.........Sen Gupta is of the view that the RBI needs to urgently buy forex to boost its import cover (measured as the number of months of imports foreign reserves could pay for), which right now down to roughly 7 months; below the optimal range 8-10 months. The trouble is that buying dollars would strengthen the US currency and further weaken the rupee. Yet Sen Gupta feels the rupee is unlikely to stabilize till RBI bolsters its FX reserve...........
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, July 31, 2013
RBI Governor D Subbarao says no rollback timeframe for liquidity steps
........Explaining the rationale for the July 15 and 23 measures to tighten liquidity, the Governor said, "Forex intervention is a standard tool for defending against volatility. As much as we resorted to that instrument, we were also conscious that we should not fuel speculation or help speculators." Subbarao said the idea was to make liquidity scarcer and more costly. The RBI determined that modulating access to LAF would be the most efficient way of controlling volatility and it can be calibrated more flexibly than resorting to CRR or repo because of other implications attached to those measures, he said.........
Govt promises 'specific steps' in coming weeks to contain current account deficit
............"We welcome the RBI policy statement...the RBI and the government are on the same page and working together to achieve stability and growth," Rajan said while responding to the RBI's decision to maintain key interest rates...........
US Fed will dictate India’s monetary policy
.....But that’s no assurance for RBI. Which is why the policy stance in this review is “guided by the need for continuous vigil and preparedness to proactively respond to risks to the economy from external developments, especially those stemming from global financial markets”. In its order of priorities, what has dropped lower down the list are concern about slowing growth and inflation that could rise because of the depreciation of the local currency. Its priority No. 1 is addressing the risks to macroeconomic stability from external shocks. Risk to growth comes second and the re-emergence of inflation pressures, third. Interestingly, managing liquidity conditions to make sure that the flow of credit remains intact to the productive sectors of the economy is the central bank’s last priority........
Rajan hints at specific steps to contain CAD
...............In a statement here, Dr. Rajan maintained that the government would announce “specific measures in the next few weeks” to contain the widening current account deficit (CAD) which has put pressure on the Indian currency and once the rupee is stabilised, the policy-makers will have room for more growth-friendly measures. “We have already taken some steps on liberalising FDI [foreign direct investment]. We are also exploring some other options for stably and sustainably funding the CAD. We will announce specific measures in the next few weeks,” he said.................
Rapid rupee depreciation has put us in vicious spiral: Subbarao
Reserve Bank of India’s Governor D Subbarao explains the reasons for the recent liquidity tightening measures at the post policy press conference and explains the central bank’s strategy on the exchange rate: Excerpts:...............
RBI’s foot is still on brake pedal
..........Further, the guidance provided by the RBI — that monetary policy focus would revert to supporting growth only after calibrated rollback of the recent liquidity measures as stability is restored in the foreign exchange market — is likely to keep interest rates sticky at elevated levels, which would weigh upon consumption and investment decisions. Accordingly, we anticipate that the RBI will ease its stance in the second half of the fiscal.............
Insulating the economy
.........But the lack of quantifiable objectives is only one part. Curbing exchange rate volatility should not by itself be the central focus of the RBI’s policy, considering the real structural reasons underpinning such volatility. These have to do with unsustainably large current account deficits (CAD) and slowing growth making it difficult to attract the capital flows necessary to finance these. Without CAD levels coming down and growth recovering, the Indian economy will continue to be vulnerable to external shocks. .........
Predictable, but challenging
............While not being in a hurry to loosen its policy, the RBI has given an assurance that with the right conditions prevailing, monetary policy will revert to supporting growth while maintaining a vigil on inflation. That, unfortunately, seems far away as the rupee quite unexpectedly tanked again on Tuesday. The authorities have been quick to blame speculation but only the next weeks will show whether it is a one-off development or the beginning of a new period of stress for the rupee..........
