What RBI must not do today – S.S.Tarapore

With inflation where it is, it would be best for the RBI not to attempt a direct or indirect relaxation of monetary policy. The central bank should not drive down yields on government paper

December 15, 2011: Market participants will be waiting with bated breath, hoping that the Reserve Bank of India (RBI) will shower goodies for all. We can trust the RBI to set out a well-crafted Policy Statement today as part of its Mid-Quarter Monetary Policy Review.The Indian economy continues to grow at a healthy rate of growth but there is gloom that we are no longer enjoying a 9 per cent real rate of growth. In India, policymakers, opinion makers, India Inc. and the public at large refuse to accept that there are cycles in economic growth and that it is not possible for an economy to grow at higher and higher rates of growth. Once an economy overheats, a slowdown is inevitable. The RBI and the government need to seek the advice of Gita Gopinath, the young Harvard Professor, who has specialised in economic cycles in the Emerging Market Economics (EMEs). We need to recognise that the global economy faces a number of serious threats which could result in a hair-curling slowdown. Given our proclivity for policies which serve narrow sectoral interests, we believe that the laws of economics do not apply to us in India, simply because we are different. We debunk the relationship between over-heating and generalised inflation. Of course, we can always blame the slowdown to the global contagion. The fact that inflation in India is well above that in major industrial countries is just not our fault! If the rupee is depreciating, it is all because of problems faced by the major currencies. The RBI has a major task of reconciling policy contradictions. It is now generally accepted that the growth rate in 2011-12 would reflect a sharp slowdown. While the official line still is that the growth rate will be 7.5 per cent in 2011-12, the top policy honcho, Dr Kaushik Basu, has conceded that the rate could be 7.25 per cent. With the shocking industrial production numbers, there are many analysts who are already talking of an even lower growth of 6.5 per cent. What is not fully appreciated is that, even at a growth rate of 6.5 per cent, we would continue to be one of the fastest growing economies in the world. The overall inflation rate continues to be in the 9 per cent plus range. It is unconscionable that the RBI is being blamed for the inflation just because it has been fighting it with a series of repo rate increases. Some analysts would see a glimmer of hope in food inflation falling to 6.6 per cent and hope that the base effect would bring down the year-on-year overall inflation rate to 7 per cent by March 2012 so that we can claim victory over inflation. It hardly needs to be stressed that the battle against inflation is far from over. If, at all, monetary policy is to be blamed, it is because the RBI has not raised the repo rate more sharply, and also not raised the cash reserve ratio (CRR) to tighten liquidity. But, then, this is nobody's criticism of the RBI.  As stressed in these columns, the window of opportunity for monetary policy action is very narrow and it is now clear that the authorities have missed the opportunity to slay the inflation monster. The fisc is hopelessly out of alignment with the objectives set out. The slowdown in the industrial sector is no surprise. The exchange rate is under pressure precisely because when the capital inflows were large, the rupee was allowed to appreciate as the RBI did not intervene. Now that the rupee is under pressure, it is not prudent to intervene to slowdown the depreciation. The balance of payments current account deficit (CAD) is reportedly over 3 per cent of GDP — the highest among the Asian EMEs. Taking all factors into account, it would be best that the RBI does not attempt either direct or indirect relaxation of monetary policy. Now, what is it that RBI should not do in its policy announcement today? First, with inflation where it is, there should be no question of reducing the repo rate. Secondly, the RBI should not respond to the cries of the seductive sirens pleading for reduction of the CRR. Thirdly, the RBI should not aid and abet the government's unreasonable demand that it should be able to borrow more at lower interest rates. More particularly, the RBI should not drive down yields on government paper by undertaking large open market operation purchase of securities.The present monetary policy measures are far too mild and allow arbitrage opportunities to banks to borrow from the RBI and profitably on-lend these funds.To sum up, the RBI would serve the larger interests of overall stability and growth by a standstill policy. A monetary policy relaxation would earn encomiums for the RBI but would be detrimental to long-term growth with price stability.

HBL

Let God Save the Rupee!

