A section of economists believe the RBI is beginning to give more importance to consumer price index (CPI) than the wholesale price index (WPI). New RBI governor Raghuram Rajan had raised the repo rate — or the rate at which the apex bank lends to banks — to 7.50 per cent, stunning markets and industry. Usually, the RBI closely tracks the WPI numbers before taking policy actions, but indications seem to be otherwise.....
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Monday, September 23, 2013
India's New Central Bank Boss: Don't Count On Uncle Sugar
The impossible trinity
If you happen to be a central bank - dilemma is long passé; trilemma is the new reality of the financially liberalised world. Back home, the Reserve Bank of India (RBI) has been caught in the ‘impossible trinity’ trilemma where it has to tackle three concerns all at once - free capital flows, stable exchange rate, and independent monetary policy. What is the ‘impossible trinity’ ?...........
RBI governor has 'asphyxiated' investor, should be removed: Swamy
.........."His economics has been known to be the same as that caused the US Depression of the 1920s, namely, following a conservative fiscal policy. Just when investment and capital market needed an injection of adrenalin, Dr Rajan asphyxiated the investor. By mid-2014, the government will be on the verge of default of payments,"...........
Difficult to understand Raghuram Rajan's first monetary policy
......No one expected a reduction in repo rates, not yet. Incidentally, some banks have announced increases in rates (lending and deposit) before RBI’s mid-quarter review. But an increase in the repo rate? I don’t understand it. RBI is certainly privy to much more information than is there in the public domain...................
Two approaches to financial quandary
......In monetary terms, India is zigging while Indonesia is zagging, despite the many common challenges that have pummelled their currencies and markets in recent weeks. Both must balance a need to preserve economic growth for large, heavily poor populations, while at the same time preventing a build-up of inflation that might discourage longer-term investments - a balancing act that has bedevilled policymakers in the US and other affluent countries over the years.........
Tightening while loosening
............ Dr Rajan has clearly sought to establish his credentials as an inflation fighter and the action should be seen as an indication of how monetary policy will operate during his term. The former move was simply taking advantage of the room that had been created by the recent actions. This room will run out soon; the next initiative on October 29, if not before, will most likely be to bring the MSF rate back to 100 basis points above the repo rate, which itself may be raised by another 25 basis points in response to higher inflation numbers. Beyond that, the tone of last Friday's statement suggests that monetary policy will remain tight as inflationary pressures intensify as a result of rupee depreciation and persistent supply bottlenecks...........
An exercise in continuity
Dr Singh, follow Dilma Rousseff, not Obama
........Had our PM been a wee bit more 21st century in his outlook, he would have chosen a Reserve Bank of India Governor, who understands not Chicago University classrooms and textbooks but the needs of the economy of a country that Professor Raghuram Rajan knows hardly at all. Instead, Manmohan chose an RBI Governor, who does what Wall Street wants rather than what Dalal Street needs, and who believes that inflation can be tamed by higher interest rates. Raghuram Rajan has shown that he is as dedicated to wrecking Indian industry through higher interest rates as his predecessor Duvvuri Subbarao was..............
Reading in between lines: Where Raghuram Rajan goofed up
........In my reckoning, yesterday’s monetary policy statement has failed to clarify objectives, instruments and operating procedure. As I read the statement, I could not understand whether this was a tightening or an easing. I spoke with veterans on the bond market and they were also fumbling............
First impressions
........The direction of policy also remains confused. Should banks raise deposit and lending rates in response to the monetary policy, or lower them? Should businesses make plans expecting lower inflation and higher interest rates, or should they expect higher inflation and lower interest rates? The policy states that changes can be made anytime, and not only on policy days. Rajan's view, that India is prepared for the Fed tapering after the recent steps, suggests currency markets will remain shallow and businesses may see large volatility in them. Good communication is crucial to managing expectations and monetary policy must convey what the targets, instruments, and direction of policy are going to be.
Rajan kills hopes of recovery
.......... After a lifetime spent in the study and dissemination of such dogma — which incidentally has no relevance to the needs of an economy such as India — it was somewhat adventurous for the pink press to believe that the new RBI Governor would differ from his predecessor's policy of seeing the Economist magazine as the fountainhead of wisdom. Even a cursory knowledge of economics as applicable to India would show that raising interest rates does nothing to reduce the rate of inflation..................
