When inflation continued to remain above the comfort level that is above the RBI’s projected levels, there was a strong case for a big- bang approach. A significant rise in the reserve ratio, for instance, conveys RBI’s message in clear and loud terms. Baby steps are of little avail under such circumstances. Empirical experience corroborates this, approach, as RBI’s policy action in the 1980s demonstrates. Such drastic steps have a demonstration effect in the sense that bankers are made to sit up and follow a more discriminatory policy of disbursing credit both quantitatively and qualitatively. One hopes that this adult step of RBI Governor would yield the desired results.....
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