Why hasn’t RBI cut policy rates despite its lack of control over food inflation?
1 month, 2 weeks ago

Why hasn’t RBI cut policy rates despite its lack of control over food inflation?

Live Mint  

With a 8% fall in stock prices from their peak on 26 September, those who make money from the business of selling stocks seem to be getting jittery. Once RBI cuts the repo rate, the hope is that banks will cut the interest rates at which they lend, people and businesses will borrow more and spend more, and this in turn will help the earnings of companies grow faster, thus ensuring that stock prices continue to rise at the rapid pace they have over the last few years. Maintaining interest rates at higher levels has been one part of this strategy to control non-food non-fuel inflation. This is referred to as ‘narrow money.’ RBI has controlled the growth in narrow money over the last few years so as to control non-food non-fuel inflation. In this scenario, if RBI had decided to cut the repo rate, banks would have cut their lending rates.

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