The monetary dilemma

Effectiveness of the policy needs to be questioned

Financial markets expect the monetary policy committee (MPC) of the Reserve Bank of India (RBI) to cut the policy repo rate for the sixth time in the current cycle this week. Since growth in gross domestic product (GDP) slowed further to 4.5 per cent in the second quarter of the fiscal year, and growth in nominal terms collapsed to 6.1 per cent, with no clear sign of a strong revival, cutting policy rates would seem to be the logical choice. However, the decision is unlikely to be so straightforward. The MPC will need to consider a number of issues and