The decline in inflation has been precipitate, which implies that a deeper rate cut might not prevent the inflation genie from escaping the bottle. Further, with a possible increase in the General Sales Tax, the policy rate needed to be set with the probable inflationary effects in view. However, the National Economic Council held its pre-Budget meeting and approved a development budget of Rs 3.792 trillion. That is where the policy rate should be, around the time it is achieved. Investment includes government development spending, so if the PDSP is cut, GDP growth is reduced.