Deja vu: Raghuram Rajan's RBI may hike repo rate again, say analysts
Having been surprised by the repo rate increase on inflation concern, analysts expect new Reserve Bank Governor Raghuram Rajan to hike the key rate by another 0.50 percentage points this fiscal. The repo rate hike "indicates that the new Governor is focusing more on inflation than growth. We now expect RBI to increase repo rate by 0.25 per cent each at the next two policy meetings to 8 per cent by end of 2013," house economists at British lender Standard Chartered said............
Low-hanging fruits for Rajan to pluck
......The factors set out for determination of what is a non-negotiated contract and what in it would be an unfair term, could easily be prescribed by RBI using its existing powers under the Banking Regulation Act. Unfair conduct, abusive conduct, consumer data privacy, and fair disclosure norms, have all been provided for in IFC and RBI can easily adopt these under subordinate legislation, and regulate this core area of activity in its role as a regulator. Implementing these measures and swiftly making use of the first few violations as opportunities to articulate RBI's thought process and expectations would be a simple way to give this important area of financial sector reform a major leg-up..................
Rip Van Winkle, Rajan & the Indian economy
....Tongues have already started wagging, and a section has started painting Rajan as the new villan in the uncertain story of Indian economy. One can view Rajan the individual through the prism of politics. Rajan the Governor, however, has no luxury to look at the economy from the narrow angle of politics............
Was SBI aware that RBI would hike repo rate?
Did the India’s largest lender, State Bank of India (SBI), know that the repo rate hike by the Reserve Bank of India (RBI) was in the offing when it hiked its lending and deposit rates a day ahead of the monetary policy review on Friday? According to some market experts SBI might have gotten the wind of what was coming. Senior bank officials, when contacted, would not respond. An e-mail on this issue sent to SBI remained unanswered............
Temple to take up RBI letter on gold stock
..The RBI had submitted a letter to the Attukal Temple Trust on August 29 seeking permission to calculate the stock of gold in the temple’s possession. Trust secretary Jyothish Kumar told The Hindu that the trust office-bearers had reservations about the request, and felt that it unfairly targeted only Hindu religious institutions...............
India Post pushes ahead with banking plan despite opposition
.Within the finance ministry, the department of financial services opposes the move, saying the postal department does not have the expertise to run a bank, including handling credit and other banking functions. It feels the business proposal is unlikely to be viable. But the postal department does not agree with this view, saying it has several years’ experience in deposit mobilization and that Post Bank of India will be run by professional management using its strong network.........
Banking Facilities Inaccessible, Tribal Woman Suffers
..........After a lot of effort, she managed to get mandatory documents, including the Aadhaar card receipt, and submitted them to the bank, Madavi said. The bank officials, however, sent her back, saying the papers submitted by her can't be considered "valid" for opening an account, she said. When asked about this, the bank Manager said the documents provided by the woman are not sufficient for opening a new account. "If she produces all the required documents, her account will be opened." Despite the Reserve Bank of India's much-touted financial inclusion programme, which entails providing basic services in unbanked areas, people like Madavi still remain out of the formal banking sector.
RTI Judgement Series: Citizens have right to know about functioning of bank, including regulatory lapses
...........The Central Information Commission (CIC), while allowing an appeal, directed the Public Information Officer (PIO) of Reserve Bank of India (RBI) to provide complete information regarding working of Deendayal Nagari Sahakari Bank Ltd as well as inspection reports, file notings of RBI to the appellant under the Right to Information (RTI) Act.............
Bank bosses behind bad loans
......But behind every stressed asset there is either the personal interest of a CMD, director or chartered accountant, or the involvement of joint interest. But they seldom get punished. Instead, the honest executive is made the sacrificial goat. Corporate lending decisions are invariably made by CMDs in their personal chambers and pushed through the system, overriding a genuine credit proposal secured through sincere efforts...........
