RBI said contrary to claims, the real interest rates of commercial had been heading south in FY12 from their high during the pre-crisis period of 2003-04 and 2007-08
Mumbai: The Reserve Bank of India (RBI) has proved wrong its critics, who have been flaying it for sharp growth dip and blaming it on the tight monetary policy, saying real lending rates nearly halved in FY12 to 3.8% from about 7% in the pre-crisis period, reports PTI.
The RBI has been under constant criticism for its hawkish stance on inflation, resulting in higher lending rates, which in turn pulled down growth rates beginning the middle of last fiscal.
Real lending rate is calculated by subtracting inflation from the banks' lending rates.
Attributing this decline to the elevated inflation rates and deceleration in growth, the RBI annual report for FY12, released last evening said, contrary to these claims, the real interest rates of commercial had been heading south in FY12 from their high during the pre-crisis period of 2003-04 and 2007-08.
"The real or net of inflation weighted average lending rate (WALR) increased only moderately to about 3.8% in 2011-12, but remained lower than the average of about 7 percent in the pre-crisis period of 2003-04 to 2007-08," the report said, quoting its own calculation of the weighted average lending rates of banks.
Attributing this fall to an investment boom during the pre-crisis period, the report said "the fall in real lending rates in post-crisis period is even sharper if GDP deflators are used to calculate inflation instead of WPI.
"The fact is that real lending rates have secularly declined since 2003-04. During this period, investment boomed initially, but stalled in recent years even though real rates continued to decline," the report said.
However, the report admits that according to an exercise undertaken by the RBI to calculate the WALR of banks using the accounts-level data from basic statistical returns, the effective lending rate in nominal terms rose in FY12 in response to monetary tightening.
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