Big push to deregulation of savings rate

Freeing savings bank rate is a complex issue in India. The Reserve Bank of India (RBI) recently launched a debate on this issue by presenting a discussion paper prior to its Annual Monetary Policy for 2011-12.While announcing the policy, the RBI has also raised the savings bank rate from 3.5 per cent fixed in 2003 to 4 per cent. The spread between savings deposit and term deposit rates has widened significantly in recent times. This was why the RBI raised the savings bank rate, while a decision on freeing these rates was pending before the central bank for a final decision.

A departure from conventional approach

The Annual Policy 2011-12 was substantially different from all other recent monetary policies announced by the Reserve Bank of India (RBI). While it stressed more on the current as well as future inflationary pressures and the ways and means to mitigate its horrors, the RBI decided to sacrifice the prevailing growth rate and cut that to 8 per cent for 2011-12 from the last year's 8.6 per cent.A subdued RBI Governor D. Subbarao was at pains to explain how inflation would affect growth. He has also admitted that RBI failed to judge or foresee the inflationary pressures early, which even affected the credibility of the RBI.