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.
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?
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.
India Markets Weekahead: Beware the Ides of March
(Any opinions expressed here are those of the author and not of Reuters)
Markets ended budget week below support levels of 5800/5840 and just when the six-month rally seemed over for good, it made a spirited V-shaped recovery to close at 5946 on Friday, with gains of 3.95 percent. The Street is divided with some expecting this to be the beginning of a new rally with the market scaling highs that it missed in February; others see it as a strong pullback which will fizzle out soon.
The government seems to be responding faster to allay investor fears. It was quick to respond to FII worries over proposed changes in tax residency certificates. Finance Minister P. Chidambaram has been assuring investors of continued policy measures, including the Direct Taxes Code (DTC) bill being introduced in the current parliament session.
Budget 2013: A chance to leave ‘policy paralysis’ behind
(Any opinions expressed here are those of the author, and not those of Reuters)
In India, the government continues to both talk a good game and walk a decent game, having apparently learnt its lesson after a prolonged period of policy paralysis, before gaining a fresh lease of life with last summer’s economic reforms.
This year also, the government of Manmohan Singh has been unusually active ahead of the budget, scheduled for Feb. 28. Finance Minister P. Chidambaram has just completed a global road show.
India Markets Weekahead: New highs will be more robust
(Any opinions expressed here are those of the author, and not necessarily of Thomson Reuters)
By Ambareesh Baliga
With consensus building for the Nifty to cross 6,100 and move into a new range, buoyed by the better-than-expected results for Reliance Industries, we saw the markets correcting with mid-caps and small-caps cracking. The markets recovered on Friday to close the week with marginal gains at 6,074.
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 year ahead: expectations and apprehensions
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The economy is presently under stress and there are no indications that recovery is underway in spite of recent reforms announced by the government. India is not alone in under-performance. But it has fared too badly for its own reasons.
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?
