Central bankers are known to always skate on thin ice, for their business is making things
possible—for the businesses, and for the
economy as a whole. And during periods like now when the world economy is
passing through the worst crisis next only to that of
the 1930 economic depression—that too, a crisis that started in the
country which had assisted many other countries in
weathering the 1930 crisis, thus leaving the world today with no such
support—the skating becomes still more challenging for central
bankers from emerging economies.
Nonetheless, the decisions of central bankers, whether they are right
or wrong—just as Keynes wrote that "the ideas of economists and political
philosophers, both when they are right and when they are wrong, are more
powerful than is commonly understood"—are
of great consequence for the economy. Perhaps, that is exactly the fix in
which Duvvuri Subbarao, the Governor of Reserve Bank of India finds himself today.
Against this backdrop, the governor came up with a courageous stance:
aggressive policy initiatives—reducing repo rate by 425 basis points to
4.75%, reverse repo rate by 275 basis points to 3.25%, and the CRR by 400 basis
points to 5%—that the RBI has adopted since September 2008 to supplement the
liquidity in the crisis-ridden system, so as to ensure that global financial
crisis will have least impact on our growth, have been put on hold by leaving
these rates unchanged.
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