Expert Zone
Straight from the Specialists
Decoding Subbarao’s signals
(Any opinions expressed here are those of the author and not of Thomson Reuters)
When Reserve Bank of India (RBI) governor Duvvuri Subbarao announced last week that the central bank was cutting its policy interest rate for the third time this year, he also made a statement that may well have been directed as much to watchers of the Indian economy as to its managers. His message to the government, originally coded in technocratic diplomacy: It’s time for you to do your share in reviving growth.
Financial markets had widely anticipated the RBI would cut its repo rate by 25 basis points (bps). However, they also expected its policy guidance to adopt a less hawkish tone than in the two prior cuts. After all, inflation had continued to ease and the economy still needs all the support it can get to come back on the growth path. Instead, Subbarao was categorical in saying that the “growth-inflation dynamic yields little space for further monetary easing.”
The statement stood out all the more because it came around the same time that the world’s largest central banks made their easing biases more obvious: the European Central Bank cut its policy rate; the Bank of Japan reaffirmed its commitment to monetary expansion; and the Federal Reserve stood ready to adjust its bond-buying program as conditions demanded. In short, global central banks remain willing to loosen the flow of money to stimulate growth.
So why the hawkish talk from Subbarao? We suspect several factors were at work. The first was pretty clear: the RBI remains mindful of India’s current-account deficit. While prices of gold and crude oil have declined significantly in the last few months – helping rein in the country’s expenditure for its two most crucial imports – the RBI acknowledged that “it cannot afford to lower its guard” against the possibility of an upward price pressure.
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.
The wait for the rate cut
(Any opinions expressed here are those of the author, and not those of Thomson Reuters)
At its mid-quarter review on Jan. 18, the Reserve Bank of India (RBI) did not cut the repo rate and also left the CRR unchanged. But it raised hopes that policy easing can follow in the fourth quarter.
The RBI and its inflation dilemma
(Arvind Chari is a senior fund manager of Quantum Asset Management Company Private Limited. The views expressed in this column are his own and do not represent those of either Quantum AMC or Reuters.)
The wholesale price index number for September (7.81 percent) poses a dilemma for the Reserve Bank of India (RBI). With the finance ministry leaving no opportunity to make its case for lower interest rates and exhorting the RBI to take ‘calibrated risks’, the recent inflation data gives no comfort to the RBI to go ahead and confidently cut the repo rate in its October policy review.
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.
Will Subbarao oblige Mukherjee?
(The views expressed in this column are the author’s own and do not represent those of Reuters)
“The government will be forced to take difficult decisions,” Finance Minister Pranab Mukherjee said at a FICCI event while expressing hope of a “reversal of the policy rate which should help in improving business sentiments”.
