RBI is doing too much too soon: Latha Venkatesh

CNBC-TV18's Banking Editor Latha Venkatesh joined IBNLive readers for an interaction on RBI's recent credit policy changes.

Q. Despite whatever the RBI is trying to do, the economy doesn't seem to show signs of revival? Far too dependent on the West are we? Asked by: Narayan

A. We are certainly dependent on the global economy, but we are primarily a domestic economy - domestic savings are our dominant way of financing our investment; also our industries cater to domestic consumption. Hence our problems are also largely domestic. We were over exuberant with loans and investments until 2009, we were also over corrupt. Now there is a overdose of caution because of citizens and institutions asking questions. So investments not happening.

Q. By cutting CRR by 25 bps..is it really not going to help banks! Asked by: yamini

A. Oh yes. Cutting CRR helps banks considerably. For every 0.25% cut, they make a margin gain of about 5 basis points.

Q. Should home loan seekers wait for another cut? or Is it right time? Asked by: Anurag

A. You can't time your house to a rate cut. You take a loan because and when you need a house. And always take as little loan as possible. Use your own resources to the max.

Q. Why RBI actions are always late as compare to other central banks? Asked by: amish jhaveri

A. No RBI is not late. We have cut after other banks because in our country inflation did not fall like it did in other countries. I would say RBI is doing too much too soon.

Q. Any steps you think that will be appropriate to reduce price rise and inflation? Asked by: Tiger

A. Yes, for starters let us all pay the right price for fuel. If we pay the correct price for an LPG cylinder ( which is 750 rupees), and the correct price for diesel ( around 65 rupees a litre), there will be less inflation. In our case we make out citizens pay less and the balance money that we have to pay for crude, we get by printing currency. In the process all goods become expensive.

Q. Is the reduction of CRR aimed at Industrialists and Corporates to strengthen their sales and balance sheet? Asked by: Queenie

A. To some extent it will help corporates yes. If banks cut interest rates, corporates will have to pay less in terms of interest for the loans they take from banks. Big Indian companies aren't really affected. They borrow from global banks.

Q. RBI Governors both YV Reddy and Mr Subba Rao have held the economy together despite immense pressure to be populistic. Your views on this pls Asked by: eega

A. I agree with you. (I would add Jalan and Rangarajan to this list. Before them, I was not following the RBI) Our country has been lucky to get RBI governors who are honest men. Men of integrity.

Q. Why is Subba Rao so adamant about cutting the interest rates? Asked by: Priya

A. You mean he is cutting rates too soon. I agree, he needn't have cut repo and CRR. Only repo would have done. I too think he is too dovish. He probably believes growth will solve a lot of problems. But the easy money policy is bringing more inflation not more growth.

Q. How does inflation be curbed? Asked by: Khal

A. Don't ask for subsidised goods - especially fuel. Subsidy should only be fore the very poor and that too only for food. ; Also don't give wage increases unless there are productivity increases. That is you get higher wage for being able to do more work in the same time. You are more productive, then alone you get a rise in wages.

Q. Are too many economist in the govt's kitchen spoiling the dishes? Asked by: Honey

A. I am not sure about too many economists, but certainly too few doers. We need civil servants who can execute.

Q. Is it because of the alleged Policy paralysis in the Finance Ministry the economy is in difficulty? Asked by: Sneha

A. Partly yes, Mr Pranab Mukherjee, according to be has done a disservice to the economy.

Q. How do Chinese manage their economy so well and how are the interest rates there? Asked by: HS

A. Interest rates in China are lower than in India because their inflation is lower. I am not qualified to speak on what is China getting right. I would like to know how. They are certainly running their economy better.