Monetary Policy 14 Mar 2012

RBI may go for interest rate cut under government pressure

RBI may go for interest rate cut under government pressure

Next monetary policy revision is on the door step. Like people waiting for monsoon after a heavy drought, the industry and business people are praying for the end of the current high interest rate regime. Prevailing economic environment is also conducive to enforce the desirable rate cut. On the liquidity front, the RBI has already supplied enough liquidity through last two CRR cut interventions. Hence there is high probability for introducing a repo cut tomorrow without touching the CRR.                 During the last two monetary policy revisions, the RBI was concentrating on financial stability by ensur

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Monetary Policy 10 Mar 2012

RBI cuts CRR to face year end liquidity shortages

RBI cuts CRR to face year end liquidity shortages

The RBI has made a surprisingly higher 75 basis points cut in CRR to inject nearly 48000 crores rupees into the economy. Already liquidity in the economy was very tight due to the busy financial year end situation. Usually, March being a busy last month of the financial year, witnesses liquidity tightness. Money is to be supplied quickly to facilitate transactions. This year, the RBI’s repo window was very active in providing liquidity even before the start of the month. Hence, the present move is worthy to supply enough money into the tight market.             Liquidity shortage was present over the last few weeks com

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Monetary Policy 02 Mar 2012

Liquidity is short in the economy and the RBI may intervene with a CRR cut

Liquidity is short in the economy and the RBI may intervene with a CRR cut

Liquidity scenario is worsening in the economy with call money rate increasing and banks’ daily liquidity purchase from the RBI nearing to of Rs 2 lakh crores mark.  Overnight call rate has almost reached 10% mark on Wednesday. The call rate is the interbank rate at which a bank borrows money from the interbank market for very short period.                 Usually, the call rate may be quite high during March because it is the closing month of the financial year. During the last few years, call rate mostly hanged around 15% towards the end of March. But this year, the call rate is raising fast ev

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Monetary Policy 01 Mar 2012

Government may ambush RBI's citadel to enforce a growth friendly interest rate.

Government may ambush RBI's citadel to enforce a growth friendly interest rate.

The recently published third quarterly report on GDP growth is a setback for the macroeconomic management in the country. On government’s behalf, a low economic growth means low tax revenue in the coming periods. So, there is more urgency this time on the part of the government to ensure macroeconomic recovery by cooling the interest rate. For this, there is high chance that the Finance Ministry may give strong message to the RBI to cut interest rate. Already the finance ministry is angry about the RBI’s hard monetary policy stance.               The RBI on its part during the last couple of weeks was discover

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Monetary Policy 15 Feb 2012

India Black Money Report: CBI underestimates black money at Rs 25 lakh crore

India Black Money Report: CBI underestimates black money at Rs 25 lakh crore

The Wikileaks is known for leaking and publishing even the most hidden US military secrets, shocking the entire US government machinery. Wikileaks once threatened that it will publish the details of Indian black income account holders in foreign countries. But, the Julian Assange formed entity never published the list; a testimony to the power of India’s black income account holders.             Now, the Central Bureau of Intelligence has made a soft estimate that black money of India is around Rs 25 lakh crore or nearly US$ 500 billion. The amount is equal to the size for the Indian government to execute  two year&

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Monetary Policy 07 Feb 2012

Why the RBI cannot counter appreciation and inflation simultaneously?

The leading issue related to the conduct of monetary policy is that central banks all over the world are implementing monetary policy under a globalized economic environment. Specifically, faster mobility of global financial capital has caused macroeconomic management problems for the central banks especially for that of the emerging market economies. Capital inflow and outflow are exerting significant pressure on both exchange rate and domestic liquidity. The Reserve Bank of India also faces tough task of simultaneously managing exchange rate and domestic liquidity to ensure overall stability in our economy.             As me

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Monetary Policy 07 Feb 2012

High interest rate rather than inflation is the macroeconomic problem for India right now

High interest rate rather than inflation is the macroeconomic problem for India right now

The Indian economy is struggling under the clutches of a hard interest rate regime. Investment has been reduced as rate of interest of loans roared. Investment has responded to the RBI’s high interest rate call and economic growth rate has come down accommodating the high interest rate.   Fortunately, inflation is now showing signals of decline and is nearing towards a comfortable zone, driven by negative food inflation. Investors and business people are expecting that the RBI will initiate soft interest rate signals soon.                 The most controversial issue in monetary policy execu

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Monetary Policy 11 Nov 2010

Why the monetary policy stimuli from the RBI are not working?

The RBI has been making a group of stimulus measures ever since the appearance of financial stringency in our economy in mid September 2008. The CRR has been reduced by four hundred basis points from the high nine percent in September 2008 to five percent. Another key policy rate- the repo has been reduced by 350 bps to 5.5%. Both these measures means that the economy is operating in a relatively easy liquidity- soft interest rate regime akin to that existed five years back.   Further, there is always complementarity between interest rate and the level of inflation. The inflation rate is now brought down to comfortable levels.  Hence the overall interest rate in the eco

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