Thursday, August 9, 2012

Causes and cures for India’s current account deficit

....Excess demand, we have seen, is not driving the CAD, since growth has fallen below potential and the latter itself is falling as investment slows. Even so, the RBI cannot afford cuts in its repo rates now. Credit growth has fallen, but deposit growth has fallen even more. If banks cannot, then, reduce deposit rates – post-tax real returns to them are still negative – it limits the transmission of lower policy rates......

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