THE RBI AND THE GOVERNMENT ARE NOW ALIGNED ON BOOSTING GROWTH

The Reserve Bank of India (RBI) Monetary Policy Committee's decisions, on Friday, show that the central bank is now unequivocally choosing growth in the perennial growth-inflation trade-off. This is the correct approach at this time.

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The first major decision was to cut the repo rate by 50 basis points to 5.5%. It comes on the back of two cuts of 25 basis points each, in February and April. With the latest retail inflation coming in at a 69-month low, and generally exhibiting a subdued trend, price stability has now been relegated as a secondary concern.

These rate cuts will, once the banks transmit them to borrowers, make it cheaper for companies and consumers to borrow to invest and purchase.