Kya kare, kya na kare, ye kaisi mushkil hai … is a famous song from the Bollywood movie Rangeela. If RBI’s MPC members were to sing this song, it would sound like ….”Cut (rate) kare, ya na kare, ye kaisi mushkil hai….”Is this even a relevant question after two back-to-back rate cuts in March and May 2020? Why should this thought arise when the fervor to maintain lower interest rate continues the world over?One of the key reasons why this is likely to get debated is the recent CPI data (consumer inflation). Early July, the statistics office released inflation numbers for three months - April, May and June 2020, which were in the 6-7.5 per cent range, well above RBI’s 4 per cent target. By and large, one could say the rise was due to Covid-19 led supply shocks. And as lockdown restrictions ease, the supply shock may temper too, while demand shock will remain, pushing inflation lower. Supporting this will be a favourable base pushing inflation … [Read more...] about Another rate cut from RBI, or could it get more creative?
Rbi rate cuts
RBI) Governor Shaktikanta Das will hold discussions on March 26 with representatives of trade bodies and credit rating agencies on interest rate and steps to boost economic activities, said sources.The meeting, which comes ahead of the next financial year's first MPC meet scheduled for April 4, is aimed at broadening the consultation process, they added.The bi-monthly policy, to be finalised by the six-member Monetary Policy Committee (MPC), assumes significance as it would be announced just a week before the commencement of the seven phase general elections beginning April 11."The pre-policy consultation meeting" with the governor will take place in Mumbai on March 26, the sources said.Besides trade bodies, including industry chambers and rating agencies, the governor has also called representatives of the All India Bank Depositors' Association.Das has been meeting industry chambers, non-banking financial companies, bankers, government representatives and rating agencies to elicit … [Read more...] about RBI Governor to hold pre-policy meet with trade bodies, rating agencies on March 26
Mumbai: The RBI has decided to reduce statutory liquidity ratio, the portion of funds which banks are required to park in treasury bills and other instruments, by 0.25 per cent every quarter beginning January.The calibrated reduction in statutory liquidity ratio (SLR) will continue till it reaches 18 per cent. The current SLR is 19.5 per cent."This reduction in SLR holding is likely to free up Rs 1-1.5 lakh crore of funds in the next one and half year into the banking system," said Rajni Thakur, Economist, RBL Bank.In the 'Statement on Developmental and Regulatory Policies' post announcing its fifth bi-monthly monetary policy review, the RBI said it will reduce the SLR by 25 basis points (0.25 per cent) every calender quarter until the SLR reaches 18 per cent of the net demand and time liabilities (NDTL) as part of aligning it with the liquidity coverage ratio (LCR).The first reduction of 25 basis points will take effect in the quarter commencing January 2019, the Reserve Bank of India … [Read more...] about RBI to cut SLR gradually to 18% by mid-2019
BENGALURU: The Reserve Bank of India (RBI) will change its stance to 'neutral' next month and cut interest rates in June at the latest, according to a Reuters poll of economists pointing to an extraordinary U-turn in policy.Just a month ago, economists predicted rates would start rising next quarter. But they have flipped that outlook in the first survey taken since RBI Governor Urjit Patel's sudden resignation on December 10."The policy outlook has been muddied by the resignation of Urjit Patel. His replacement, Shaktikanta Das, will likely lend a sympathetic ear to the government's wishes to keep policy loose," said Shilan Shah, senior India economist at Capital Economics.Growth, while expected to cool compared with a survey three months ago, is still likely to remain stronger than in China, Asia's biggest economy.Uncertainty over the outcome of a national election in May is see as the main downside risk to Asia's third-largest economy.Over two-thirds of the 65 economists polled … [Read more...] about RBI making U-turn, seen shifting to neutral in February, cutting rates by mid-year
Monetary Policy Committee (MPC) to reduce the policy rate when it announces its decision on August 6. However, the MPC should lower the repo rate, at least by a token amount.This is to signal our monetary authority’s support for reviving growth, empathy with the suffering public and reduce, even if by a tad, the accumulating interest burden on companies that are raising debt to stay alive, perchance, to do actual business, if and when orders materialise.Admittedly, the rate of inflation, as measured by RBI’s target price variable, the consumer price index (CPI), is above the comfort zone of 4%. In fact, real interest rates are negative at the moment. The call money rate has average not only below the repo rate but also trended down over June-July.The credit-deposit ratio is well below 80%. Banks are flush with money and can lend, if they choose to. Lowering rates further might actually inhibit them from lending. All these factors militate against further lowering the repo … [Read more...] about Why RBI MPC should lower policy rates