You have argued for lowering the interest rate (“Change in policy stance”, December 7). The current interest rate regime does not affect the agricultural sector due to government subvention. Still, the driver of inflation now is mainly food articles of which there is no shortage. That inflation can result in a decline in the real demand for goods and services and in growth is a fact that many observers do not realise. People learn to live with inflation by cutting down the amount of goods and services consumed. The villain of the piece is the enormous increase in money supply and the consequent pressure on aggregate demand. There is no shortage of liquidity. Against the norm of 70 per cent, the credit-deposit ratio is 74 per cent, backed by central bank money. The year-on-year incremental credit-deposit ratio is nearly 80 per cent. The excess investment in statutory liquidity ratio securities is five per cent, which carries the potential for banks to get more than Rs 2.5 lakh crore at the repo window that has become a refinance window. In addition, the banks have invested more than Rs 65,000 crore in mutual funds; that can be drawn upon any time.
A Seshan, Mumbai
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
Fax: (011) 23720201 · E-mail: letters@bsmail.in
All letters must have a postal address and telephone number
