The Hindu Business Line : Monetary policy

The RBI has done a commendable job in its annual monetary policy report for the fiscal 2009-10. By maintaining the CRR and other key rates it has safeguarded its role as a key player in the banking sector.

But the disappointing fact is that even though the RBI has once again reduced the repo and reverse repo rates, the banks can do nothing much to increase lending.

This is because lending rates are calculated effectively with the CPI as the reference value and not the WPI. And though the WPI has reached near zero levels, the CPI hovers close to double digits.

Something is basically wrong in the system which is hindering the banks and preventing them from reducing their lending rates. As a result, the stimulus package rolled out by the RBI may have but little effect on the economy, if at all. It is time the RBI took some serious steps to fix the flaws in the system.

S. Sankaran Kumbakonam

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