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
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
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
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
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
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
At last, the RBI has came out with a rate cut; though it is a paltry 25 basis point which will not compel a price leader like the SBI to make an interest rate cut. RBI’s reversal of its policy is late but not surprising. Most of the central banks have already launched easy monetary policy through rate cuts for the last one year. Despite the decline in inflation to the acceptable low levels, the RBI’s adamant stand has made people lost interest in the activities of the central bank. On the other, that of the government was watched with expectations. Government led administrative and economic reforms have travelled much distance with the new government. Many insti
Inflation in the economy is coming down at a quicker rate. The current price fall is because of declining food and fuel prices. A lower food inflation compared to the entire CPI was recorded during November 2014 data. Inflation came down to 4.38 percent while food inflation was 3.6 percent for that month. Notable trend is that during the last seven months starting from May, inflation increased only in July. That also was very slight. This is an indication that the economy is on noticeable level of disinflation mode. Disinflation is decline in the inflation rate. Conventionally, a decline in food and fuel are the sectors where price rise appears first. So is the case wit
The RBI has kept the policy rate unchanged in the new bimonthly monetary policy revision. This means that is no change in the current monetary policy stance. To facilitate the liquidity situation, the overnight repo support and term repo support will be continued at 0.25 % and 0.75% respectively. Expectation about a rate cut was thin though favorable conditions were prevailing in the economy. Indications from the present policy stance are that the RBI is strictly adhering to the enforcement of hard inflation targeting regime. Justifying the decision for keeping the rate unchanged the RBI has observed that “Some easing of monetary conditions has already taken place.
Debate about the bi-monthly monetary policy stance of the RBI, which is to be made on December 2, is heating up. Despite many economists and bankers expressing that the rate cut is not going to happen, there are strong logics for the RBI to cut its policy rate. The first and the important one is that central banks in most countries have already launched monetary stimulus type policies during the last couple of months. People Bank of China (PCB) made a surprising rate cut last week, joining advanced country central banks like the US Fed, Bank of Japan and the ECB. Now, monetary policy is implemented in a synchronized manner globally and rate cut and growth stimulus made by the em
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