India started to loosen monetary policy again last week. Many welcomed the move, but some of the strongest advocates of unorthodox monetary policy are asking if the Reserve Bank of India might be going in the wrong direction.
On January 29, the central bank cut its policy rate by 25bp to 7.75% and reduced banks’ reserve requirements by the same amount, and it is expected to cut rates by a further 50bp this year.
Duvvuri Subbarao, head of the Reserve Bank of India, explained in his monetary policy review that the cuts would have three effects
- investment will be encouraged ...
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