When the tried and tested economic principles fail, perhaps prayer is the best hedge against a crisis

Having lost faith in the Reserve Bank’s ability to stem the rupee’s free fall, thousands of devotees have sought divine intervention to save the currency. This week, devotees gathered at the Chilkur Balaji temple in Hyderabad on two days to recite the “Runa Vimochana Narasimha Stotram”, a chant invoking the half-man, half-lion God Narasimha to ease the onslaught of the dollar and help with the recovery of money from defaulters. The prayers were led by the temple’s head priests M V Soundararajan and C S Gopalakrishna who came up with the remedy when they were approached by a couple that was worried that the strengthening dollar would make it difficult for them to repay the $40,000 loan they had taken for their son’s education in the US. “I haven’t studied economics, but I know that the rupee’s depreciation is mainly due to market sentiment. So, if one sentiment can drag the rupee lower, I’m sure another sentiment can make it rise,” said M V Rangarajan, another priest at the temple. The prayer is an extract from the Narasimha Puranam and many demigods are known to have chanted the verse for relief from debt. Lord Venkateshwara, who is believed to have been indebted to the Hindu god of wealth, Kuber, is said to have invoked his family deity Narasimha to help clear his debts. Lord Venkateswara, whose temple is at Tirupati, is said to have borrowed money from Kuber for his marriage, and the legend goes that he is still paying the interest on the loan amount. When asked why the prayer sessions were being organised, the priests said that a temple must pray for the well-being of the people and that the current crisis will affect the common man. The Chilkur temple, about 25 km from Hyderabad, lacks the architectural splendor of most South-Indian temples. The road that leads to the temple is muddy and winding. In fact, the temple’s obscure locale could belie its popularity, but the temple bears an exceptional testimony to the number of students who have cleared their visa interviews after paying their respects to the presiding deity. The temple gets almost one lakh visitors every week, with the rush peaking on Fridays and Saturdays. Its presiding deity, Lord Venkateshwara, or Balaji, is one of the most worshipped incarnations of Hindu God Vishnu. The deity’s popularity has risen considerably in the last decade, earning him the nickname ‘Visa Venkateshwara’. Most of the temple visitors are students who come to pray for visas to travel or move to the West. Similar prayer sessions were held worldwide during the global financial crisis in 2008. Orthodox Jews in 11 major seminaries across Israel prayed for a fast resolution to the financial crisis. The Church of England, too, published a prayer that aimed to help people caught up in the difficult financial situation.

ET

Nabard pegs TN credit outlay at Rs 77,803 cr

The National Bank for Agriculture and Rural Development (Nabard) has pegged Rs 77,803.49 crore as the potential bank credit for 2012-13 in Tamil Nadu. This will be an 18 per cent growth over the ground level credit target of Rs 66,161 crore in 2011-12. The credit potential comprises crop loan at Rs 31,574.14 crore, agricultural term loan of Rs 17,010.05 crore, non-farm sector at Rs 14,032.35 crore and other priority sector at Rs 15,186.94 crore, said Lalitha Venkatesan, chief general manager, Nabard.Of the total credit, short-term will be 40.6 per cent, she added. “The real challenge for agriculture is to enhance capital from both public and private sectors in research, infrastructure, including market, cold storage, warehouse and others.” The other major challenge is labour shortage, for which mechanisation is the solution, she said.

Reserve Bank of India Regional Director N.S.Vishwanathan added, banks' performance in the state was much better compared with other parts of the country. For instance, the CD ratio of the banks in Tamil Nadu was 117 per cent compared with the national average 72-73 per cent. “However, we (Banks) need to scale up and improve supply-side infrastructure,” he said. On financial inclusion in Tamil Nadu, he said the target was to cover 4,500 villages, with a population of 2,000, by March 2012. "In the State Level Bankers' meet, we had decided to achieve it before December 2011. As of September, 75 per cent of the banks have achieved it,” said Vishwanathan on the sidelines of the State Credit Seminar, organised by Nabard.

