Expert Zone

Straight from the Specialists

Why the RBI preferred an SLR cut

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The first quarter review of monetary policy did not create any ripples. The stock market remained flat and investors and consumers showed little interest. That was because RBI Governor Duvvuri Subbarao had made enough noise earlier that the time was not right and conditions were not suitable for a rate cut.

Time is not right simply because the original cause for the increase in the rate still persists. Inflation is what the RBI had set out to correct. Even in June, it was well over 7 percent and would quite likely scale up further with the monsoon being late and irregular and consequently agricultural production likely to drop.

The RBI did not have to wait for two and a half years to realise that repo is not really the solution to inflation. The RBI had targeted repo because the interest rate that the banks charge remains above the inflation rate. The real rate of interest — as the difference between the two is called — has to be positive to ensure that people do not give up their savings habit and debtors are not subsidised by creditors.

Consequences of an export squeeze

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

In June, exports shrank more than five percent to $25 billion largely due to recessionary conditions in major importing countries such as the U.S. and the EU. Although exports are not as critical to us as they are to Singapore or China, they do count for a lot.

The growth versus inflation dilemma

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The RBI is concerned about inflation; the finance ministry has growth as its priority. That, as RBI Governor D. Subbarao mentioned, makes the two almost look like adversaries.

The enigma of diesel prices

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Budget considerations make it necessary to raise prices of diesel; political exigencies make that difficult. No wonder Chief Economic Adviser Kaushik Basu was cautious enough to suggest ‘partial decontrol’. But the present is the time to do more than that.

No silver lining in this monsoon cloud

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

India’s monsoon rains have been delayed and were already 30 percent deficient by the end of June. There are doubts whether rains will pick up during the rest of the season. August and September are likely to be dry which will damage crops and reduce farm incomes.

Foreign borrowing or foreign investment?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The market’s response to the currency measures announced on Monday was a dip in the Sensex. Much was expected after the announcement made over the weekend by the finance minister. What has been actually initiated cannot make much difference either to the rupee or to growth.

RBI needs to take bold steps

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Expectations of a rate cut were legitimate. But the RBI preferred to pause, not quite convinced that inflation is under control. That has been its singular target though it is dressed up to look more appealing as growth-inflation dynamics.

Where will the rupee finally rest?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

For nearly a decade, the rupee has been stable — moving in the narrow range of 44-45 to the dollar. But since August last year, the rupee began to slide and in less than six months was down 23 percent.

Should the RBI delay a rate cut?

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(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.

Is the economy drifting towards a crisis?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Standard & Poor’s India outlook downgrade was expected. What is disturbing — the government managed to do that in less than two years. It was in March 2010 that India was upgraded to ‘stable’ — and now it’s down to ‘negative’. It was not because the government took a wrong step but because it did not take any step at all. And if this continues, the economy will be confronted with a crisis.

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