Growth is slowing. At the 5.3% official growth rate, India has grown the slowest in the March quarter in 8 years. Even that is considered suspiciously high, since we are shown a massive growth in exports and subdued imports that no other data point seems to corroborate. The Reserve Bank of India needs to cut rates, say many observers, while fighting for an armchair with yours truly.
RBI controls the rate at which banks can borrow from it, overnight, called the “repo” rate. If they do cut interest rates, how does it impact growth? The traditional answer — when banks can borrow at lower rates from the RBI, they will cut rates for industry and consumers, who will find their loans cheaper and thus make more profits, which will fuel investment and consumption and overall, more growth.Click here to read more…
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