Finally, the deflationary environment also supports an expansionary monetary policy. Given these low numbers on inflation, which are expected to continue in the future as long as low demand conditions persist, it is reasonable to expect that the RBI should now lower interest rates. In fact, doing nothing is as good as tightening monetary policy because, with the fall in prices and nominal rates unchanged, real interest rates are rising. The few green shoots of recovery that can be seen with the improvement in cement and industrial production could quickly disappear.
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