RBI should reconsider its stance of holding the policy rates steady given the current economic ground reality. India will need a 250 bps rate cut in the next seven months.
Mr. Dhuri in his recently published article titled “Guiding policy-making through the fog of COVID-19 induced lockdowns” questions the underlying logic of keeping the interest rates steady while we have strong de-growth, disrupted supply, and non-demand driven inflation in the economy. He also talks about how the Taylor rule of monetary policy can be used as a guide in this scenario. Running the numbers using the Taylor rule presents us with some interesting finding for the March 2021 policy rates and highlights the fact that India may need a 250 basis points rate cut in the next seven months
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Published at Fri, 04 Sep 2020 07:00:00 +0000