Why RBI should lower policy rates

.....The data tell us that while the economy has slowed down, prices continue to be sticky. The RBI did say in the past that it would not mind sacrificing a bit of growth to bring inflation under control. But the growth numbers for 2011-12 would surely have been a source of discomfort to RBI. In a recent interview, the RBI Governor, Dr D. Subbarao, pointed out that given the inflation dynamics in the economy, 7 per cent may be the potential growth rate. The implicit argument is that 7 per cent growth would bring down inflation to more acceptable levels. This approach, of effectively curbing growth, delayed the rate-easing cycle by almost two quarters, before its fallacy became evident......

 

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