Monetary Policy of RBI

As India is suffering from stagflation, a situation of the economy when the rate of inflation is greater that the growth rate. So, the central bank of the country i.e. Reserve Bank of India governer Duvvuri Subbarao left interest rate unchanged. Repo rate, the rate at which RBI lends money to the banks, is unchanged at 8% and Reverse repo rate, the rate RBI pays banks for their deposited money, remains unchanged at 7%.

But, for increasing the money supply in the market, Reserve bank of India lowered Statutory Liquidity Ratio (SLR), the proportion of deposits banks have to hold in government bonds to 23% from 24%. Through this action, banks can lend more to the institutions and manufacturing houses.

RBI has also lowered the growth forecast for the India as the economic condition of the world is not good and the inflation rate is also high in comparison to the growth rate of the country. One of the reasons behind the higher inflation is the lower monsoon in the country as the agriculture of India, mostly dependent on it.

So, the decision of governor is good according to domestic and foreign condition.

I thinkĀ , government should have to take action to control the trade deficit of the economy, to control the devaluation of Rupee and to increase the growth prospect for India.