Rupee Bank depositors panic over losing money in merger with Saraswat Bank
........Although no formal announcements have been made in this regard yet, it seems that the distressed bank has hit upon a formula for its woes. Depositors with the bank complain that it has come to their notice that the authorities have decided to pay out only 65 per cent of the deposit amount, which means they would have to let go of the remaining 35 per cent. In a meeting held at Bhavani Peth yesterday, over 500 account holders unanimously decided to protest against this arrangement. The meeting comprised of depositors from all walks of life including pensioners, saving account holders, small and medium businessmen, traders and enterprises..........
Saraswat; Shamrao Vithal warm up to idea of becoming private banks
Reserve Bank of India’s idea to giving room for urban cooperative banks (UCBs) to transform themselves into a private bank has warmed up hearts of many. Saraswat Bank and Shamrao Vithal Co-op Bank, both Mumbai-based large UCBs (Urban Co-operative Banks), have begun groundwork to travel the path as and when RBI firms up its mind.............
Yikes, yet another (Damodaran) committee report
Sorry folks and due apologies Mr. Damodaran, but “Yikes” was exactly what Zenobia Aunty uttered when she learnt that yet another report had been made public. The title of this particular report was quite a mouthful – Report of the committee for reforming the regulatory environment for doing business in India. This committee was set up in August 2012 by the Ministry of Corporate Affairs............
INPA protest
............They claimed that interest rates ranging from 14.5 per cent to 19.5 per cent were set for educational loans by many banks. “ Some banks have been levying penalties despite a directive of the Reserve Bank of India,” they said.
Scrap income tax: Swamy
....Swamy, who recently merged his Janata Party with the BJP, said abolition of direct income tax would come as a big relief to the salaried middle class and boost savings that would generate high growth. He said the revenue the government earns from direct income tax was a very small amount that could be foregone to boost growth..........
Saturday, September 21, 2013
Raghuram Rajan needs to transform RBI into a multitasking innovator
Rate helmsman
RBI clarifies on gold re-export norms
..........The RBI norm left many confused, leading to imports being held up at customs. The matter was discussed and resolved in the meeting in New Delhi on Friday, chaired by Commerce Secretary S R Rao. Officials of RBI, banks, MMTC and industry representatives were present in the meeting............
Inflation hawk
................Rajan can hardly take the success of his risky strategy for granted. The currency has stabilised for now but another rupee slump will push inflation even higher, by increasing the domestic cost of imported oil. And, how much higher can Indian interest rates go before Rajan's political masters stop him in his tracks? After all, they have to face an election next year. Rajan doesn't.
RBI may offer two consumer price inflation linked savings products
.......The Reserve Bank is working on two savings products where returns will be linked to consumer price inflation, a move aimed at weaning retail investors away from gold and real estate. One of the products will pay a lump sum amount at the end of the maturity period based on annual consumer prices, similar to fixed deposits that have always been attractive to retail investors............
Jammu youths ask FM, RBI to launch 'onion deposits'
Making a jibe over the failure of the union government to keep a check on the rising inflation of essential commodities especially the onions, a Jammu youth has sent a representation to Union Finance Minister, P Chidambaram and Raghuram Rajan, Governor of Reserve Bank of India (RBI) to launch a new loan scheme so that common masses of the country can buy onions and other vegetables........
Dr Subbarao proved right by Dr Rajan, the new Governor - Dr.T.V.Gopalakrishnan
Once in RBI chair as Governor, one cannot erase the footsteps of all predecessors, as RBI has no political agenda and it has only the mandate to maintain the value of rupee, monetary and financial stability, contain inflation and provide adequate support to growth in the overall interest of the economy. This is what Dr Rajan also did ..................
Read......
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Rural demand for credit is pretty strong: Pratip Chaudhuri, SBI
You almost pre-empted the RBI Governor by hiking your rates just yesterday. So how much more? Do you think you need to raise your rates again now?............
Analysts, economists divided over Rajan measures
......."While effective interest rates have not been tempered for banks, short-term liquidity has not been hampered. So in sum, the Governor took a measured effort to balance inflation containment measures and stoke growth supported by a good monsoon and expected results of measures to moderate import dependent demand,.........