Read - The Hindu
Moderating growth outlook by RBI worries India Inc
......“We understand the decision of the RBI on the rates. We draw heart from the statement of the RBI saying that had it not been for the volatility, the rates could have been reduced, since inflation has started to moderate. We see this as a softening of stance by the RBI,” Confederation of Indian Industry (CII) President Kris Gopalakrishnan said................
No need for IMF loan: RBI Guv Subbarao
Reserve Bank Governor D Subbarao today said India's current economic situation does not warrant any move to seek loans from the International Monetary Fund. "The answer is no! I don't believe that we are in a situation where we have to go to the IMF. We are fairly resilient," Subbarao told reporters at the customary post-policy media briefing............
Read........
A feeling of helplessness
.......The problem, for Mr Subbarao and India’s fiscal managers in New Delhi’s North Block, is to attract more foreign direct investment (FDI), which is always more welcome than portfolio investment. Yet, don’t expect a flood of dollars to gush in immediately despite the recent policy overhaul.............
Waiting for Godot: Will RBI’s wait for a stable rupee be endless?
............India’s structural issues are not going to be addressed overnight. Global markets will move to the Fed’s tunes. RBI will be waiting for the INR to stabilize before acting to support growth. How long for the INR to stabilize? Hopefully it is not Godot!!
RBI shoulders arms: Sajjid Chinoy
.........If the game plan is to induce behavioural changes in the market, an element of constructive ambiguity is critical. If RBI were to set a date for withdrawal or lay out a specific criterion, the economic agents it is trying to influence will simply wait it out in anticipation. But RBI's inability to provide a timeline for exit has further fuelled the debate on the efficacy of the tightening measures. 'Are there measures working?' runs the exasperated refrain........
Painted into a corner
........In the RBI's thinking, as reflected in its policy review statement, the recent rupee depreciation significantly exacerbates inflation risks, thus shifting the policy priority back to inflation containment and away from growth, which had been the direction taken over the past few months. In this sense, even though the measures taken were rationalised as being aimed at controlling the slide in the rupee, they can also be seen as conventional monetary tightening, justified by the inflationary consequences of depreciation..............
India sputtering
The latest monetary policy statements by the Reserve Bank of India (RBI) clearly show that its biggest concern right now is whether there will be adequate capital flows to finance the current account deficit, at a time when global financial markets are rattled by the prospect of the US rolling back its extraordinary monetary stimulus..........
Why RBI governor is right in keeping a tight leash on interest rates
..........Interest rates are a loaded pack and needs careful handling and deliberation. Importantly, it would be a positive step forward if the Reserve Bank of India and the ministry of finance begin to make greater disclosures about their policies and actions and, more importantly, reasons underpinning the policies. The cloak of secrecy that surrounds the financial system is opposed to the values of transparency and accountability that are essential to democracy. The need for openness has never been greater.
Anyone here for the Rs?
................More curious is the reply given in the Governor’s press conference—not by the Governor though—on a question on the overseas NDF markets. If NDF markets feel the rupee needs to fall further given the fundamentals, the question was, how will curtailing local currency trading help? It is difficult to go along with RBI’s view that the local market determines what happens in the NDF markets since the latter are several times larger. In any case,...........
Mint Road’s white flag in war for Rs seen as sign of weakness
..........“One thing we are trying to do in the currency futures market, there is a lot of position-taking which we have curtailed and by month-end, this would reduce hopefully. If not, further measures would be taken. There is a connect between NDF market and the futures market,” said H R Khan, Deputy Governor, RBI. The Governor, however reiterated that the central bank was not trying to defend any level on the rupee which remains vulnerable due to the high current account deficit and the possibility of a reversal in capital flows due to the possible tapering of the US Federal Reserve’s quantitative easing programme...............
Rakhi losing its golden sheen
LUDHIANA: While the bond between siblings does not really depend on material tokens, one cannot help the excitement of receiving Raksha Bandhan gifts. For decades, gold coins in a velvety backdrop have dazzled sisters and warmed their hearts. The yellow metal has assured them of security in turbulent times. But now that the Reserve Bank of India has banned the sale of gold coins, people would need to make slight adjustments in the customs............
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