...........The conference call that Reserve Bank of India Governor D. Subbarao had with economists a day after the announcement of the monetary policy on 29 January offered further proof that the external situation is a major worry. Many of the questions dealt with it. Subbarao said in one of his answers that future interest rate cuts will not depend on the inflation trajectory alone. The size of the current account deficit will also be considered. That statement should temper some of the more unrealistic expectations of deep rate cuts in the coming months. Meanwhile, former RBI Governor Y.V. Reddy has put forth an intriguing idea in his forthcoming book on Indian economic policy, which was excerpted in Mint on Monday. Reddy argues that India should aim for a zero current account deficit over an economic cycle, so that India has the space to absorb shocks in bad years.........
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