Does the CRR cut indicate anything about the future direction of interest rates?
One thing that the CRR cut clearly indicates is that the RBI sees the need for liquidity infusion, which it has achieved. Two, since this is a step that is contradictory to its anti-inflationary position, which it had adopted for the last few quarters, it suggests that the turnaround in the interest-rate cycle is not very far away. Given the prospects of inflation moderating in a few months, the costs of advancing the action are not very high. The RBI would have taken this step sooner or later. So why not do it at a time when it is most needed? In that sense, it does signal that the cycle is about to turn. Have we reached a stage where slowdown in growth has emerged as a bigger concern than inflation? A better way to answer this is to say that slowdown or no slowdown, the end of the inflationary spiral is clearly in sight. If you see inflation abating with a high degree of probability, then you can begin to focus attention on growth. Yes, growth is slowing down. Under normal circumstan
