Monetary Policy 13 Nov 2016 by Tojo Jose

Good intention but poor thinking - what troubles demonetization?

Good intention but poor thinking - what troubles demonetization?

Prime Minister’s surprising demonetization experiment has rich credibility and shows his commitment towards black money fight. People have extended tremendous support as well and are ready to bear further for the success of the programme. At the same time, the programme has exposed some serious and unbelievably low quality thinking at the top level when comes to practical implementation. At the end of the first few day’s experiment, the demonetization is going on but the opposite process of monetization is facing tremendous difficulties. The inability to grasp relative importance of the most sought currencies – Rs 500 and Rs 1000 and to design and print them new

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Monetary Policy 08 Nov 2016 by Tojo Jose

Logic of withdrawing Rs 1000 and Rs 500 notes

Logic of withdrawing Rs 1000 and Rs 500 notes

In a surprising move that is unmatched in India’s currency history, the government has decided to withdraw two of India’s most circulating highest denomination notes. From midnight, today onwards Rs 500 and Rs 1000 will be replaced with new Rs 500 and Rs 2000 notes. These two notes constitute to nearly 83% value of currency notes in circulation according to the RBI.  While announcing the withdrawal, government has pointed out the mechanism for exchanging the existing high denomination notes for new notes. The existing notes will be accepted at railway stations, bus stands, post offices, besides banks. People get 50 days until December 31 to return the notes, PM ha

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Monetary Policy 08 Nov 2016 by Tojo Jose

India may experience a ‘monetary bandh’ on November 9

India may experience a ‘monetary bandh’ on November 9

With no banks, no ATM, no shop to receive two of the highest denominations, India can experience a monetary bandh on November 9. With the disappearance of Rs 1000 and Rs 500 notes, 83% of India’s currency note value in circulation are withdrawn. According to the RBI, Rs 1000 and Rs 500 notes account for 83% of the total value of notes circulated in the economy. Inconvenience will be prevailing on transaction front though government has made several arrangements including acceptance of the notes for important purposes. Some of the issues and timing will make the government’s good effort more painful for the public. An example is that after an off day for banks and ATM

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Monetary Policy 04 Oct 2016 by Tojo Jose

Debutants- MPC and Patel make a rocking start with rate cut

Debutants- MPC and Patel make a rocking start with rate cut

The first monetary policy review after takeover of the Monetary Policy Committee and the new Governor Urjit Patel has made a 25 basis cut in the policy rate. The repo rate is now brought down to 6.25% - the lowest rate in six years. The new policy rate decision marks a new era in India’s central banking with the takeover of the monetary policy decision by a body -the Monetary Policy Committee (MPC). It is a half-government and half central bank body – where the RBI Governor enjoys a meager privilege of casting vote.  Formalities in monetary policy reviews also changed with the new body as the decision notes to be published immediately. With MPC, the finance mini

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Monetary Policy 22 Sep 2016 by Tojo Jose

Academicians fills government’s slot in the monetary policy committee

Academicians fills government’s slot in the monetary policy committee

Government has appointed three academicians from the country’s renowned institutions as its nominees to the newly formed Monetary Policy Committee (MPC). Chetan Ghate, Professor at Indian Statistical Institute, Pami Dua, director at Delhi School of Economics and Ravindra Dholakia professor of IIM Ahmedabad are named by the government as its three representatives to the Committee. The MPC is a newly constituted body for taking decisions on setting the repo rate. It was established to facilitate monetary policy decision making in the new inflation targeting regime. Governor of the RBI is the Ex – Officio Chairman of the MPC. Of the six members, government and the RBI wil

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Monetary Policy 23 Aug 2016 by Tojo Jose

Government to complete the formation of Monetary Policy Committee

Government to complete the formation of Monetary Policy Committee

The government is about to complete the setting up of the Monetary Policy Committee by appointing three of its nominees to it. The MPC has six members; three each from the RBI and the government. RBI’ Governor is the ex-officio member of the Committee. Raghuram Rajan has nominated the Executive Director Michael Patra as one member and the remaining member from the RBI is to be selected from its Deputy Governors. As a fresh mechanism to navigate monetary policy interventions, the role and functioning of the MPC will be keenly observed as it will substitute the existing Technical Advisory Committee. Unlike the TAC, the MPC doesn’t gives any extra voting power to the Go

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Monetary Policy 20 Aug 2016 by Tojo Jose

Urjit Patel is the new RBI Governor

Urjit Patel is the new RBI Governor

Deputy Governor of the RBI, Urjit Patel has been chosen by the government as the successor of the outgoing Governor Raghuram Rajan. Patel will become the 24th governor of central bank after the term of Rajan by next month. Patel was appointed as the deputy governor of RBI in 2013 before that he worked with IMF and with the Boston Consulting Group. From 2013 onwards, he took charge of the RBI’s monetary policy department and most importantly chaired the committee on Monetary Policy Framework that suggested the present inflation targeting framework. In the RBI, Patel is known as the architect of the new inflation targeting monetary policy framework. The new Governor was appo

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Monetary Policy 10 Aug 2016 by Tojo Jose

RBI’s bad loan cleanup mechanism is prudent -says Raghuram Rajan

RBI’s bad loan cleanup mechanism is prudent -says Raghuram Rajan

In his last monetary policy declaration, Governor Raghuram Rajan asserted that the RBI is comfortable with bad loan recognition process by banks. In a nearly non-event policy statement, Rajan has engaged the most disturbing element of his term – rising bad debts with banks. Criticism from several quarters including from the Supreme Court has raised doubts about the ability of existing arrangements including the issue of handling wilful defaulters to check NPAs. “Banks have certainly taken a lot of steps… the culture of cleaning up seems to be well embedded as well as the culture of recovery on some of the loans” Rajan told the media. The RBI had deployed

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Monetary Policy 08 Aug 2016 by Tojo Jose

Raghuram Rajan to make his valedictory policy review before the MPC’s take over

Raghuram Rajan to make his valedictory policy review before the MPC’s take over

Tomorrow’s bi-monthly monetary policy review by the outgoing Governor Raghuram Rajan is going to be the last one for a ‘powerful’ RBI Governor. As of now, the Governor has the veto power while taking interest rate policy decisions.  But under the proposed MPC (Monetary Policy Committee) format, the Governor has only a casting vote. This means that tomorrow’s policy declaration will be the last one where Governor has the ultimate say in repo rate policy whatever may be the stand of other members. Government has already announced the formation of the MPC and it is expected that the next monetary policy decision will be taken by the MPC in early Septembe

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Monetary Policy 07 Aug 2016 by Tojo Jose

Government formally inducts inflation targeting with flexible failure interpretation

Government formally inducts inflation targeting with flexible failure interpretation

The government has notified the introduction of Inflation Targeting (IT) monetary policy framework as a macroeconomic policy approach for the conduct of the RBI’s monetary policy. The fresh element as per the government’s notification is the interpretation of monetary policy failure and the launch time for correction measures. As per the policy, if inflation goes above 6% or goes below 2% for three consecutive quarters, then it will be treated as the failure of the RBI’s monetary policy. Counteractive measures should be initiated in such a scenario. Already, the government has created a Monetary Policy Committee by inducting three members each from the RBI and t

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