The Reserve Bank of India's Governor, D Subbarao said that there is scope for cut in lending rates and he is confident that the Indian economy will recover swiftly.
Although the transmission mechanism of the monetary policy has been weak in the country but it had not collapsed entirely. "It is working," said Subbarao, referring to the reduction in the effective lending rate. "However, there is still considerable scope for reducing lending rates," he added.
Addressing members of the Confederation of Indian Industry (CII) at an interactive session on ‘India and the Global Financial Crisis: Four Questions', Subbarao said "We are not a demand-strained economy. Once the confidence is restored, there will be faster recovery."
"The challenge lies in implementing the fiscal stimulus measures rigorously," he added.
Further the Governor said that RBI's measures to revive the economy have been "measured, adequate and comparable to what other central banks have done." But banks have witnessed a decline in the demand for credit. However most banks had reduced their lending rates by 50-250 basis points and expanded bank credit but "there is still scope for banks to reduce their lending rates," he said.
In addition commenting on the "challenges ahead", Mr. Subbarao said "public investment needs to be kept going till private investment picks up again. Every government around the world has abandoned the rule book in response to the crisis."
Moreover he emphasized that the drivers of India's growth story "remained intact" due to the "entrepreneurial spirit, the increased productivity levels and the high level of savings."
Whenever the economy recovers, it will be "swift and sharp", he added.
Meanwhile Subbarao also met Prime Minister Manmohan Singh on Wednesday and it is believed that the purpose of the meeting was to discuss the current economic situation.