Sharad Sharma, chief general manager, State Bank of India, said SBI had been allocated 900 villages, as part of financial inclusion programme in the state, and the target was to be achieved by March 2012. “But we have achieved in November 2011 itself -- half of the villages are covered by bank's branches and rest through the business correspondence model,” said Sharma.

BS

Rural Min seeks to convert MFIs to local area banks

The rural ministry has suggested conversion of micro finance institutions (MFIs) into local area banks. It proposes to create a separate category below local area banks for MFIs. Accordingly, the ministry has sought amendment in the banking regulation act. Local area banks cater to credit needs of rural people with a suite of products. If the proposal is passed, MFIs can provide variety of products. “This will probably enable MFIs to do the business of deposit taking along with lending. Once they are converted into rural area bank, their credit limit may also be enhanced. Currently, they are not allowed to lend more than Rs 50,000 to a single borrower. The government probably wants MFIs to pursue a bank’s business model and to own more responsibility of what they do,” an analyst from a rating agency told Moneycontrol.com on condition of anonymity. As per the Reserve Bank of India’s (RBI) stipulation, the minimum paid up capital to set up such a bank should be Rs 5 crore, with at least Rs 2 crore being contributed by the promoters. The area of operation shall be a maximum of three districts. MFI industry in India has been facing a tough time since October, 2010 when the state government of Andhra Pradesh passed a legislation effectively shutting down private sector institutions in the wake of rising number of suicide cases. Andhra is the so-called epicenter of MFI activities in India. Later, a sub-committee of the central board of directors of RBI under the chairmanship of Y H Malegam was formed to study issues and concerns in the MFI sector in January, 2011. Based on the committee’s recommendations, the RBI earlier this month, came out with a set of new norms for MFIs.

Some key norms include:

• Capping of net interest margin of individual MFIs to 12% (NIM is the difference between interest earned and expended.)
• Interest on individual loans will not exceed 26% per year (earlier it was in the range of 35-40%)

• Not more than two NBFC-MFIs should lend to the same borrower.
• Total indebtedness should cross Rs 50,000 a borrower

Recently, RBI Deputy Governor, H. R. Khan was also quoted saying that MFIs would be allowed to draw external commercial borrowings of up to $10 million. However, they need to have proper hedging strategy. 

Moneycontrol

Flicking the birdie

......when my dad got a transfer to Chennai, he requested for Hyderabad so that it would be easy for me. He works with RBI and they were kind enough to consider his request. ............

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SEBI forms intl advisory board, first meet next month

....... The decision to set up an IAB was taken by the Sebi board in its meeting on July 28, pursuant to which Sebi began the process of setting up this board. For the probable names, Sebi had sought suggestions from its Whole Time Members, as also from the two former RBI Governors YV Reddy and Bimal Jalan, besides Raghuram Rajan, Professor of Finance, University of Chicago, and Kaushik Basu, Chief Economic Adviser, Ministry of Finance..........

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No re-booking of cancelled forward contracts: RBI

.......The apex bank has now made it clear that forward contracts once cancelled cannot be rebooked....................

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RBI plans special purpose vehicle to help power distribution utilities with losses

The Reserve Bank of India can help wipe out losses of power distribution utilities amounting to 82,000 crore by setting up a special purpose vehicle that can purchase the liabilities, a high-level official panel appointed by the prime minister has recommended.............

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State going through 'overdraft crisis'

...... Ironically, when Reserve Bank of India (RBI) Governor D Subbarao was meeting the chief minister, the new dispensation was going through a maiden overdraft crisis. So while the RBI governor was warning the government against ways and means advances (WMAs), the state's liquidity crunch made it survive on overdrafts from the RBI which can be availed for a maximum 14 days and is usually the last resort.........

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PNB appointed lead bank for Pathankot and Fazilka

MUMBAI: The Reserve Bank assigned to state sector lender Punjab National Bank the responsibility of being the lead bank in newly created districts of Pathankot and Fazilka in Punjab. "It has been decided to assign the lead bank responsibility of the two new districts viz Pathankot and Fazilka to Punjab National Bank," the Reserve Bank of India said in a statement. The two new districts were created by the Punjab government in July this year. While Pathankot was carved out of the Gurdaspur district, Fazilka has been carved out from the Ferozepur district.  "The lead bank responsibility of existing Gurdaspur district and Ferozepur district will continue to be with Punjab National Bank and Oriental Bank of Commerce, respectively," the RBI added.

