RBI chips in but spurring growth is an uphill task

The central bank's rate cut pivots its policy in favour of economic growth over price stability amid uncertainty on both. It can't do all that much, though, to spur the Indian economy on

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The interest charged on loans is the most important price in an economy. And its rate is nudged up and down by the lender of last resortthe Reserve Bank of India (RBI) in our case-for good reason. It helps keep the economy's growth path stable. Inflation held on a tight rein, RBI's explicit mandate since 2016, is aimed not just at public relief on the cost of living, vital in itself, but also at easing the cost of capital: it lessens the risk of lenders being repaid less in real terms because of a shrunken rupee. On Friday, RBI Governor Sanjay Malhotra did well to defend its inflation targeting framework in his first monetary policy statement since taking charge. He also announced a policy rate cut of a quarter percentage point. In its first such easing move since the 2020 covid outbreak, RBI's Monetary Policy Committee (MPC) reset its repo rate to 6.25%. "The MPC, while continuing with its neutral stance," Malhotra said, "felt that a less restrictive monetary policy is more appropriate at the current juncture." RBI's top priority has thus pivoted from quelli