With fears of slowdown rising high and the cause being attributed to the conventional policies of the Reserve Bank of India (RBI), a deputy governor of the central bank said it was “a bit misleading count” to say that interest rates have been raised on 13 times and inflation still has not come down.
“Keep in mind, we started from a very very low base. In these 13 times, we also returned to normalcy. The crisis response took the call rate to 3.25 per cent. I think, to argue that we have raised interest rates 13 times and nothing has happened is an injustice,” said Subir Gokarn, deputy governor, RBI at a meeting recently. After the global economic crises of 2008, the RBI took immediate measures to keep the situation under control. The repo rate, which was at nine per cent in early October 2008, was slashed by 100 basis points (bsp)on October 20, then by 50 bsp on November 3 and again by 100 bsp on December 8 the same year.
The repo rates went down to 4.75 in April 2009 and were kept stable till March 2010 when the rise began.
At the same time, the reverse repo rates were slashed in December 2008 by 100 bps and were gradually brought down to 3.25 per cent by April 2009, from 6 per cent in October 2008.
The high inflation of 9.89 per cent in February was followed by the first rise in policy rates on March 19, 2010. Since then, the rates have been raised 13 times from 3.25 per cent to 7.50 per cent for the reverse repo rates, while for the repo rates the rise started from 4.75 per cent and reached 8.50 per cent in the last policy review in October 2011.
Justifying the action of the banking regulator, Gokarn said, “Moving from 3.25 to 6 or 7 per cent or whatever the neutral rate might be, was itself a process that would have happened in any case. But after that, we of course, had to deal with inflation pressures. In the last one year, clearly the impact of interest rate rise is visible on the growth momentum.”
India’s economy expanded by six-quarter low of 7.7 per cent during April-June and signals of the second quarter of this financial year are also not promising.
Industrial growth remained sub-five per cent in the second quarter and fell to a two-year low of 1.9 per cent in September.