ET

How unaccountable are central banks?

They have made errors, too. Allow independent auditing of central bank decisions

............... how do we improve transparency and accountability in central-bank decision-making and regulatory policing? Central bankers would be more accountable if there were adverse consequences for their senior management, at least in terms of reputational damage, for non-performance. In India, there should be statute-based performance audits of the RBI on a periodic ex-post basis. Independent auditors should have full access to all decision memos, and their reports should be submitted to the government and tabled in Parliament for discussion.

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Case for cutting rates

Tough Guv Unlikely to Cut Rates

Subbarao’s Multiple Challenges Falling growth Plummeting Rupee Falling, but still high inflation Receding capital inflows Manufacturing Prices Still Rising
Any general’s nightmare is battle on multiple fronts. When RBI Governor Duvvuri Subbarao presents the midquarter review of monetary policy on Friday, he not only has to convince the market that he is close to winning the two-year battle on inflation, but is also prepared to fight the sinking rupee, dwindling investments, soaring government borrowings and ensure that flagging economic growth does not collapse completely. And, all this without leaving the inflation front open again. The burden is falling on the central bank to provide relief for every ailment as businesses and investors have almost given up on the government to act after the debacle over foreign investment in multibrand retail and policy inertia. The tools that Subbarao has to do with are few — a cut in policy rate, reduction in cash reserve ratio, and throwing a portion of the $300-billion, but deceptive, forex reserves at the market. The regulator spelt out a series of qualitative measures to arrest the rupee slide on Thursday. But no one is expecting an interest rate cut, thanks to inflation that has remained at an average of 9.5% for nearly two years and Subbarao's breaking away from consensus and his advisors on holding rates. There is a half-hearted hope that CRR, the portion of deposits that banks keep with the RBI, could be cut, with the Indian central bank taking a cue from others, including China, that have eased this reserve requirement. As he broke away from consensus in the past in fighting against inflation, will he do so to revive growth too? “It is an unfortunate situation where the monetary policy is doing double duty,” said Samiran Chakraborty, head of research, India, at Standard Chartered. “The fiscal policy is neither supportive of fiscal management nor is it doing anything to bolster growth, and policy movements have been more accentuated on both the sides, in raising as well as cutting rates, because of a weak fiscal policy.” Some are calling for a cut in CRR since the government, despite the RBI’s autonomy, may be prodding it to partially ease the pressure on the system because of its failures. “A CRR cut is desirable for two reasons, one it improves sentiment and the other it is not antithetical to it's monetary stance as the private sector is not borrowing and this money will support the government's enhanced borrowing programme,” said Madan Sabnavis, chief economist, Care Ratings. The repo rate, the rate at which the central bank lends to banks, is at 8.5% after 13 increases and the cash reserve ratio is at 6%. But rate increases and a slump in investment due to policy paralysis have led to industrial output shrinking 5.1% in October. Inflation as measured by the wholesale price index is at 9.1%, though food inflation has eased to a fouryear low of 4.35%. But manufacturing prices, which the RBI looks at for its cues, are still rising. “It would be strange for the RBI to ease liquidity conditions or monetary policy when core inflation is running at 1.2% on a monthly basis, and the rupee is sinking like a stone,” said Jahangir Aziz, Asia economist, JPMorgan Chase. “In such a situation, central banks typically tighten, not loosen monetary policy, to squeeze out forex short-selling. Lowering the funding cost of short INR position will just add to the already extreme pressures on the currency. The RBI is unlikely to administer experimental medicine on Friday and, therefore, it just pauses and eases liquidity with tactical open market operations.” The rupee, the worst-performing currency in the region, opened at a lifetime low of 54.20 on Thursday before closing at 53.64 as overseas flows dry up while consumption of imported items remain strong. There have been calls to the RBI to defend the currency and it has done so since Dec 2, by selling dollars and buying rupees.

