Business Daily from THE HINDU group of publications
Friday, Feb 16, 2007
ePaper
Business Daily from THE HINDU group of publications Friday, Feb 16, 2007 ePaper |
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Opinion
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Letters Inflation
In a move to contain inflationary pressures the RBI has raised the cash reserve ratio from 5.5 per cent to 6 per cent in two phases. The two-phase hike of 0.25 per cent each, effective from February 17 and March 3 respectively, will absorb Rs 14,000 crore from banking system. As a result, lendable resources of the system will be reduced to that extent and bank credit will be dearer. This hike will result in increase of the lending rates, whether for production or consumption. The RBI can address only the demand side through such an approach. The need of the hour is to curb only consumption credit and not production. On the other hand there is urgent need to increase supplies of food products and manufactured goods, for which credit flow to the farm sector and industry must increase. The CRR hike succeeds the repo rate hike. The combined effect will tell upon expansion of productive credit as well and this is not desirable at this stage. The Governments at the Centre and the States should take urgent action to make available adequate credit at competitive interest rates and offer other incentives. Inflation can be contained only if supply-side and demand issues are effectively addressed, apart from initiating appropriate fiscal measures. K.K. Ammannaya Udupi
Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in
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