Monetary Policy 28 Jun 2016 by Tojo Jose

Government Constitutes Monetary Policy Committee

Government Constitutes Monetary Policy Committee

The centre has notified the formation of Monetary Policy Committee (MPC) under the RBI which will take decision on interest rate or repo rate setting in future. MPC will bring significant changes in the power the RBI governor while deciding on repo rate. At present, the Technical Advisory Committee which is chaired by the Governor takes decisions on repo rate. But the RBI Governor has a veto power. According to the government sources, the MPC is responsible for bringing “value and transparency to monetary policy decisions. Under MPC, the governor has a casting vote and doesn’t enjoy veto power. Decisions will be taken on the basis of majority vote.  There are si

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Monetary Policy 19 Jun 2016 by Tojo Jose

Rupee and Market May make a ‘vote’ on Rexit tomorrow

Rupee and Market May make a ‘vote’ on Rexit tomorrow

Anxiety about how the Rupee and stock market will respond to the news of Raghuram Rajan’s exit is looming. Though Rajan was not a friend of market volatility makers or the so called speculator classes who loved low interest rate, his feat of producing stable macroeconomic fundamentals won investors mind. But the Chicago university professor’s exit may raise doubts in the minds of investors who prefer the long term stability of the economy.  Many foreign commentators who sells their ideas to global investors describe the entire issue as a victory of bad politics over sophisticated economics. In this context, the Rexit may leave doubt among investors about India's r

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Monetary Policy 14 Mar 2016 by Tojo Jose

Inflation records decline after five months

Inflation records decline after five months

The retail inflation has come recorded a decline to 5.18% from 5.69% for the month of February 2016. This is the first time after six months that CPI inflation records a fall. The present decline was contributed by fall in food prices including vegetables, pulses and fruits. So far India’s inflation data goes in contrast to the global trend. Major developing countries including China are in low inflation trajectories. Form many developed countries deflation and steep recession are the status on price and macroeconomic fronts. Most frequently, there is talk of deflation and decline in demand. For India, other data especially industrial production indicators are consistent w

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Monetary Policy 03 Feb 2016 by Tojo Jose

RBI expects stable inflation; urges investment promotion to sustain growth

RBI expects stable inflation; urges investment promotion to sustain growth

The RBI predicts a relatively stable inflation scenario for the next year. In its latest monetary policy revision where the key rates were kept constant, the central bank says that inflation is going within the trajectory set by the RBI. The new monetary policy revision that came in the budget month has kept the key policy rate - repo and other rates constant. According to the central bank, two positive factors – good monsoon and low crude prices may help the country to achieve a relatively low inflation rate of 5% during the next year. At the same time, the impact of the implementation of the VII Pay Commission report my put some upward pressure on prices. Observing that

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Monetary Policy 13 Jan 2016 by Tojo Jose

Retail inflation rises to become a macroeconomic disturbance

Retail inflation rises to become a macroeconomic disturbance

When the global economy is going through a period of turbulence, India’s domestic economy has got a shock of the conventional type- return of inflation to the unsustainable level.   Latest inflation data from CSO for the month of December 2015 indicate that inflation has edged up to 5.61% from 5.41% in November. Another negative trend is the contraction of industrial output during November 2015 by 3.2%. The IIP trend gives a caution to the government while realizing the 7.5% GDP growth target. The index has registered 9.8 % growth in the previous month. This is the first time in 13 months that the IIP is registering a contraction. Main reason for the decline in indust

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Monetary Policy 23 Dec 2015 by Tojo Jose

Banking sector needs serious attention – says RBI’s Financial Stability Report

Banking sector needs serious attention – says RBI’s Financial Stability Report

RBI’s Financial Stability Report warns that financial institutions in India are under severe strain in the background of declining asset quality.  The Report analyses various financial stability risks in every six months. In its December 2015 update it highlights worsening financial health of Public Sector Banks. Most of the financial stability indicators are worsening for Scheduled Commercial Banks (SCBs). Within the SCB category, the plight of Public Sector Banks (PSBs) is to be addressed soon. Two major banking sector indicators – Capital to Risk-weighted Assets Ratio (CRAR) and Gross NPAs have fallen for all categories of SCBs during 2015. Risks to the banki

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Monetary Policy 13 Oct 2015 by Tojo Jose

New FPI investment policy in G-Secs will stimulate foreign investment inflows

New FPI investment policy in G-Secs will stimulate foreign investment inflows

The RBI has introduced a modified FPI policy in the government securities (G-Sec) market. It is expected that the move will enhance greater participation of FPIs and thus increasing the inflow of foreign capital. The unique feature of the new FPI policy is that it increases the investment limit by foreign investors in phases. As per the new policy, FPIs will be allowed to invest up to five percent of the total Government securities available in the market. FPI investment in government debt securities would be pegged or tied to rupee against the current practice of linking it to the dollar. This means that the investment limit foreign investors will be expressed as Rs crore i

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Monetary Policy 28 Aug 2015 by Tojo Jose

Speed up reforms without creating uncertainty- Reghuram Rajan urges Government

Speed up reforms without creating uncertainty- Reghuram Rajan urges Government

The RBI Governor has made an unusually strong criticism of the government’s approach to economic reform in the Annual Report of the RBI.  He urged the government to be firm on reforms without creating uncertainty. The Governor has described the present growth rate of the economy is nothing near to its potential. “For a country as big and populous as India, reforms cannot be shots in the dark, subjecting the economy to great uncertainty and risk. Wherever possible, we have to move steadily but firmly, ever expanding the scope of reforms while always limiting the uncertainty they create. “ The Governor’s remark is to be read in the context of continui

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Monetary Policy 04 Aug 2015 by Avinash Kumar

RBI says fellow EMEs are in trouble and recovery is not strong in India

RBI says fellow EMEs are in trouble and recovery is not strong in India

The RBI’s third bimonthly monetary policy statement has kept the policy rate unchanged. Despite the policy statement being a nonevent, the central bank has raised certain concerns about the future ahead for the world economy and India. In its policy statement, brought by Governor Raghuram Rajan, the RBI observes that the current economic scenario is not good for the EMEs. The continuing turmoil in the Chinese stock market has global dimensions.  “Despite aggressive policy stimuli, the Chinese economy is slowing on macroeconomic rebalancing, sizable stock market corrections, a cooling property market and excess capacity in several manufacturing industries.”

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Monetary Policy 23 Jul 2015 by Tojo Jose

Draft Financial Code: Finance Ministry will have control over monetary policy decisions

Draft Financial Code: Finance Ministry will have control over monetary policy decisions

The draft Indian Financial Code (IFC) prepared by the Finance Ministry indicate that government is going to have the decisive power over monetary policy. As per the newly released draft, government will appoint four of the seven members of the Monetary Policy Committee. Most importantly, the RBI will not have his veto power at the committee. There will be three members including from the RBI including the Governor.  The RBI Governor will have the casting vote in the panel. If implemented, the present recommendation is an extreme form of intervention in the affairs of the RBI. Similarly, the control over monetary policy decisions by the government will make the newly introd

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