ET 

RBI’s new norms to hit currency speculators hard

..... “RBI’s attempt is to stabilize the rupee and reduce speculation. There would be no impact on the genuine trades from importers and exporters. This move will reduce speculation because in volatile times it is seen that traders cancel forward contracts depending on their position. But bank volumes will be hit and that will impact fee income,”...........

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Will RBI governor D Subbarao cut interest rates?

........ The only notable thing that might happen is that the RBI could signal a change from its hawkish stance to a more dovish one, which should cheer investors.But, in all likelihood, no rate cuts...........

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RBI steps in to arrest rupee depreciation

.........The Reserve Bank of India (RBI) on Thursday abandoned its hands-off approach to the rupee, which on Thursday ended off an all-time low hit earlier in the day.......

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RBI seen easing tone, not rates, as economy falters

The best that investors can hope for from the Reserve Bank of India (RBI) on Friday are measures to improve market liquidity and an acknowledgement that economic conditions are worsening. The RBI is not expected to draw a line in the sand to defend the rupee, which hit a record low on Thursday, and rate cuts are out of the question as inflation remains above 9 percent. Dovish talk at its mid-quarter policy review would fuel expectations that the central bank accelerates moves to begin easing monetary policy after raising interest rates 13 times since March 2010, most recently in October. However, the tumbling rupee, which hit a record low on Thursday at 54.30 before central bank intervention pulled it back, puts upward pressure on import prices and complicates inflation management task, traders said. The rupee is down more than 18 percent from its July peak. "Quite clearly, weaker rupee is creating its own damage on the inflation front and on growth, (which) keeps the central bank that much further away from easing rates," said Shubhada Rao, economist at Yes Bank in Mumbai.Hopes that a worsening growth outlook might push forward the central bank's move to begin easing monetary policy have run up against the uncertainty caused by the plunge in the rupee, which has caught policymakers off-guard. The inflation picture, meanwhile, is mixed. Food inflation fell to a nearly four-year low of 4.35 percent in the year to December 3, data on Thursday showed. However, manufacturing inflation rose in November from the previous month, helping keep wholesale price index inflation above 9 percent for the 12the straight month. Mahindra & Mahindra Ltd, India's largest maker of utility vehicles, unveiled a price rise on Thursday. The fall in the rupee has exacerbated poor investor sentiment, with Indian stocks down nearly 23 percent this year, and the market will be looking to RBI Governor Duvvuri Subbarao for reassurance, even if his options are limited given the need to fund a widening current account deficit. The RBI steps in to smooth volatility but is otherwise officially agnostic about the rupee's level versus the dollar. "They will not, obviously, target a rupee level, but how do they manage the concerns emanating from a weaker rupee? That will be the question," Rao said. The central bank may also lay out more measures to ease tight market liquidity through open market operations (OMOs). In the past three weeks the RBI has injected more than 240 billion rupees into the banking system through bond buybacks. "I think he might announce the quantum of OMOs that the RBI might do until February or March," said Harish Aggarwal, a dealer with First Rand Bank in Mumbai. The RBI has kept banking system cash tight to help fight inflation and has said it is comfortable with a deficit of about 600 billion rupees. With a deficit now at about 1 trillion rupees, Aggarwal said he expects a further 300 billion-500 billion rupees in bond buybacks by March. These are troubled times for Asia's third-largest economy. Data showed on Monday that India's industrial output slumped more than 5 percent in October from a year earlier, far worse than expected and the first drop in more than two years, with capital goods output down 25.5 percent. Overall economic growth slowed to 6.9 percent in the September quarter, its weakest in two years, and some economists expect India to struggle to reach 7 percent growth in the fiscal year that ends in March 2012. The government had been targeting 9 percent earlier this year. India's central bank has been criticised for acting too late in taking the fight to inflation despite the series of rate increases since early 2010. In October, the RBI indicated its tightening may be coming to an end even though inflation remains well above its comfort zone "The central bank's burden right now remains to establish its credibility with respect to fighting inflation," said Taimur Baig, economist at Deutsche Bank in Singapore, who like most analysts expects the RBI to keep interest rates and the cash reserve ratio steady on Friday. The central bank has lifted the policy repo rate to a three-year high of 8.5 percent from 4.75 percent. That has helped to brake economic activity, as has the global downturn and poor local sentiment driven by policy gridlock in a government weakened by corruption scandals. While inflation prevents the RBI from becoming more accommodative to stimulate growth, lower-than-targeted tax receipts and a worsening fiscal outlook curtail the government's room to maneuver to prop up growth."Options for fiscal steps as well as monetary measures are increasingly limited," Finance Minister Pranab Mukherjee said on Thursday.

