This refers to the editorial "RBI's monetary response" (March 5). The 25-basis point rate cut announced by the Reserve Bank of India (RBI) is only symbolic. The repo rate is a signaling tool to help economic agents anchoring inflation expectation. In the absence of any explicit calibration of the policy rate with expected inflation level in the public domain, gauging the implication thereof would always be a matter of conjecture. However, the size of the rate cut tends to indicate the strength of conviction on the part of the central bank with regard to the sustainability of the apparently mitigating supply-side constraints, particularly in the food sector.
The effects of governmental policy interventions and reforms towards easing of the supply-side constraints in the food sector on a sustained basis are not significantly discernible. The consumer price index continues to be prone to escalation on account of spikes in food prices due to supply-side shocks and inadequacies of the distribution channels.
Biplab Chakraborty Kolkata
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