Negative on banking sector: Pramod Gubbi
...."We have been negative on banks generally for the best part of the last two years. It is not so much dependent on what the Reserve Bank of India (RBI) did today. In fact if one looks closer to what Raghuram Rajan said on the day of his appointment in terms of increasing the bank licenses and making it a lot more frequent, the way we look at it is, Indian banks particularly some of the private sector banks enjoy significantly higher margins than what we see some of their peers in similar emerging markets too. That is largely because of the sector being protected for quite so long..............
RBI policy review: India Inc disappointed by hike in repo rate
........"High interest rate has been identified as a major barrier to boosting growth. The increase in the repo rate has come as a surprise to us. While industry is disappointed, reduction of interest rates charged and availability of credit remain a plea and we are confident RBI will keep this in their sights going forward," ...........
RBI adopted balanced approach in policy review, says Montek
...."I think it is a quite balanced statement actually. He (RBI Governor) has done something which will ease liquidity and at the same time try to send the signal that RBI is concerned about bringing inflation down. You need to give both those signals. It is right thing to do," Ahluwalia told reporters here.............
'NDF sucking out liquidity, need to deepen local forex market'
....."To some extent it (NDF) draws away liquidity from our market. We have to make sure we provide deep and functioning market so that there is no need to establish a parallel market outside," Rajan told analysts and researchers at his maiden post-policy conference call this afternoon. "There is certainly competition for the Indian market and competition generally is a good thing. We should try and deepen our markets to draw in more activity here," the newly appointed Governor said.........
Fed helps Rupee out of ICU
..........In the wake of the “no tapering now’’ decision of Fed, the concern over the rupee has somewhat subsided. It was indeed “Fed Sent’ for the new RBI Governor Raghuram Rajan. Seizing the moment, he promptly rolled back all emergency measures introduced by his predecessor-led team. That should ease somewhat the liquidity situation. If Dr. Subbarao were to be there, he, perhaps, would also have done this..........
Raghuram Rajan tracking rupee 'minute-by-minute'; says its not stable yet
Mumbai: Reserve Bank Governor Raghuram Rajan on Friday said the recent rally in the rupee is comforting but said the currency has not yet achieved stability which will only be reached when he stops keeping a "minute-by- minute" track of the unit. "Absolutely, I am more comfortable where we are now than where we were a couple of weeks back," he told reporters in an interaction after the release of the mid-quarter review of the monetary policy here.........
Delay in Fed’s tapering of stimulus has created uncertainty: Rajan
Raghuram Rajan, Governor, Reserve Bank of India, fielded a series of questions from the media during the post policy conference at the Mint Street office. He spoke at length about the correct yardstick to measure inflation, the breather on quantitative easing provided by the US Federal Reserve and the growth-inflation dynamic of the central bank. Edited excerpts...........
So, does the Guv deserve full marks? - YES
Strongly reinforcing the RBI’s inflation fighting credentials:
The new governor clearly wants to reinforce the central bank’s inflation fighting credentials in an attempt to better anchor inflation expectations. At the moment, headline (WPI) inflation is running at 6.1 per cent -- above the RBI’s desired level of around 5.5 per cent for the year. Retail (CPI) inflation remains stubborn at about 9.5 per cent. Interestingly, while core inflation (sub-2 per cent) is considerably softer and the recent uptick in WPI and CPI has been more due to supply-side issues such as food inflation, the central bank remains worried about the potential adverse impact on medium-term inflation expectations.............
So, does the Guv deserve full marks? - NO
..............As for the RBI, it must recognise that the high cost and the poor availability of funds is hampering growth, especially for the small and medium sectors. In this context, the central bank’s renewed focus on improving the country’s financial infrastructure and working towards greater financial inclusion is heartening.
Different strokes: All banks may not cut lending rates because costs are down
.......Banks may react differently to RBI’s rate tweaks on Friday because they aren’t all affected in the same way. This is because base rates, to which all lending rates are linked, are more a function of deposit rates than policy rates. How banks will react depends on three factors. One, there are the savings they make on their incremental funds. Banks such as YES Bank and IndusInd Bank, which rely a lot on short-term deposits, may reap the most savings in cost from RBI’s tweaks........