Reuters

Policy Review | Central bank’s focus may shift to growth

......... Much weaker growth will prompt RBI to ease monetary policy, our expectation of the sequence of easing remains first injecting liquidity through open market operations (which RBI has been doing), then cut the reserve requirement ratio of banks in January, followed by repo rate cuts in March 2012,”.....

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Growth must take centre stage now, says finance ministry

Recent slide in inflation no consolation amid exceptional shrinkage in industrial growth

Growth seems set to return as the key mantra tomorrow when the government will come out with its mid-quarter review of the Reserve Bank of India’s monetary policy, sources said on Thursday, sensing the “underlying thinking” in the finance ministry. A senior official with the ministry said growth would “now take the centre-stage” with a cool-down in prices. “Even so, inflation still remains a matter of concern,” he told Business Standard. Only yesterday had RBI governor D Subbarao met Finance Minister Pranab Mukherjee. The central bank’s head was reportedly briefed about the ministry’s view on the matter. Another official said on Thursday that the administrative circles did now expect a major change in the RBI’s stance immediately. That apart, the RBI governor “may make” a move in the direction tomorrow, he claimed. The review announcement comes close on the heels of news breaking that the October industrial growth registered a negative 5.1 per cent growth — the lowest figure in more than two years. This has raised serious concerns across the board, triggering fears of a re-run of the gloomy economic scenario after December 2008, when a global financial crisis led to contraction in industrial production for seven months in a row. Further, economic growth fell to nine-quarter low of 6.9 per cent in the second quarter of this fiscal. With 7.7 per cent growth in the first quarter, this has delivered 7.3 per cent growth in the first half. The finance ministry hoped the second half would witness a slight recovery compared to first, so that overall growth this fiscal would be 7.5 per cent. However, in the current scenario, experts feel the growth will be below seven per cent in 2011-12. The overall inflation fell to a one-year low of 9.1 per cent in November from 9.73 per cent in October. But, inflation has been over nine per cent for a year now.Food inflation, on the other hand, has been coming down quite fast. It stood at just 4.35 per cent for the week ended December 3. Chief economic adviser Kaushik Basu pegged food inflation to fall below 3 per cent in a month’s time. Analysts say RBI’s move of raising policy rates for 13 times since March 2010 has not pulled overall inflation to below 9 per cent. Food inflation has fallen because of supply issues and base effect. As such, RBI should not increase any rate further, as it is not killing inflation but growth.

BS

Inflation would ease further: R Gopalan, Economic Affairs Secretary

........ The government today expressed hope that price situation would ease further and said moderation in food inflation will give some space to RBI to address the worrying level of economic growth.............

