Cut Or Not To Cut Interest Rate - Eastern Mirror
Thursday, October 10, 2024
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Editorial

Cut or Not to Cut Interest Rate

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By The Editorial Team Updated: Sep 25, 2024 9:57 pm

The Reserve Bank of India (RBI) should tread cautiously as the chorus for adopting an easy monetary policy is getting louder with every passing day. It may be mentioned here that as the inflationary pressure on the economy has relatively eased, several countries, including the United States of America (USA) have decided to reduce interest rates by 50 basis points. Similar demands have also been raised in India, which so far has not shown any inclination to go this path. It has been predicted that the RBI might take a decision on the issue in its next meeting slated to be held on October 7-9. It will be the fourth meeting of the monetary policy committee of RBI this fiscal, where price stability and enhancement of economic growth will be discussed along with the much-talked-about interest rate. Many economists have suggested that the monetary policy be made easy as inflation has been tamed. But the RBI will have to examine various factors before lowering its guard against inflation. There are several factors that need to be discussed threadbare before reaching at a decision on interest rate.

First and foremost, the present global situation is a threat to economic prosperity. Two major ongoing wars and an unstable energy market could derail the world economy which is trying to return to normalcy after a prolonged spell of pandemic that brought economic activities to a standstill across the globe. The situation is not conducive for a healthy economic growth and all the nations should be ready with contingency plans. Secondly, erratic climatic conditions are another worrying factor as unseasonal rain, snow, flood, etc. have become the order of the day due to global warming, causing enormous loss to lives and properties. Thus, there is every possibility of suffering a setback any time, making it difficult to plan for boosting the economy. Thirdly, as various nations have adopted restrictive trade practices, an inflationary trend always remains high.

On the domestic front, maintaining restraint might the Indian economy well, rather than being too ambitious. The economic survey has predicted a growth rate of around 7 per cent for the on-going fiscal, which is a moderate one. For a better growth rate, the government has to pump in more funds in core sectors. But burdened by various welfare schemes, it may not be easy for the government to increase its expenditure. Another worrying factor for the Indian economy is the decline in consumption expenditure. This is evident from the Goods and Services Tax (GST) collection, is a consumption-based tax, which has not recorded any significant rise. The situation demands urgent measures for increasing the purchasing power of the citizens to enable the government to spend more on reviving the economic health of the country. So, it may be better for the RBI to wait for some time before taking the crucial call on interest rate.

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By The Editorial Team Updated: Sep 25, 2024 9:57:08 pm
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