Raghuram Rajan's maiden policy: top 10 takeaways
New Delhi: The new poster boy of India's otherwise boring banking system, Reserve Bank of India Governor Raghuram Rajan who's been dubbed as "The Guv" on Friday surprised one and all with his maiden monetary policy by hiking short term lending rates............
Full marks to policy; banks may up base rates: HDFC Bank
.....I am very happy with the policy for two reasons. One, it clearly sets out the basis on which policy will be decided and what is the end result. So inflation is important, growth is important and the rupee stability is important. It also says that whatever measures were taken in July to stem the movement of the rupee based on favourable trends continuing will be unwound. The disruption came with the July measures............
Repo Rate hike will have cascading effect on economy: BJP
NEW DELHI: BJP today said the RBI decision to increase Repo Rate will lead to higher housing and car loan rates thus affecting the common man and sought to know from the government what steps it was taking to control inflation. "Government was today again left to walk alone to face challenges to growth. RBI has taken its own call and increased the Repo Rate...........
Rajan’s India Inflation Battle Pressures Singh as Election Nears
Indian central bank chief Raghuram Rajan’s surprise move to raise the policy interest rate adds pressure on Prime Minister Manmohan Singh to take politically challenging steps to boost economic growth as elections near. The Reserve Bank of India unexpectedly raised the benchmark repurchase rate yesterday to contain price increases that have hit roughly 825 million citizens who earn less than $2 per day. In doing so, Rajan made it more urgent for Singh’s government to allow greater foreign investment and reduce food and fuel subsidies to bolster the economy.......
Phata Poster Nikla Zero: Why Raghuram Rajan hasn’t joined the party
..........What Rajan has done needs to be analysed in line with the economic philosophy he believes in. A major reason for increasing the interest rate is high inflation. As the Monetary Policy Review points out “What is equally worrisome is that inflation at the retail level, measured by the CPI (consumer price inflation), has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence..................
Rajan for "bullet-proof" shield to deal with US Fed tapering
Mumbai: Reserve Bank Governor Raghuram Rajan on Friday said India needs to build a "bullet-proof national balance sheet" to deal with the fallout on the economy from US Fed Reserve's tapering of stimulus that has been only been postponed not done away with........
How would you rate Raghuram Rajan's first policy announcement?
Economists had widely expected him to leave the repo rate untouched. Raghuram Rajan thought otherwise, and implemented a 25 basis point hike. The RBI Governor, however, reduced the Marginal Standing Facility (MSF) rate by 75 basis points to 9.5% and reduced the daily maintenance of CRR from 99% to 95%, effective September 21. Will these moves meet the twin objectives of controlling inflation and strengthening the rupee? How would you rate Rajan's first policy announcement?
Is India Ready for Rajan’s Shock Treatment?
......“Further actions need not be announced only on policy dates,” the RBI said in a statement Friday, indicating the central bank won’t hesitate to take steps in-between scheduled policy reviews, a practice Mr. Rajan’s predecessor Duvvuri Subbarao had avoided. As India struggles with a deterioration in its economy, Mr. Rajan appears to be using the element of surprise to boost the effectiveness of monetary policy. But are these surprises what India’s economy really needs?.........
Fed's decision provides breathing room for India: Subir Gokarn
.........Do you have any advice for the new RBI governor Raghuram Rajan?
No, I don't give advice to anybody in the public domain. But if people like to ask they will.
But what would you like to see him do?
The problems are well known, (such as) the limitations of (our) monetary policy and its ability to influence things. They are all very well aware of what they need to do and I wouldn't presume to give any advice at this moment.
Raghuram Rajan resists government pressure on rates
......His predecessor, Duvvuri Subbarao had articulated the problem of stubborn inflation in several of his policy statements. He had also resisted strong pressure from North Block to reduce rates, highlighting price pressure threats. On Friday, Rajan might have disappointed his former colleagues in North Block — by raising the repo rate...........