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Make it a two-way bet

As a regulator of the forex market, the RBI must be seen to be in control

The rupee has been falling for months, losing 17.3 per cent of its value vis-a-vis the dollar since September. Many observers have come to believe that there is little reason to suppose that the rupee will recover before as late as March next year. The Reserve Bank of India (RBI), meanwhile, insists its mandate is merely to minimise volatility in the foreign exchange market, and not to defend the value of the rupee. While sensible in theory, in practice this is clearly beginning to show some flaws. A serious question needs to be raised: does this continuing precipitous decline reflect a sense taking hold in global markets that the rupee, the worst-performing currency in Asia this year, is a safe one-way bet? The rupee market is still thin, and not invulnerable to speculative action. In the presence of one-way bets, speculation can create a vicious cycle, making a falling rupee a self-fulfilling prophecy. The reason the RBI was given the mandate to manage volatility was that while the decision was taken, for the best of reasons, to allow the rupee to float, it was nevertheless known that a key purpose of regulation is to manage the impact that speculation can have on the real economy. That producers are now feeling the pinch is obvious; while net exporters, like information technology firms, are happy, an extensive array of companies with foreign-currency borrowing are being hit, as are those globalised companies that import a good deal of their inputs. No regulator should act merely to insulate market participants from the negative consequences of a business decision. But the purpose of regulation, in this case, is to ensure that markets function properly — and for financial markets, that they do not dash off uncontrolled by a concern for fundamentals. Yet, in its attitude to the rupee fall, the RBI has chosen to appear weak, a cardinal sin for a regulator. The belief is becoming universal that it could not affect or arrest a slide of significant proportions, even if it wished to; this further empowers speculators. Statements like that from the chairman of the Prime Minister’s Economic Advisory Council, C Rangarajan, indicating that the RBI is helpless, add to the damage. The point of a well-functioning financial market is that participants should never be faced with a one-way bet. There is little chance, then, of prices – in this case, the rupee exchange rate – finding their true value. The RBI stayed out of the foreign exchange market for nine months, leading participants to believe that it was incapable of intervening. Yet unless it does so occasionally, people will not be properly wary of taking positions, and insufficiently thoughtful about the positions they take. Like inflation targeting, regulating a floating currency is all about managing expectations. The RBI cannot manage expectations if it appears helpless. The game is psychological; it must be prepared to play the game well. And to play the game well, it has to show that it’s willing to play the cards it has.

BS

RBI may not hike rates as growth slows

...."The RBI should reduce interest rates to gradually reverse the impact of the 13 interest rate hikes it has undertaken over the last two years,"........

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Policy pundits clueless on inflation

.At a recent seminar on September 21, on inflation, Kaushik Basu, Chief Economic Adviser in the Department of Economic Affairs (DEA), apparently agreed with the comment of Govinda Rao, (Director of NIPFP and a member of the Prime Minister's Economic Advisory Council) that “the country's economic managers have not been able to fully grasp the processes underlying the persistence of high inflation.” Such a conclusion by the two senior policy makers is deeply disturbing. ..........

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Basix, Swaws seek RBI approval for debt recast by banks

..... Both Basix and Swaws want a special dispensation from the Reserve Bank of India (RBI) that can enable the banks to restructure loans without categorizing them as substandard assets, according to two persons familiar with the development..................

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The Great India Microfinance Credit Bureau: Questions that beg an answer…

.......... I would also like the DFIs like SIDBI, commercial banks, regulators like RBI and multi-laterals like IFC to come out and vouch safe the integrity and quality of the data being supplied to the credit bureau by Indian MFIs—in terms of data integrity, internal consistency and physical compatibility with client existence and records. Without question, they must make themselves accountable and responsible for the quality and integrity of such data, given the implications for financial inclusion and inclusive growth. ..............

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R.I.P one dollar coins

Thank you sirs, we can't afford you. Henceforth, the U.S. Mint will not produce one dollar coins bearing the images of former Presidents who have passed into the pages of history. A one dollar coin not produced is a dollar saved for the Obama Administration, which finds itself in a tough economic situation. In the face of poor demand, 1.4 billion surplus one dollar coins are stacked in the vaults of the Federal Reserve. Also, 1.6 million one dollar coins are scheduled to be minted over the next five years. The move to suspend production of one dollar coins is expected to save at least $50 million in production and storage cost. That is a huge saving in a downturn environment. For a recession-hit America, every one dollar coin is a pain on the economy, it appears.

HBL

Debit, credit card uses hit a new high

...Indians shopped for Rs 8,997 crore worth of goods and services using their credit card in October this year, compared with Rs 6,760 crore spent in October last year, an increase of 33 per cent, at a time when the number of outstanding credit cards fell to 1.76 crore in October 2011, against 1.82 crore cards in October last year, according to data available with the Reserve Bank of India (RBI). ...........

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