...........RBI’s earnings are from overnight lending to banks, as well as ways and means advances to governments and commissions. It has another source of earnings in the form of incomes from foreign exchange reserves. That income has shrunk considerably since 2009-10, by over 60 basis points. This year, those spreads could fall further as RBI’s income from foreign currency assets shrink further. So if RBI were to scrap CRR or pay interest on them, spreads would shrink. It is from this income that RBI pays its dividends to the government. But is there merit in the central bank’s stance? RBI is a statutory institution and should worry less about the dividends it pays and pay more attention to the state of the economy. The central bank cannot deny responsibility for the present stagflation and rising unemployment in the country.
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