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Central Bank initiatives for reducing inflation
In the review of the Reserve Bank of India's latest monetary policy, the RBI has tried to break the old trend of policy of inaction, which was going on for the last few months. Despite the low retail (CPI) and wholesale (WPI) inflation, loan interest rates in India are the highest in the world.

In the meeting chaired by newly-appointed Governor Shakti Kant Das, the Monetary Policy committee (MPC) has cut the repo rate by 25 basis points. Four votes in favor of deduction, while two votes in opposition. Shri Viral Acharya and Shri Chetan Ghate voted in favor of maintaining the policy rate at 6.5 per cent. Shri Das said that the inflation rate remains low. Indicators of food value will remain at lower levels in the coming days. In this case, it is necessary to eliminate inactivity and create a positive environment for growth. The details of the monetary policy committee's meeting on February 5 and 7 indicate that 6 members were certain that the inflation would remain at the lower level in the coming months. However, there was a difference between the levels at which level it would be, and for how long would such a situation be maintained. Members also believed that the prices of crude oil would be stable at a lower level and there will be no change in food prices.

The Reserve Bank had several indications of low inflation. The future pace of inflation will depend on food prices, but there is less chance of lowering the price of food grains in the coming days, while there is no possibility of supply shortage. At the moment, the biggest challenge in the path of growth is uncertainty of global activities, but due to this, it cannot be properly assessed when and how the pace of inflation will take hold. Such a positive policy decision was important to the Reserve Bank. It was necessary to save the economy from shaking. This step can pave the way for the growth of the domestic economy.

Shri Dholakia, outward members of the monetary committee were advocating firmly to support to rate cut. He was looking at 50-60 basis points cut in rates. Shri Dholakia said that there is a dire need to cut rate and policy rates should be started by reducing the 25 basis points, while the Deputy Governor of the Reserve Bank, Shri Viral Acharya, was seeing a decrease in the price of some food items. Even so, they did not want to take a decision on the rate cut immediately. According to Shri Acharya, the price of crude oil is low, but its price can change at any time. According to Shri Acharya, the most important thing is that on the issue of price reduction in food prices, it should also be considered on the basis of the risk of stress in the agriculture sector.

On the basis of the current situation, it can be said that the Reserve Bank has decided to cut the policy rate under the leadership of the new Governor, Shri Das and made an unbiased decision. Now is the turn of the banks. If the bank cuts the loan interest rate, borrowers can be directly benefited, as well as it would be helpful in increasing the pace of employment generation. The economy would also be get accelerated by this move.

About the author: Satish Singh is currently working as the Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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