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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Monetary Policy 26 Jun 2015 by Tojo Jose

RBI sees rising risk factors and hints at strong counter measures to tackle bad assets

RBI sees rising risk factors and hints at strong counter measures to tackle bad assets

The RBI has warned that the economic environment in near future is going to be a high risk scenario. In its update of the Financial Stability Report, the RBI has highlighted both external and domestic environment are pushing the economy to a phase of concern. The Financial Stability Report is addressing the financial stability risk for the economy and provides an objective assessment of the financial sector risks ever since it was first published in March 2010.   On the external front, the central bank brings two risk factors in incubation. First is the monetary policy reversal policies to be adopted in US and other advanced countries. The spillovers from the quantitative

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Monetary Policy 02 Jun 2015 by Tojo Jose

RBI comes out with a marginal 25 bps policy rate cut

RBI comes out with a marginal 25 bps policy rate cut

The Reserve Bank has come out with a 25 bps cut in repo, in its latest monetary policy revision. Governor Raghuram Rajan has made a minimal response to the prevailing positive GDP data and helpful price situation. The RBI could not get a better situation to come out with a more active support.  The 25 bps cut is has been read by the market as a minimum intervention and the Sensex fell by 400 points reacting to repo cut by the RBI. The current policy rate cut is the third one made by the RBI during this year. Repo, which is the short term policy interest rate was 8 per cent at the beginning of this year and now placed at 7.25 % after the third rate cut intervention by Raghur

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Monetary Policy 01 Jun 2015 by Tojo Jose

Banks may follow Rajan if he makes a policy rate cut

Banks may follow Rajan if he makes a policy rate cut

Retail inflation is in its four month low; and it lies at a level which is one and a half percent lower than the RBI’s target. The WPI inflation is continuing at the negative ranges. Surely, there cannot be a better situation for Prof Raghuram Rajan to make a repo rate cut tomorrow. Overall, the demand for rate cut is also strong. On its part, the government has given its vote for a rate cut. The business community also expressed its usual demand for facilitating rate cuts. Definitely, the urgency in the demand for a rate cut is not just the prevailing low inflation rate. The latest GDP data available for the last quarter has shown a promising 7.5% rate. A rate cut con

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Monetary Policy 07 Apr 2015 by Tojo Jose

Monetary policy: RBI comes out with a road map for inflation targeting

Monetary policy: RBI comes out with a road map for inflation targeting

The new monetary policy stand by the RBI is a vision document about how the central bank will implement inflation targeting in India. Rather than the usual policy stance on repo rate, the just announced policy statement is a guide to the future. Interestingly, the declaration carefully avoids the usage of inflation targeting; but the whole document illustrates the phases of its implementation in the coming years. RBI says that future monetary policy will be constructed on the basis of the monetary policy framework agreement between the government and the central bank. “The Monetary Policy Framework Agreement signed by the Government of India and the Reserve Bank in Feb

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Monetary Policy 04 Mar 2015 by Tojo Jose

RBI’s rate cut: ‘Thank you dear government; take this gesture from us.’

RBI’s rate cut: ‘Thank you dear government; take this gesture from us.’

Last few days are witnessing the government and the RBI exchanging pleasantries. First, the government has made a budget announcement for ratifying the RBI’s dream project of inflation targeting. Now, in return the central bank has cut the short term interest rate by 25 basis points. Unscheduled meeting of the RBI has decided to cut the repo rate to 7.5 per cent. The RBI has strategically hint that fiscal deficit is a factor for introducing the rate cut, though many economists have warned the 3.9 per cent fiscal deficit target as an unrealistic one. “The true quantum of fiscal consolidation may be higher than in the headline numbers.” Dr Raghuram Rajan has made

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Monetary Policy 03 Mar 2015 by Tojo Jose

Inflation targeting regime needs Government -RBI coordination

Inflation targeting regime needs Government -RBI coordination

The most sound reform measure of the budget was the agreement between the government and the RBI to facilitate the proposed inflation targeting monetary policy regime in India. Details of the agreement will be finalized only in stages as inflation targeting requires the government to follow a disciplinary fiscal policy and giving more power to the RBI. Besides, the proposed RBI dominated Monetary Policy Committee is also government’s ratification. The agreement announced through the budget is a very important one given the history of central bank-government relationship in the past. During the pre-reform period, the RBI had not freedom, rather was just giving the loans req

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