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英国论文网:British and Dutch GDP:The spread of the cri(35)


kicking in.
The Reserve Bank of India (RBI) could also facilitate greater credit supply by
reducing the cash reserve ratio, allowing banks to reduce their balances at the RBI
and to make them available to the private sector. The RBI has been using this policy
tool vigorously and perhaps will, and should, continue doing so. Of course,
there is a natural floor to the cash reserve ratio stemming from prudential considerations.
Cutting the statutory liquidity ratio is more complicated. It makes
additional resources available to the private sector only if the non-bank public is
willing to hold government paper in its portfolio. If the result of cutting statutory
liquidity ratios leads to a re-allocation of these bonds within the financial sector,
there are no extra resources from the banking system as a whole.
Can the non-bank public augment the supply of credit? Only if it is willing to
hold more bank deposits, which the banks would lend to the private sector. But
this would require making bank deposits more attractive and hence an increase in
interest rates. Indeed, some banks have been attempting to raise deposit rates to
attract customers.
How can the rest of the world augment credit? Increases in remittances and in
NRI deposits into the Indian banking system could help achieve this. But again
this would require making the holding of deposits more attractive, entailing raising
interest rates and avoiding the risk of depreciation.
The interest rate dilemma
Here then is the dilemma for interest rate policy. Reducing interest rates can help
address the current credit crunch in a number of ways. First, by reducing the cost
of bank’s funding and raising their spreads, it would increase bank profitability.
Second, it could also help corporate profitability which has two positive effects: by
increasing the own source of funding (profits) it reduces firms’ demand for bank
credit and by improving the asset quality of banks it frees up resources to expand
credit. Finally, lower rates helping corporate profitability could attract foreign
capital into the equity market. This would again, for the reasons discussed above,
alleviate the credit crunch by increasing non-bank funding of firms and hence
reducing their demand for bank credit.
On the other hand, lowering rates would reduce remittances and NRI inflows,
which are known to be interest-sensitive. It could also lead the public to take
money out of the banking system to put in other assets or hold it as cash. Some
money could also find its way abroad through direct and indirect (for example,
trade) channels. All of these would reduce the supply of credit, aggravating the
credit crunch.
50 The First Global Financial Crisis of the 21st Century Part II
The policy implications are then clear for alleviating the ongoing credit


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