NITI Aayog Member Bibek Debroy on Wednesday said that while the rate cut by the RBI was warranted, a reduction of barely 25 basis points won't matter significantly except to serve as a signal.
"Should the RBI cut rates?
I think the answer is yes.
Will it matter significantly?
I don't think it will matter significantly except to serve as a signal, " Debroy told IANS.
His remarks came after the Reserve Bank of India reduced its key lending rate by 25 basis points (bps) to six per cent.
Indicating that private investments won't go up on account of the modest cut, Debroy said: "Unless it (the RBI) cuts it by three per cent, which is impossible, I don't think it will matter significantly because I don't think the cost of credit is the main reason for investments not happening. "
While subdued inflation was attributed as a major reason behind the move by India's central bank, the leading economist said the rate cut should be linked with such measure of inflation which is amenable to monetary policy instruments.
"There are some kinds of inflation which have nothing to do with monetary policy: food, petroleum products.
Obviously it (rate cut) has to be linked to some measure of inflation, but taking away these things which have nothing to do with monetary policy, " he said.
"If I have to link it with monetary policy, I have to link it with some measure of inflation products which are amenable to monetary policy instruments. "