercial banks and subsequently, the RBI’s interest rates being charged to the ultimate borrowers do not show any definite pattern. This would be obvious from growth patterns of non-consumer durables, i e, capital goods (positive) and consumer durables (negative), which could be directly related to the lack of demand for consumer durables due to weak kharif production. Needless to say, India is still an agriculture-driven economy.