By Manish Gupta and Vishav
New Delhi–The Reserve Bank of Indias decision to cut lending rates goes beyond lowering the rates and gives a broad message that would impact the economy as a whole, says Economic Affairs Secretary Subhash Chandra Garg.
“As far as
the impact is concerned, these rate decisions play into the economy in a
very serious manner. It’s not just that there would be some reduction
in loan rates or something. But it gives a very clear stance,” Garg told
IANS in an interview.
He said the reduction in interest rates
for loans would just be the immediate effect of the RBI’s decision and
more symptomatic. However, the decision itself gives a broad message to
the economy that the lower interest rates are justified.
The
Reserve Bank of India (RBI) cut its key lending rate to commercial banks
by 25 basis points to 6.25 per cent on Thursday. It is the first cut in
one and a half years. The RBI also changed its stance from ‘calibrated
tightening’ to ‘neutral’.
The RBI’s move is designed to ease the
liquidity crunch, which had become a bone of contention between the
government and the central bank earlier. Incumbent Shaktikanta Das
replaced Urjit Patel as RBI Governor last December. Das presided over
his first Monetary Policy Committee (MPC) meeting that brought in the
rate cut.
“All the economic operators, borrowers, lenders take
(RBI rate cut) into account, they reassess their costs. So, it plays
into it. There are different transmission channels through which the
monetary policy is passed on. This is more important,” Garg said.
He
said the monetary policy affects the government borrowing rates, bond
rates and plays into other implications like investments made by public
and private sectors.
“Investment decisions are to some extent
affected by the interest rates prevalent in the economy. Logically in a
lower interest rate situation the investment should go up. However,
there are many other factors and it is not one exclusive factor,” he
said.
As for the sudden rate cut despite the RBI keeping the
‘calibrated tightening’ stance, which indicates the possibility of a
rate hike, Garg said the bank may have named it ‘calibrated tightening’
but their thought in the details reflected more of a ‘neutral’ stance.
“The
last policy had continued with ‘calibrated tightening’ in words but in
the body of the policy statement, if you note, that spoke of virtually
‘neutral’ stance. In words it was ‘calibrated tightening’, but actually
it was ‘neutral’,” the Secretary said.
On whether he expected
the easy monetary policy trend to continue for some time in the near
future, he said all depends on the situation prevailing two months from
now when the next bi-monthly MPC meeting will be held to review the
rates.
On the interim dividend that the RBI is expected to
transfer to the government, Garg said the bank’s central board will take
a decision on it based on the profit it makes and on the needs of the
bank before deciding the amount to be transferred.
As per the budget estimate for 2018-19, the government had assessed it may get Rs 68,000 crore from the RBI as its dividend of which it has already received Rs 40,000 crore. The RBI’s central board meeting is scheduled on February 18. (IANS)
