ERRING ON THE SIDE OF CAUTION

DEMAND BEING THE MISSING FACTOR, POLICY SUPPORT MUST CONTINUE TO BOOST CAPEX

- M.G. Arun

It was a toss-up between slashing interest rates to aid economic growth and leaving them as they were to quell inflation worries. The six-member, Shaktikanta Das-led monetary policy committee (MPC) of the Reserve Bank of India (RBI) made a 4-2 decision against a rate cut. It meant the repo rate - the rate at which commercial banks borrow from the RBI―would remain at 6.5 per cent. The central bank, Das said in what was his final press meet as RBI governor following the MPC meetings that concluded on December 6, would, true to its charter, "remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth". With Das's steady hand off the wheel on December 10, Sanjay Malhotra, an IAS officer of the 1990 batch and revenue secretary in the Union finance ministry, has been appointed as the new RBI governor.

Das, who as governor had a veto power in the MPC, chose not to deviate from the conservatism he has maintained ever since high inflation began to hurt spending two years ago. He ardently believed lowering inflation by keeping interest rates high put more money in people's hands, which, in turn, spurred demand and growth.

It was certainly not what Union ministers Piyush Goyal and Nirmala Sitharaman wanted to hear, as both had expressed in public what many read as the Narendra Modi government's wish - bringing down interest rates to support growth.

What the RBI has done, though, is cut the cash reserve ratio (CRR)-the percentage of cash a commercial bank is required to keep in reserve with the central bank as against its total deposits - by 50 basis points to the pre-pandemic 4 per cent. This will release liquidity to the tune of Rs 1.16 lakh crore into the banking system, augmenting the banks' capacity to lend to industrial and retail customers.