{"id":35624,"date":"2018-11-01T11:08:09","date_gmt":"2018-11-01T05:38:09","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=35624"},"modified":"2018-11-01T11:08:09","modified_gmt":"2018-11-01T05:38:09","slug":"dont-be-cautious-rbi","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/dont-be-cautious-rbi\/","title":{"rendered":"Don\u2019t be cautious, RBI:\u00a0"},"content":{"rendered":"<p style=\"text-align: left;\"><a href=\"http:\/\/indianexpress.com\/article\/opinion\/columns\/reserve-bank-of-india-rbi-repo-rate-cut-cautious-gdp-demonetisation-4801713\/\"><span style=\"font-weight: 400;\">Don\u2019t be cautious, RBI<\/span><\/a><span style=\"font-weight: 400;\">:\u00a0<\/span><\/p>\n<p style=\"text-align: left;\"><b>Context<\/b><\/p>\n<ul style=\"text-align: left;\">\n<li><span style=\"font-weight: 400;\">The Reserve Bank of India\u2019s decision to lower the repo rate was a move in the right direction.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: left;\"><b>Importance of repo rate?<\/b><\/p>\n<ul style=\"text-align: left;\">\n<li><span style=\"font-weight: 400;\">The repo rate is the interest rate at which banks can borrow money from RBI for short durations.<\/span><\/li>\n<li><span style=\"font-weight: 400;\"> It stands to reason that, if this is lowered, banks can lend to their borrowers at lower rates.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">This is the reason why changing this rate usually influences interest rates across the economy and in the same direction.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Raising the repo rate lowers inflation but also confines growth, while lowering it pushes up the growth rate but fuels inflation.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">India\u2019s inflation has been falling over several months and is now well below 2 per cent.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: left;\"><b>India\u2019s risk of low Inflation<\/b><\/p>\n<ul style=\"text-align: left;\">\n<li><span style=\"font-weight: 400;\">India now has a risk of sustained low inflation, which we know from the experience of other countries, most notably, Japan, can cause overall stagnation.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">As a result of the liquidity crunch associated with last November\u2019s demonetization, overall GDP growth in India is now down to 6.1 per cent per annum.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">India\u2019s investment-to-GDP ratio had risen since 2003 and was holding steady at above 35 per cent.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">This was a major factor fueling the country\u2019s high growth. This has now dropped to approximately 28 per cent.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The positive relation between how much money a country allocates to investment, especially in long-run infrastructure, and how fast its GDP grows is one of the more enduring findings in economics.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">If one of these countries raises interest rates, in today\u2019s globalized world, money will flow into the country from the other economies in order to earn the higher return.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">And as more players try to buy this country\u2019s currency to invest in it, the currency will appreciate, causing exports to suffer.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">India is erring by holding on to high interest rates, it is attracting capital flows into the country, as evidenced by the large foreign exchange reserve held by the Reserve Bank.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">This is causing the rupee to be stronger than it should be and this is, in turn, stunting exports, and also growth.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Don\u2019t be cautious, RBI:\u00a0 Context The Reserve Bank of India\u2019s decision to lower the repo rate was a move in the right direction. Importance of repo rate? The repo rate is the interest rate at which banks can borrow money from RBI for short durations. It stands to reason that, if this is lowered, banks&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/dont-be-cautious-rbi\/\">Continue reading <span class=\"screen-reader-text\">Don\u2019t be cautious, RBI:\u00a0<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-35624","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704845094},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/35624","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=35624"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/35624\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=35624"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=35624"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=35624"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}