Hr Library

How To Make The Horse Drink Water

Source | Linkedin | Tamal Bandyopadhyay | Consulting Editor, Business Standard & Senior Adviser, Jana Small Finance Bank

When it comes to monetary policy, a career bureaucrat could be more innovative than an economist. Reserve Bank of India (RBI) governor Shaktikanta Das has proved that.

After taking three baby steps since February, when the rate cutting cycle started, he changed track last week: No more baby steps (25 basis points or bps rate cut); not a giant step (50 bps) either. He followed the “golden mean” of the Buddhist philosophy – a 35 bps rate cut, bringing in the policy rate to 5.4 per cent.

Indeed, it was the decision of the rate setting body of the Indian central bank, the Monetary Policy Committee, but Das has been advocating such odd cuts for months now, as there is nothing sacrosanct about a 25 or 50 bps move that traditionally the RBI has been opting for. For him, 25 bps is too low and 50 bps is too high — a 35 bps cut is appropriate, at this juncture. If the same trend continues, the next rate cut could be 15 bps or even 40 bps, depending on economic conditions.

The Chinese central bank typically moves rates in multiples of 9 bps; for the European Central Bank, it is 10 bps; and the central bank of Taiwan, 12.5 bps. In the Das regime, the RBI will probably tread on the path of multiples of 5 bps.

Click here to read the full article

Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button