Managing recovery is a bigger challenge than managing crisis, says the Reserve Bank of India governor D Subbarao
The Reserve Bank on Tuesday said the soft monetary policy adopted by it to counter the impact of the global financial meltdown on the country will continue till the economic recovery is secured.
The central board of Reserve Bank of India (RBI) has opposed a government move to have control over the central bank's staff-related matters. The proposal to make staff regulations statutory and bring them under the subordinate regulation of Parliament was discussed at RBI's board meeting in Kolkata last week.
The Reserve Bank of India, in its first-quarter review of monetary policy, kept the benchmark policy rate constant at 8 per cent.
The stress of dealing with the crisis, often with potentially conflicting objectives in front of them, appears to have brought the differences between the finance ministry and the RBI back to the surface.
The Reserve Bank of India on Friday said it will come out with its annual monetary policy for the next fiscal on April 20, amid expectations that the central bank will hike interest rates to tame the rising inflation
While the common citizen will benefit from the central bank's action, the policy stance is consistent with sustaining high growth in the medium term.
Making a case for raising prices of diesel, kerosene and LPG, the Reserve Bank on Tuesday said hike in rates of petroleum products is necessary to arrest fiscal slippages.
There was a near-unanimous view that the time was right for an increase of 50 basis points in policy rates. Some even suggested that the rates be raised by 75 basis points.
The Reserve Bank of India Governor Duvvuri Subbarao's caution that the central bank will intervene if foreign inflows are 'lumpy and volatile' has calmed the rupee a bit. The local currency on Monday closed at 44.41 per dollar, compared to 44.44 per dollar on Friday. The rupee, which has gained about 5.7 per cent since the beginning of September, traded at its five-month high.
The Reserve Bank on Tuesday lowered the growth projection for the current fiscal to 5.5 per cent from its earlier estimate of 5.7 per cent and asked the government to undertake policy measures to improve investment climate.
RBI said the continuing sluggishness of the global economy led to some moderation in exports growth and invisible receipts, while import growth accelerated due to the strong domestic recovery.
Expectes RBI Governor to announce 0.25 per cent rate cut.
Economists say RBI to raise policy rates in annual policy statement in April.
The drop in headline inflation to a 40-month low of 5.96 per cent for March has increased the possibility of a rate cut by the Reserve Bank at its May 3 annual policy, analysts and rating agencies said.
The G20 meeting of the finance ministers and central bank governors beginning July 19 will also be attended by Reserve Bank of India Governor D Subbarao and Deputy Governor Urjit Patel.
However, since the banking system is facing tight cash conditions due to payment for spectrum for high speed telecom and broadband services and advance tax outgo, some experts are also of the view that RBI would wait for liquidity to ease before going for rate hikes.
In the wake of wholesale price-based inflation escalating to 7.31 per cent for the month-ended December and food prices increasing by over 17 per cent, it is expected that RBI will signal tightening of money supply.
India imports 80 percent of its oil, which adds to inflationary pressure.
After attending a meeting in Mumbai with RBI's top brass headed by Governor D Subbarao, Harsha Pati Singhania, president, FICCI, said the real rate of interest remained in double digits despite inflation having declined sharply. "Given the present interest rate structure and the inflation rate, real rate of interest is still in double-digits. With the near-zero rate of inflation, the real and nominal rates of interest are almost at the same level," said another industrialist.
Former Reserve Bank of India governor Yaga Venugopal Reddy said he would have preferred a tighter monetary policy as managing inflation and inflationary expectations were crucial to keep the economy growing.
Go for short-term debt funds and fixed deposits, delay home or auto loans.
In an attempt to mitigate the problems faced by the beleaguered diamond industry in Gujarat, the Reserve Bank of India has decided to set up a task force comprising representatives of the state government, the State Level Banking Committee Convener and other bankers.The task force will submit its report by the month-end. Gujarat's diamond industry has been beset with problems, chief among them being lacklustre Christmas-season demand for finished diamonds.
"Global rebalancing will require deficit economies to save more and consume less, while depending more on external demand relative to domestic demand for sustaining growth. Surplus economies will need to mirror these efforts - save less and spend more, and shift from external to domestic demand," Subbarao said during his intervention in the ongoing Spring meeting of the IMF in Washington.
Markets opened sharply lower on Tuesday, amid weak Asian cues, on concerns that the liquidity squeeze by the central bank would hurt growth and impact equity inflows.
The finance minister said Prime Minister Manmohan Singh on Tuesday reviewed the financial situation with particular reference to the liquidity position at a meeting with the RBI Governor, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia and senior officials of the ministry.
The government had last week hiked diesel prices by Rs 5.63 a litre and capped the number of subsidised LPG cylinders to six per family a year.
For India to regain its growth momentum and indeed accelerate it further, we need to address several challenges, said Duvvuri Subbarao, Governor, Reserve Bank of India, while delivering the Haksar Memorial Lecture.
While many feel PPI would not be a feasible idea for India considering shortcomings like data collection for agriculture commodities, some analysts say the new index could be experimented at least with the manufacturing sector.
RBI is scheduled to announce mid-quarter review of monetary policy for 2013-14 on June 17.
The recent fall in commodity prices might not be sufficient to bring down the country's widening current account deficit
The rate cuts are expected to infuse Rs 80,000 crore into the banking system.
High deposit rates may put pressure on teaser home loan rates
Aiming to further expand the bilateral economic engagement, US Treasury Secretary Timothy Geithner would travel to New Delhi and Mumbai later this month for the third annual meet of the US-India Economic and Financial Partnership.
The Reserve Bank on Thursday said the country's wholesale price-based inflation and industrial production data should be improved and employment data availed for effective monetary policy management.
Banks can lend credit to telecom companies as part of this process.
Describing the annual monetary policy announced by RBI Governor D Subbarao as a progressive one, Ernst & Young India's Ashvin Parekh said, "We have almost reached a point where inflation has become unmanageable and RBI has clearly indicated that bringing down inflation to a comfortable level is its top priority."
As GDP growth falls below the new normal, rate cuts seem inevitable.
Reserve Bank of India Governor D Subbarao describes his first 50 days on Mint Road as 'tough'. He spoke to Business Standard after his first monetary policy statement.
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