FinMin tight-lipped on RBI's stance
......About a year ago, when then RBI governor D Subbarao didn't cut the policy rate, Finance Minister P Chidambaram had said he would walk the growth path alone. On Friday, Rajan announced a rise of 25 basis points in the repo rate. Though the move spooked markets, Chidambaram remained tight-lipped........
Rajan’s message to FM: Fight inflation with me, or walk alone
....The reference to “absence of an appropriate policy response”, when translated, means it is the finance ministry that needs to take action to reduce the fiscal deficit and reduce inflation. P Chidambaram will have to walk alone for some more time before Rajan chooses to join him in reviving growth............
RBI wastes Fed moment
.....Indeed, while Rajan said the MSF would do more of the walking as it went back to being 100 bps over the repo, his statement eschewed the usual RBI talk of core WPI which continues to fall, to December 2009 levels now. Instead, Rajan spoke of CPI that remains much higher. But since there is 125 bps of the MSF hike to still unwind, Rajan can hike repo rates for another policy or two while appearing to be cutting rates. Like his predecessor, Rajan underscored the government’s role in getting growth on track by talking of the expected diesel hike and clearances by the CCI. He did it more elegantly though, perhaps helped by gushing TV anchors at his press conference who, impressed with his plans to attract forex flows, asked whether he was prepared to be buying dollars when the rupee started to appreciate.
Rajan responds to the need of the hour
......In this context, RBI seems to take comfort from the improving global growth (and hence opportunity of higher exports) and easing geopolitical tensions (that helped lower crude prices) as positives for the current account deficit. Further, the expectation remains strong on the type of inflows that could be expected under the FCNR(B) and banks’ borrowing abroad. This is expected to boost foreign exchange reserves, thus increasing the firepower for RBI to manage currency volatility by direct interventions than by interest rate measures...........
Rate increase was tough decision, but appropriate
...........“It’s an appropriate decision. It’s a difficult decision, but in my view it is the right one because the rate on the MSF measure had to be brought down — that was an emergency measure.”..............
NSEL crisis may have 'minor systemic' implications: Report
........The Mayaram panel on Friday took up reports of the two sub-groups—one headed by Chakrabarty and another by the Enforcement Directorate (ED). On Wednesday as well, the ministry deliberated on two reports. While a sub-committee headed by the RBI deputy governor was to give recommendations on systemic impact of the NSEL crisis, the other one was to see whether there was any violation of laws. While the Chakrabraty sub-committee did not find broader systemic repercussions of the crisis, the enforcement directorate alleged violations of the Prevention of Money Laundering Act and Foreign Exchange Maintenance Act. Now, the Mayaram panel, constituted by the Prime Minister’s Office, will finalise its report based on these two reports and is likely to suggest various actions. These be taken by the ED and RBI........
Can you trust banks with your sale deed, title deed?
.......If you thought this is an imaginary situation, it is not. The above example comes from the Reserve Bank of India’s banking ombudsman office. In this case, the aggrieved customer finally approached the banking ombudsman. The bank told her that the original sale deed of her property was not traceable, and it would create new documents at its own cost. “The loss of original deeds of the property by the bank was serious deficiency and that even after coming to know that the original documents were lost at their end, they had not taken necessary action on their own and instead waited for initiating the process, only after the complainant approached the BO after following up with the bank for three years,” the banking ombudsman observed settling the dispute...........
Friday, September 20, 2013
Keep it tight, Rajan - Dr.S.S.Tarapore
...........Any signal today by the RBI of monetary easing could trigger an outflow by foreign investors from the debt market. Hence, it is hoped that Governor Rajan would not reduce policy interest rates or reserve requirements (including the 99 per cent daily requirement for the cash reserve ratio) and not expand refinance facilities. If the RBI eases monetary policy today and the Fed tightens its policy at the next review, the RBI would find the imperatives that much more difficult to tighten monetary policy a few weeks later.................
Will leave bank in much better shape than what I inherited: Pratip Chaudhuri
..............I’ve cooling period of one year. I’ll be settling in Delhi and for some personal things I need two three months time. Once that is over, I would definitely like to do some social work in government schools. These schools teach maximum number of our people. If we are able to improve the conditions (physical and quality of education), it would be a very important building block......................
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