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RBI To Put Brake On Key Rate Hikes May Not Increase Interest Rates Any FurtherBy Ni3, Section Finance & Taxes
There has been strong consensus among the policy makers that Reserve Bank of India has overdone the rate hikes. But, there is good news in the offing for all stakeholders in the Indian economy that interest rates may have peaked for now.
"There is a growing consensus among increasing number of policy makers that RBI has over-reacted by infusing strong doses of rate hike in the economy," a well informed Government source told The Pioneer, adding, "it is safe to presume that the RBI may not increase interest rates any further." "The RBI had limited options and tightening monetary tools was the easiest. However, if one steps into RBI's shoes, it cannot be said that RBI has over-reacted by infusing doses of rate hikes," Director, Research Economist Intelligence Unit Manoj Vohra said. This augurs well for all the stakeholders in the Indian economy. On one hand, the aam admi can expect the costs of credit to stabilise be it the auto loan, home loan, or any other loans. On the other hand, the industry may not postpone viable projects due to escalating credit costs. On the macro side, the interest rates having peaked can provide much sought relief to the struggling financial markets, weakening rupee and address the slow down in the industrial engines of growth. Click On "Full Story" For More..
"Central bank interventions (to deal with the global financial turmoil) have been extraordinary and on a scale not seen since the Great Depression, demonstrating a resolve to act decisively against threats to financial stability," RBI had said the first quarterly review of the monetary policy in June.
The Reserve Bank of India has raised rates three times since June as a continuation of its aggressive tightening policy that began in 2004, which has slowed the rate of growth in the economy as a trade-off between growth and price stability. The RBI will announce mid-term review of the annual policy statement on October 24, 2008. The bank's key short-term lending is now at nine percent - a seven-year high. The trade-off between growth and price stability with tight monetary policy stance work by making money costlier, thereby transmitting pressure on prices to fall. Although, the growth becomes a clear victim as the increase in cost of funds slows down the industrial engine. "The transmission mechanism of the monetary policy in form of interest rates is not absolutely smooth as compared to the developed economy," the source explained. "The fundamental problem confronting the Indian economy is on the aggregate supply side that restricts expansion of much needed capacities be it food, fuel production, or infrastructure," the source explained further. "Fixing the aggregate demand is just a short run solution. The RBI has clearly taken excessive action to curb the aggregate demand, which has slowed the industrial growth and imperiled future investments as the capital goods sector has also taken a severe beating," the source emphasised. Source: Pioneer News Service 23/Aug/2008
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