Recession waves roaring in U.S and the interest rate cut by the FED is sent as an abatement in response to it. Although it will benefit the recent sub-prime crisis, the impact of this rate cut to 3.0% in interest rate is far fetched.
As a common understanding we all know the interest rate cut will boost borrowing and hence economic activity. On the other hand this rate cut when done in isolation when the central bank in the rest of the world are not in a compulsion to do so, will leave the capital movement out the country. This is surely detrimental to the business in U.S. as the capital formation will be difficult. It also leaves the U.S dollar to loose value becuase of the interest rate differentials.
Largely the credit policy of RBI - the annual report of the policy measures by our central bank has laregly disappointed the Indian Industry which has to keep their investment plans in abeyance. Belying expectations of a softer interest rate regime, the Reserve Bank in its third quarter review of of monetary policy kept banks rate, repo rate, reverse repo rate and cash reserve ratio unchanged in a bid to maintain financial and price stability.
Now this stand by RBI is surely debately particularly given the current rupee strength. But certainly it is going to a be precautionary move against the price rise. Every single conservative policy has its toll in our growth story. One justification for this indifference is the shorter business cycles in India and the growth being fuelled by the capital inflows. As this is policy needs some time test which will be based on the growth in the country.
This particular scenario would have helped any one new to the macroeconomics to sum up all what we have seen so far - inflation, business cycles, interest rates, exchange rates. It may be unfavorable for many Indian Industries, but the current situation has certainly enhanced our learning in macroeconomics favourably!
As a common understanding we all know the interest rate cut will boost borrowing and hence economic activity. On the other hand this rate cut when done in isolation when the central bank in the rest of the world are not in a compulsion to do so, will leave the capital movement out the country. This is surely detrimental to the business in U.S. as the capital formation will be difficult. It also leaves the U.S dollar to loose value becuase of the interest rate differentials.
Largely the credit policy of RBI - the annual report of the policy measures by our central bank has laregly disappointed the Indian Industry which has to keep their investment plans in abeyance. Belying expectations of a softer interest rate regime, the Reserve Bank in its third quarter review of of monetary policy kept banks rate, repo rate, reverse repo rate and cash reserve ratio unchanged in a bid to maintain financial and price stability.
Now this stand by RBI is surely debately particularly given the current rupee strength. But certainly it is going to a be precautionary move against the price rise. Every single conservative policy has its toll in our growth story. One justification for this indifference is the shorter business cycles in India and the growth being fuelled by the capital inflows. As this is policy needs some time test which will be based on the growth in the country.
This particular scenario would have helped any one new to the macroeconomics to sum up all what we have seen so far - inflation, business cycles, interest rates, exchange rates. It may be unfavorable for many Indian Industries, but the current situation has certainly enhanced our learning in macroeconomics favourably!
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