As growth accelerated and inflation threatened to hold back the economic recovery, the Indian Central Bank decided to raise the cash reserve ratio, the proportion of deposits banks are required to set aside as reserves, by 0.75 percentage points to 5.75. We have previously discussed about contractionary policies which the Chinese Central Bank has recently carried out in order to reduce the risk of a bubble economy. Similarly here, tighter credit control would serve to restrict lending from commercial banks in India, hence cooling down the heating economy.
It was also mentioned that there would be long time lags before new policies had perceivable effects on the economy (the lag is usually between 6 to 12 months), making a timely start of the withdrawal of monetary stimulus highly necessary. By taking early actions, the Indian Central Bank should be able to help the economy maintain a long-term healthy growth rate.
I am happy to see that the India central bank seems to be so intelligently handling the crisis, the deft fiscal and monetary policy that India seems to have adopted during this crisis looks to further ensure its status as a growing economic powerhouse.
ReplyDelete