'RBI should ease liquidity instead of cutting rates', Mishra said - focus should be on increasing the growth rate

If the RBI is willing to pick up the momentum for the growth, then rather than the rate cut, the RBI has to relax the liquidity. Neelkanth Mishra, the temporary member of the Prime Minister's Economic Advisory Council (EAC-PM), said, the rates were lowered earlier this month and if this is done again, then the lending will not rise and the liquidity shortages will act like hurdles.

Mishra said at a program in Mumbai, that RBI's Monetary Policy Committee said, its objective is to ease financial conditions and support growth, so my suggestion would be to first focus on liquidity because rate cuts are not helping.

He said, if the purpose of a rate cut is to borrow more, then new loans will not be available at lower rates, because the cost of raising money remains high due to the liquidity crunch that has been going on for the last 18 months. Despite the 0.25 percent cut in the repo rate, the one-year certificate of deposit rate still remains high at 7.8 percent. 

Mishra said analysts expect interest rates to be cut by up to 0.75 percent three times this year. After the RBI reduced the repo rate, it was expected that about 40 percent of the loans would be revalued immediately, as they are linked to external benchmarks. Others would take up to two quarters.