(LiveMint)
India’s central bank is under pressure for a cut in its repo rate. The provocation is a sudden slump in the economic growth in the June quarter to a three-year low 5.7% (from 6.1% in the March quarter), continuing with the slide for five successive quarters. Traditionally, everyone expects the Reserve Bank of India (RBI) to do much of the heavy lifting when economic growth is slowing and a cut in policy rate is perceived to be the most potent tool for achieving this goal.
The situation at this juncture is a bit tricky. The Indian central bank has given up its job of multitasking in terms of supporting economic growth, fighting inflation, managing liquidity and the local currency, and, of course, financial stability—all at the same time. By an Act of Parliament, it is now an inflation-targeter central bank.Can it give up that role, and can growth take precedence over inflation fighting, particularly when almost every analyst has gone back to the drawing board and raised their year-end inflation projection by 25-50 basis points on account of various factors? One basis point is 0.01%.
