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from Expert Zone:
Why the RBI should cut rates again
(Any opinions expressed here are those of the author and not of Thomson Reuters)
In May, the Reserve Bank of India (RBI) had hesitatingly cut the repo rate by 0.25 percent, which made no impression on the stock market or commercial banks. That was because both expected the cut to be more substantial. But the RBI had not obliged.
Perhaps the monsoon, which arrived on the dot and is progressing satisfactorily, may make some difference to the RBI’s expectations of food inflation - which had been its principal reason for hesitancy. While it’s too early to predict monsoon behaviour for the rest of the season and the likely improvement in agricultural production, it does appear the improvement should be significant and inflation dampened perceptibly. Reduction in inflation, however, is not the only reason why the interest rate should have been cut.
The other reason is to stimulate investment and enhance growth that is necessary to generate employment. Higher interest payments eat into earnings and reduce net profitability. In the quarter ending March 2013, interest payments were 29 percent of profits before tax. A 2 percent reduction in interest rate would increase net profits by 6 percent.
Interest rate matters. Most countries within sight of recession have taken every possible measure to reduce the interest rate. In countries such as Japan, even the nominal interest rate has been close to zero. In the United States, the real interest rate (nominal interest rate minus the rate of inflation) has been negative. We are among the few with an over 7 percent rate.
from Expert Zone:
Need to bring repo rate in line with inflation
(Any opinions expressed here are those of the author and not of Thomson Reuters)
For nearly three years now, the Reserve Bank of India (RBI) monetary policy has had a single target. The presumption is that only when inflation is below the tolerance limit can the interest rate be made normal.
The last time the repo rate was reduced was on March 19 when it was cut by 0.25 percent, a change understandably ignored by commercial banks and other financial institutions. With the repo rate at 7.5 percent and inflation down to 5.9 percent, the market expects the RBI to cut the repo rate further at its next policy review on May 3.
from India Insight:
Understanding the repo rate, cash reserve ratio and the Reserve Bank of India
The Reserve Bank of India (RBI) on Tuesday cut the repo rate as well as the cash reserve ratio (CRR) by 25 basis points, or 0.25 percent. Here's a quick explanation of what that means. It will be obvious to some readers, but many people haven't studied economics and are unfamiliar with the terms.
The repo rate, which now stands at 7.75 percent, is the rate at which the central bank lends money to Indian banks. As the repo rate goes down, it gets cheaper for banks to borrow money. That makes it easier for people to borrow money at cheaper rates too. As more people borrow money, which ought to be the result of action like this, they'll spend more money. That's good for the Indian economy.
from Money on the markets:
Subbarao goes against his panel, again
(Any opinions expressed here are those of the author, and not necessarily those of Thomson Reuters)
Finance Minister P. Chidambaram is not the only one walking alone.
Duvvuri Subbarao, the Reserve Bank of India (RBI) chief, also seems to be on a solitary, and one hopes, contemplative walk.
from Expert Zone:
RBI policy: Cut in repo rate imperative
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The Reserve Bank of India (RBI) is fixated on inflation and with that rigid mindset it is difficult to expect any liberalisation of monetary policy. But there are other parameters that have changed. Food inflation was down in September if that is any comfort. More than that, the budget deficit will be reduced with a cut in subsidies on diesel. There are also initiatives being taken on reforms. Obviously, the RBI needs to tune its policy to fit the new situation. If the RBI does change its stance, what instrument is it likely to use?
from Expert Zone:
RBI makes the right policy call
(Rajan Ghotgalkar is Managing Director of Principal Pnb Asset Management Company. The views expressed in this column are his own and do not represent those of either Principal Pnb or Reuters)
The Reserve Bank of India’s (RBI) monetary policy states that “..it is relevant to assess as to what extent high interest rates are affecting economic growth. Estimates suggest that real effective bank lending interest rates, though positive, remain comparatively lower than the levels seen during the growth phase of 2003-08. This suggests that factors other than interest rates are contributing more significantly to the growth slowdown.”
from Expert Zone:
Should the RBI delay a rate cut?
(The views expressed in this column are the author's own and do not represent those of Reuters)
With the return of inflation, there are doubts whether the Reserve Bank of India (RBI) will go in for the next cut in repo rate any time soon. In April, inflation was up at 7.2 percent, 2 percent more than in March.
from Expert Zone:
Investors shouldn’t read too much into repo rate cut
(The views expressed in this column are the author's own and do not represent those of Reuters)
The last time the Reserve Bank of India (RBI) surprised the markets was when it announced a 75 bps cut in cash reserve ration (CRR) days before its mid-quarter review of monetary policy on March 15. It did so again in its annual monetary policy meeting on April 17, with a 50 bps repo rate cut when the markets were either expecting no rate cut or a 25 bps rate cut at best.
from Expert Zone:
RBI rate cut — too little, too late?
(The views expressed in this column are the author's own and do not represent those of Reuters)
The RBI Governor cut the repo rate on April 17 quite reluctantly, even hinting there wouldn’t be another cut soon. Perhaps, he was under pressure from elsewhere, compelling him to look beyond inflation which had been his sole criterion in raising the repo rate.
from Expert Zone:
Will the RBI change its mind?
(The views expressed in this column are the author's own and do not represent those of Reuters)
The RBI seems to be almost obsessed with the high rate of interest. At the January review of credit policy it remained silent and on March 9 made an unscheduled announcement about the cut in CRR to make up for the shortfall in liquidity. Though this infused 480 billion rupees into the banking system, it did not ease interest rates in spite of persuasion by the Finance Ministry.
