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October 23, 2001
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I expect modest response, says Jalan

To do is my dharma. To expect anything in return is ignorance. That seemed to be Bimal Jalan's mood when he met Business Standard after announcing the monetary policy. The RBI governor may have cut the rates and pared the CRR, but he is not sure what they will yield, if anything at all.

Excerpts from the exclusive interview:

Why this bank rate cut and reduction in CRR?

Inflation is much more benign and with industrial situation worsening, it seemed desirable to reduce CRR for the medium-term, and bank rate for the short-term.

What forced you to rely on a rate cut when you recognise adequately that it is not a very effective instrument?

Sentiment, you may call it. There is a general feeling among bankers that with international rates falling dramatically, we also need to have lower rates. This may help boost confidence.

Or is that you are basically providing liquidity in anticipation of the government overshooting its target, which it obviously will. Are you building that into the system?

That's not the consideration right now. There is enough liquidity in the system as it is.

What do you expect from bankers, corporates, government and the system in general?

Greater confidence about the future. We have done our modest bit and we expect a modest response.

Where do you see growth being impacted, if at all?

The only understanding RBI has is that this is the right thing to do at this point of time. Hopefully, this will have a favourable impact. If the world environment improves, and the investment climate improves, we shall see some impact on growth.

Do you expect banks to cut rates?

No I don't expect anything

Do you think credit offtake will pick up?

It depends on how the industrial demand behaves. And the RBI cant induce that.

Are you constrained by the state of the fisc?

Not in terms of the monetary management position. There is no specific problem, or inflationary pressure emanating from that area. But yes, I am as worried as you are about the state of the fiscal deficit.

You have issued a veiled threat: no further cut in interest rates due to structural rigidities.

No, I haven't said that. The role of the bank rate is limited to reduce the actual lending rates of the banks because of various structural rigidities. It doesn't mean that bank rate is a less effective instrument unlike the discount rate of the US Fed.

In so far as the RBI is concerned, the bank rate will continue to be the signal rate.

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