The Reserve Bank of India (RBI), it seems, is rethinking about its stance on various aspects. Yesterday we told you about how the central bank has changed its view on gold. The RBI is no longer as worried about the impact of gold buying on current account deficit (CAD). But there is more to it. Another problem that the RBI had flagged earlier was the impact of lower interest rates on CAD. However, as reported in DNA, it no longer holds on to that view. That is the CAD problem is no longer an impediment to interest rate cuts. RBI has also offered several reasons for its view. One is that during a slow growth period, as is the case now, a rate cut is unlikely to translate into import demand.

Secondly, lower interest rates will also improve India's export competitiveness. Thirdly, lower commodity prices, especially crude oil, have eased the pressure on CAD to some extent. Lastly, in emerging economies like India, import demand is less a function of lower interest rate than of increased income. Thus, the RBI is no longer as rigid as earlier on its rate cut stance. But we would not want to hazard a guess on whether and by how much will the RBI ease interest rates. All we could conclude is that the RBI is taking the government's fiscal commitments seriously enough.