.... Driven by food or otherwise, that’s the inflation households face. Non-food, manufactured goods inflation, to which RBI responds, essentially reflects stable commodity prices with some reduction in pricing power as demand slows. Not surprising then that RBI reiterated its January guidance of whoesale price inflation persisting in the 6.5-7% in 2013-14. This should be the floor though: if GDP growth picks up as expected and global growth recovers, the interplay of global liquidity with a rebound in demand will result in higher commodity prices feeding back into domestic inflation..............
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Wednesday, March 20, 2013
Banks unlikely to cut lending, deposit rates now
........."The repo rate cut is not enough for banks to reduce lending rates. Further revision in the cash reserve ratio (CRR) was required for interest rate reduction. We will look at revising our rates in next financial year only," Pratip Chaudhuri, chairman of State Bank of India (SBI), said..................
RBI could have given stronger signal to push growth: Montek
New Delhi: Appreciating the RBI's decision to cut key interest rate by 0.25 percent, Planning Commission Deputy Chairman Montek Singh Ahluwalia on Tuesday said it could have given a more robust signal to the industry. "This (rate cut) is a signal and I have to say that it is in the right direction", he said, while addressing an Assocham conference here.......
BANKER’S TRUST REALTIME: RBI lobs the ball in govt’s court
...........One can’t blame the Indian central bank for taking this stance. After all, efficacy of the monetary policy is limited unless the nation follows a tight fiscal regime. RBI’s mandate is price stability, making credit available for productive purposes and financial sector stability while spurring economic growth is part of the government’s domain. The central bank can extend a helping hand, but the government needs to take the initiative........
RBI runs out of room
.................The RBI notes, but does not fully acknowledge, the fact that "core" inflation - inflation in non-food manufactured products - has moderated considerably, and that the sole driver of inflation now is food prices, which are unlikely to be contained by monetary tightness. The RBI has a warning for the government against raising minimum support prices further, but whether the government will heed it is another matter altogether............
Barking up the wrong tree?
.....As an aside, it’s a sign of progress that RBI policy reviews don’t always result in a “splash or “event”—it suggests that the central bank is doing a better job of guiding market expectations that are reflected in market prices in the run-up to these policy reviews—something that Ben Bernanke has perfected through his artful communication strategy. But while the actions did not disappoint, the guidance certainly did—in some quarters at least.......
Relief laced with caution
......Acknowledging that the Centre had made a “firm commitment to fiscal consolidation” in Union Budget 2013-14, the RBI said the key challenge was to reduce the current account deficit (CAD) which is riding at record levels and “well above the sustainable threshold”. It urged the government to adopt measures to improve the competitiveness of exports and wean away demand for “unproductive imports”. The RBI and the Centre have been bickering for over a year on the direction of monetary and fiscal policy and have blamed each other for not doing enough in their domains to prop up a faltering economy.......
RBI’s different strokes
...........RBI is entitled to its view on whether rate/CRR cuts are warranted by the facts on the ground, but since the first rule of central banking is not to surprise the market, the central bank needs to be consistent in its tone. It can't bring in CPI, CAD and even the output gap as key variables in certain policy statements, omit them in others, and then bring them back again.
RBI flags inflation, CAD hurdles to further cuts
.............."The foremost challenge for returning the economy to a high growth trajectory is to revive investment. A competitive interest rate is necessary for this, but not sufficient," .........
Five global voices on expectations from RBI policy review
......Markets have completed the correction and are now consolidating in want of triggers to move back up. Can RBI surprise by higher than 25bps rate cut? Can government pull out more rabbits from its reforms basket? .......
Repo rate cut not enough, complementary actions needed: C Rangarajan
More than the Reserve Bank of India (RBI)’s action on the rate front, its guidance on limited headroom for monetary easing drew attention. C Rangarajan, the Prime Minister’s Economic Advisory Council chairman and former RBI Governor, says the behaviour of the headline inflation numbers and continuance of the subdued nature of core inflation (non-food manufactured items) will determine the stance. He tells Indivjal Dhasmana that for quality of fiscal consolidation, one of RBI’s main advice, the Centre has to keep revenue deficit under check and aggregate subsidies at the budgeted level. .............
Economic conundrum leaves little luxury for RBI’s Subbarao
...........The Indian economy is in a structural mess, with a growth collapse being accompanied by high inflation and a record current account deficit, which are both signs of excess demand. The previous time India saw such sluggish economic growth, around a decade ago, it had far lower inflation and a current account surplus, which had given RBI under Bimal Jalan far more scope for large interest rate reductions. Subbarao does not have that luxury...........
Subbu to FM: Take 25bps cut, but real mess is at your end
...............Subbarao is telling Chidambaram that the real mess is at your end. How can mere rate cuts help? But, at another level, the monetary policy is a mere sideshow. With politics taking centrestage in the context of the DMK’s proposed exit from the UPA, whatever the RBI does may not matter. Business confidence will not depend on politics, not monetary economics.
May It Please Your Lordship Chidambaram
.....The signal for the broader economy lies more in what the commercial banks are doing, than what the central bank does. Lenders from State Bank of India to ICICI Bank are raising deposit rates. When banks are paying more for funds from you and me, how does it matter if the RBI is going to lend at a lower rate which anyway is based on government bonds that banks buy using our deposits.
RBI Shrugs: Hard Work is Now GoI’s
.........Caught between the devil (slowing growth) and the deep sea (high inflation), the RBI perhaps had no choice but give in to the popular mood. Fortunately, the governor made up for playing along with the government and markets with a hawkish accompanying statement. The statement makes no bones about where the onus lies.......
Banks prefer to play a waiting game
..............“The reduction in repo rates by 25 basis points is a welcome move, and indicates continued focus on growth. At the same time, RBI’s commitment towards maintaining adequate liquidity in the system is important in the context of continued smooth functioning of markets,”........
Monetary threat
...............While the RBI may have acted like a dove by reducing the repo rate by a further 25 basis points to 7.5 per cent, its tone this time is distinctly ‘hawkish’, as revealed in the statement that “the headroom for further monetary easing remains quite limited”. So, what has changed in the last three months?...........
RBI rate cut neutralised by political uncertainty, banks put rate related decisions in limbo
CHENNAI: The RBI's decision to opt for a 25 basis point cut in repo rate (the rate at which the apex bank lends to other banks), has been completely overshadowed by the political developments causing banks to put their lending rate decisions in limbo. According to top financiers, the question mark over the stability of the government has ended up neutralizing the RBI's growth pill completely...........
This rate cut looks like an afterthought
.........it is pertinent to note that the most telling comments from the Central Bank are hidden within the six page statement and highlight the urgent need by the government to " revive investment". In a strongly worded statement, the RBI underlines that a " competitive interest rate" is necessary but not sufficient - and that sufficiency would require " bridging supply constraints, staying the course on fiscal consolidation, both in terms of quantity and quality, and improving governance." Clearly, the RBI is highlighting the limitations of the credit channel of monetary policy transmission in the backdrop of persistent food inflation, anchored inflationary expectations and the morass created by the inertia in strategically addressing massive supply side bottlenecks............
RBI continues with contorted guidance
...........Wouldn’t it have been much clearer if RBI finally took credit for delivering its mandate: bring down core inflation to its lowest in three years by lowering growth by design and that it plans to keep it that way until government reforms and policies change India’s investment environment and pave the way for better growth-inflation dynamics.
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