Expert Zone
Straight from the Specialists
Why is RBI chief Subbarao so cynical?
(Any opinions expressed here are those of the author and not of Thomson Reuters)
In its policy review on May 3, the Reserve Bank of India (RBI) did bring down the repo rate by 25 basis points but it also presented a gloomy outlook on growth and inflation which left the stock markets cold. The Sensex, which had surged in anticipation, fell 160 points. What makes the RBI so negative when even rating agencies are inclined to accept the emergence of green shoots?
RBI Governor Duvvuri Subbarao has himself spelled out the risks. “Upside risks are still significant in view of sectoral demand supply imbalances, the ongoing correction in administered prices and pressures stemming from increases in minimum support prices,” he said. Is Subbarao’s risk assessment genuine or has it been exaggerated to put the government under pressure?
Sectoral imbalances may take time to fully correct but if as anticipated by the India Meteorological Department the monsoon this year is normal, the supply deficit will be considerably reduced. It is quite likely the correction in administered prices may also be downwards rather than upwards with international commodity prices, including that of crude oil, moving south.
But there is certainly the risk of an increase in minimum support price, which has been the cause of inflation creeping upwards. The increase in food grain support prices each year has become a source of inflation with the potential to spread throughout the economy. First, there is the direct effect. A 5 percent increase in prices can lead to inflation going up by 0.75 percent. Second, there is the derived effect. The increase in support prices is reflected in the cost of living and consequently wages, raising the cost of manufacture to push up inflation by 1.3 percent. The direct and indirect effect of a 5 percent increase in support prices adds 2 percent to inflation. This is a genuine risk but not too significant.
When will the repo rate be reduced?
(The views expressed in this column are the author’s own and do not represent those of Reuters)
In his policy review on Oct. 30, Reserve Bank of India (RBI) Governor D. Subbarao stuck to his position that money cannot be made cheap when commodities are becoming expensive.
RBI policy review: Subbarao could have taken a calculated risk
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The Reserve Bank governor kept interest rates unchanged on Tuesday with a marginal 25 basis points decrease in cash reserve ratio (CRR), disappointing stock markets and resulting in the Nifty going below 5640.
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?
Why the RBI preferred an SLR cut
(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.
RBI vs the govt: who will blink first?
(The views expressed in this column are the author’s own and do not represent those of Reuters)
At its mid-quarter monetary policy review on June 18, the Reserve Bank of India (RBI) kept its rates unchanged despite expectations of a cut. To further augment liquidity and encourage banks to increase credit flow to the export sector, the RBI has increased the limit of export credit refinance from 15 percent of outstanding export credit of banks to 50 percent, which will potentially release additional liquidity of over 300 billion rupees, equivalent to about 50 basis points reduction in the CRR.
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.”
RBI needs to take bold steps
(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.
Time to think beyond monetary policy rates?
(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)
Irrespective of the RBI monetary policy review and its outcome, the fact that policy rates have assumed such obsessive focus needs closer scrutiny.
Will the rate cut boost auto sales?
(The views expressed in this column are the author’s own and do not represent those of Reuters)
Last week, the Reserve Bank of India (RBI) cut its lending rate by 50 basis points. This came as welcome relief for automakers as well as consumers since the domestic market was particularly sluggish last year, owing to high interest rates and an increase in raw material and fuel prices.
