How the process started - Deregulation of interest rates

The process of deregulation of interest rates was resumed in April 1992 when the existing maturity-wise prescriptions were replaced by a single ceiling rate of 13 per cent for all deposits above 46 days.The ceiling rate was brought down to 10 per cent in November 1994, but was raised to 12 per cent in April 1995. Banks were allowed to fix the interest rates on deposits with maturity of over two years in October 1995, which was further relaxed to maturity of over one year in July 1996.

The burden of debt - Opinion

In its recent monetary policy statement the RBI has met analyst expectations by raising the repo rate by half a percentage point (or 50 basis points) from 6.75 to 7.25 per cent. As a result, the repo rate today is two percentage points higher than the 5.25 per cent it was set at a year back, on April 24, 2010. The central bank is clear about the intent of its manoeuvre. Its statement issued on May 3 notes: “Over the long run, high inflation is inimical to sustained growth as it harms investment by creating uncertainty. Current elevated rates of inflation pose significant risks to future growth. Bringing them down, therefore, even at the cost of some growth in the short-run, should take precedence.”

‘No quick fix solution for lowering inflation'

Reserve Bank of India Governor D. Subbarao on Monday said it was unrealistic to expect the central bank to deliver on an inflation target in the short-term.“In an emerging economy like ours it is not practical for the central bank to focus exclusively on inflation oblivious of the larger development context. The RBI cannot escape from the difficult challenge of weighing the growth-inflation trade off in determining its monetary policy stance,” said Dr. Subbarao while addressing the meeting of Central bank governance group in Basel.

Regressive impact of world inflation - Opinion

The calibrated monetary policy aimed at taming inflation and at the same time sustaining the growth process has been given up. The Reserve Bank of India Governor D. Subbarao is anxious that persisting high inflationary levels should be effectively tackled, even with the growth process getting slowed down, for avoiding the emergence of new pressures.Towards this end, the repo and reverse repo rates have been raised by 50 basis points for the first time in recent months. Different procedures are, of course, being adopted for reckoning variations in key interest rates though the actual cost of credit will be one percentage point higher than the repo rate.