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from Expert Zone:

Raghuram Rajan and the rupee

(Any opinions expressed here are those of the author and not of Thomson Reuters)

With Raghuram Rajan taking over as the governor of the Reserve Bank of India (RBI), it’ll make for a change in the central bank’s policy perception.

His predecessor Duvvuri Subbarao used conventional methods and got no results. It is likely Rajan will opt for innovative means and his initial steps are already showing results. It’s evident that the complex problems of today demand out-of-the-box solutions.

The rupee, beaten down by inflation and tortured by the current account deficit, had become weaker over the years. It got worse when the U.S. Federal Reserve announced tapering of quantitative easing that would have reduced (if not reversed) FII investment and made it difficult to fund the current account deficit.

When the rupee crossed 60 to the dollar and showed no signs of steadying, the RBI responded with its traditional method of squeezing liquidity to check speculation. It then tried to reduce the outflow of dollars due to overseas investments by Indian companies and individuals spending abroad. The result was a further slide, taking the rupee close to life lows of 70 to the dollar. That’s conventional wisdom for you.

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 India Insight:

RBI plays wait-and-watch game as politics dominates

Not surprisingly, the Reserve Bank of India (RBI) kept the repo rate on hold on Monday, just days after the Congress-led government dropped a cluster bomb of several reform measures on "big bang Friday".

Though most experts thought that the RBI would not cut rates on Monday, markets were hoping that central bank governor Duvvuri Subbarao would oblige them just a little bit. The Sensex ended 78 points higher, but was up 200 points in anticipation.

from India Insight:

Forget CRR cut, Subbarao should cut down his humour

Is Duvvuri Subbarao, governor of the Reserve Bank of India, considering an alternative career in stand-up comedy? In July, Subbarao tried to lighten the usually grey world of central banking with a self-deprecating wisecrack, linking rising prices and his receding hairline.

"I must admit that even at a personal level, I do not know how to interpret inflation. Twenty years ago when I had a thick mop of hair, I used to pay 25 rupees for a haircut … and now, when I have virtually no hair left, I am paying 150 rupees for a haircut," he said at a conference.

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