A bold cut

RBI governor sticks his neck out. It’s now over to the govt to address policy paralysis

Springing a surprise on the markets, Reserve Bank of India Governor D. Subbarao slashed the repo rate — the rate at which banks borrow from the RBI — by 50 basis points to 8 per cent. This is the first rate cut since April 2009, and no doubt, the best that he could have done to decisively shift the monetary policy stance from that of controlling inflation to spurring growth. Thirteen rate hikes between March 2010 and October 2011 have slowed down the economy, with the growth rate in the third quarter of 2010-11 dropping below the post-crisis trend rate to a two-year low of 6.1 per cent. Surely, the RBI must have closely analysed the trajectory of inflation, and specifically, non-food manufactured inflation that has continuously dropped over the past four months to...