This refers to the report “Subbarao’s tightrope walk” (September 17). By reducing the cash reserve ratio (CRR), the Reserve Bank of India (RBI) has tacitly admitted to the greater effectiveness of a CRR cut vis-à-vis a repo rate cut in order to reduce lending rates. A huge part of the credit for this policy move must go to State Bank of India Chairman Pratip Chaudhuri who brought the issue into focus a few weeks ago, initiating a healthy and widespread debate on various aspects of this policy rate. The empirical evidence presented by Chaudhuri seems to have convinced not only RBI, but also top experts like C Rangarajan and Montek Singh Ahluwalia who are now unequivocally endorsing the relative superiority of a CRR cut as a policy instrument for inducing lower lending rates. Maybe we can look forward to a further lowering of CRR in the months ahead.
Parthasarathy Chaganty New Delhi
...and RBI’s caution
By keeping the key policy rates unchanged in the mid-quarter review of the monetary policy, the central bank has indicated its renewed resolve to fight inflation. A cut in the cash reserve ratio by 25 basis points to 4.5 per cent will make the liquidity position of banks comfortable and enable them to lend productively. To put it in a nutshell, it is a cautious policy announcement that intends to strike a fine balance between growth and inflation.
Srinivasan Umashankar Nagpur
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