The Consumer Price Index so far was in the shades of Wholesale Price Index (WPI) in the RBI’s official policy declarations. But everything changed with Dr Raghuram Rajan. In the new monetary policy revision, the new Governor referred CPI in scaling inflation. The government is mostly relying on WPI version in inflation measurement. It often tries to make retail inflation unimportant while mentioning price scenario fearing the higher inflation rate usually recorded under the CPI scale. Interestingly, the RBI’s deviation is an interesting one given as it tries to depart from the government approach. Now days the RBI shows increasing tendency to deviate from the g
The RBI today increased the repo rate to contain inflation while softening some instruments- Marginal Standing Facility Rate and daily CRR holdings to facilitate liquidity in the system. The repo rate hike is intended to fight inflation. At the same time, the financial system is running on liquidity shortages. During many weeks in the past couple of months, the call rate has gone beyond 10 percent level. So liquidity enhancement was necessary. Reduction in Marginal Facility enables the banks to get more funds. This will help banks to get some extra funds by paying less interest rate to tide over liquidity. MSF is the rate at which the banks can get loans from the RBI by surren
The next monetary policy revision of the RBI is scheduled on 20th of this month and it will be the first one after Rahuram Rajan assumed office. The new Governor has enough reasons to make his first policy declaration an important one. Amidst the present environment, he has to make few important steps including that one on growing NPAs with the banks. NPAs of banks crossed 12 percent, which is alarming and it may go further given the present weak economic growth prospects. Rising NPAs is always against the RBI’s financial stability objective. At present, the central bank has sound provisioning norms to minimize the impact of NPAs on the banking system’s finan
The Reghuram Rajan effect has produced two days of continuous upswing on both stock market and Rupee. Amidst a crisis produced negative sentiments, the market was searching to find something to cheer and they rightly found an energetic Rajan. It seems that more than the entry of Prof Rajan, markets were celebrating the exit of Subbarao. Financial markets have big trust in the new Governor than in P Chidambaram. The support measures suggested by Prof Rajan are more realistic than those made by Sri Chidambaram. It is to be remembered that the stocks and rupee tumbled when the Finance Minister declared his support measures couple of weeks back. So far the story is going fine.
Initial indications from the new RBI governor Raghuram Rajan is that he will not follow his predecessor Dr Subbarao on inflation front. Dr Rajan said that he will reveal his stance on 20th of this month, when RBI makes the new monetary policy statement. On inflation management front, Dr Subbarao was known for adopting ‘disguised’ inflation targeting policy during his tenure. In the conflict between growth and inflation, he took the side of inflation by producing growth slowing policies. The famous 13 times repo increase to contain inflation is one of the severe growth depressant in the history of central banking in the country. Despite the hard inflation targe
It seems that the government has lost control over the rupee. The rupee is the worst performer among the EMEs ever since May 22, when Mr.Bernanke announced the reduction of Fed’s bond purchase programme. The current programme of tapering just is the beginning of reducing the Fed’s bond purchase programme. So far, the Fed is slowing the purchase of bonds. Once it starts selling the accumulated bonds, dollar will fly back from the financial markets to the Fed’s vault. In the coming months, especially in early 2014, the Fed should start selling the purchased bonds. Here, the impact will be much more painful. There will be severe shortage of dollar and global liquidi
The RBI’s new monetary policy intervention may not make any impact on growth, inflation and liquidity. Only change is the 25% cut in repo rate. Banks may not make any cut in their lending and deposit rates because the repo cut is too small for them to initiate a cycle reversing interest rate cut. Of course, the SBI, which is the price leader in the industry, was asking for a 50 bps cut to initiate any sort of action on interest rate cut. But, the 25% repo reduction is too low. Besides, the financial sector is to face tight liquidity in the coming weeks because of the closing of the financial year. This means that, there is no effect for the RBI’s last tow cuts in
The new bank license policy issued by the RBI has so far attracted many private players to start banking business. Ambitious corporate including L & T Finance Holdings, Reliance Capital, Tata Capital, Aditya Birla Financial Services, Mahindra and Mahindra Financial Services Religare and India bulls are preparing to unveil their strategies. But some credible public sector players are either silent are not getting enough government patronage amidst the private sector attracting limelight. The IFCI, India Post etc are having enough merit to start banking business. IFCI is the first Development Financial Institution (DFI) in India. Most of its peers including the IDBI and ICICI; who w
The RBI today has made a late but meager 25% basis point cut in the policy rate (repo rate) along with the same amount of reduction in the CRR. The current repo rate cut is the first one in the since April 2012. RBI has observed that now it is critical to arrest growth momentum. Economy is registering cumulative decline in GDP growth rate during the last seven quarters. It is expected that this year, the Indian economy is going to register the lowest growth rate in the last ten years.
In the just published third quarter review of the macroeconomic and monetary developments, the RBI recognizes that growth risk is the biggest macroeconomic problem now. This is the first time in the last three years that the central bank is speaking for resurging growth momentum. So far, its high interest rate policy is blamed responsible for deepening the slow down. Inflation has not come down to its comfort zone even with the adoption of hard interest rate for so long.The present stand from the RBI is indicating that the central bank may opt for a policy rate (repo rate) cut in the next monetary policy revision. If it is sincere to the current observation that slow down is a risk
Dictionary on Indian Economy
- Logic of withdrawing Rs 1000 and Rs 500 notes
- Why the GST reform is transformational?
- Raghuram Rajan: The Gladiator returns to Chicago
- Good intention but poor thinking - what troubles demonetization?
- India Black Money Report: CBI underestimates black money at Rs 25 lakh crore
- High interest rate rather than inflation is the macroeconomic problem for India right now
- Japan’s first trade deficit in 30 years is part of the Global Shift
- Arvind Subramanian rocks with 'Chakravyuha' in Economic Survey
- Why we need an emergency monetization plan as well?
- NREGS: give respect to the tax payer’s money