If the outstandings in repo borrowings and the reverse repo accounts of banks are netted, the sum will be quite insignificant to create any impact on the economy. Moves such as these seem to give the impression that the banks are dependent only on repo borrowings from the RBI to fund their lending programmes. The major source for the banks to lend comes from the deposits received from public loan repayments from borrowers, and internal accruals by way of profit surplus. The repo borrowings can be resorted to by banks for a very short-term duration of 3 days, to tide over overnight shortfalls. In the huge volume of resources at the disposal of the banks, the repo outstandings constitute a very minute, insignificant percentage and hence can't create any impact on inflation. As suggested by Kaushik Basu, Adviser to the Union Finance Ministry during the previous rate hike, the RBI should think of out-of-the-box solutions to contain inflation rather than the stereotype reaction in the form of a rate hike. Business newspapers should critically evaluate the measures taken by the RBI, instead of showering encomiums every now and then.
V. Raghavan (BS)
