Industry and consumers can look forward to lower cost of funds for the first time in two years after the Reserve Bank of India cut the cash reserve requirement of banks, likely to be the precursor to interest rate cuts later this year. But using unusually blunt language, Governor Duvvuri Subbarao made it clear that lower rates will depend on the government taking credible steps to rein in fiscal deficit. "In the absence of credible fiscal consolidation, the Reserve Bank will be constrained from lowering the policy rate in response to decelerating private consumption and investment spending," said Subbarao. "The forthcoming Union Budget must exploit the opportunity to begin this process in a credible and sustainable way."
Source: Economic Times
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