This refers to your edit “No excuses left for Centre” (April 18). The Reserve Bank of India’s (RBI’s) monetary policy measure of effecting a sharp reduction in the repo rate by 50 basis points sends out a clear message to the government that it has to initiate action on several fronts to stimulate growth and give the much-needed sentiment boost to the investor community. No doubt, RBI has surprised the market and shocked theorists by demonstrating that monetary policy can deviate from fundamental requirements and adopt a different approach if the situation demands it. The economy has been lagging for the past three years and the government has failed to show any fiscal discipline despite several bold measures from the central bank. Though the rate cut may have an adverse impact on inflation, if RBI’s gamble pays off, renewed economic growth may have some softening effect on prices.
T V Gopalakrishnan Mumbai
(This appeared in Business Standard dated 19/04/12).
Showing posts with label monetary policy. Show all posts
Showing posts with label monetary policy. Show all posts
Thursday, April 19, 2012
Wednesday, April 18, 2012
Is RBI right in cutting the interesr rate by 0.5%
Dr.T.V.Gopalakrishnan , Mumbai , says: The RBI's cutting interest rate is influenced more by market sentiments than economic fundamentals. It suits the market and satisfies the Govt. But purely from a Central bank's monetary point of view the action carries no conviction and cut could have been better avoided. A token cut of 0.25% would have satisfied the market. However, it is a very clear message for the Govt that it has to perform its role in taking appropriate action on the fiscal and administrative front to give a boost to the GDP growth or else will have to face the criticism from all corners. RBI has exonerated itself by its bold action though not fully justifiable based on the economic fundamentals.
18 Apr 2012, 1553 hrs IST
(This is in response to an opinion poll by the ET dated 17/04/12).
18 Apr 2012, 1553 hrs IST
(This is in response to an opinion poll by the ET dated 17/04/12).
Thursday, March 15, 2012
RBI's Policy Review on 15/03/12
The Reserve Bank kept all the rates unchanged and this move was on expected lines.Normaally,the Reserve bank's review follows the annual budget of the Govt and the Bank gets to know the move of the Govt and and a full feel of the economy based on Economic survey and buget indications.The sharp cut effected by the Bank in CRR a week ahead of the review was quite unexpected and surprising as it gave the message to the market that the Reserve Bank fully recognises the liquidity constraints in the system and action is called for.However,the inflation pressures suppressed under the uncertainities of the oil price increases and containment of fiscal deficit cannot be overlooked by the Reserve Bank for effecting policy rate cuts although, the industrial growth demands a steep cut.The present position is that the Reserve Bank and the GOVT are in opposite directions and there is an inevitable need for them to come together to frame monetary and fiscal policies.Perhaps,the budget to be announced on 16th would pave way for that.
Monday, January 16, 2012
Why not a Joint review of Monetary and Fiscal policy ?
The economy needs a morale boost and this can come only if the Government and the RBI jointly initiate measures to revive the confidence of the investors.
January 15, 2012:
The Indian economy, which till a couple of years back was going strong and raising expectations of overtaking even China and other strong economies, has turned weak.
The US financial crisis of 2008, which brought down many economies, did not affect the domestic economy as the crisis was well managed both by the Government and the Reserve Bank of India.
In terms of broad parameters such as GDP growth, inflation, financial stability, exchange rate stability, and so on, the economy was doing well. But the situation changed since 2009.
Erosion of confidence
Many scams, one after another, were detected, revealing governance deficit. Corruption and black money attracted much attention and affected decision making at various levels.
Inflation raised its ugly head and continued to remain unabated. Industrial production declined, with hike in interest rates being cited as one of the major reasons for it. Infrastructure development did not get the priority it deserved.
Favourable monsoon did not bring down food inflation as supply chain constraints and periodical increases in fuel prices affected the marketing and distribution of food products at reasonable prices.
The trade gap widened due to increased imports and reduced exports. And exchange rate fluctuations added fuel to fire. The rupee depreciated by around 17 per cent since August 2011.
Administrative policies were not implemented as expeditiously as the economic conditions of the country demanded. Investments, especially FDI, slowed. And FIIs started pulling out their investments, creating volatility in the stock market.
The downgrading of the US economy and the European crisis have aggravated the situation.
Inflation focus
The Reserve Bank took a series of measures, basically to contain inflation. The approach was to make money dearer and reduce the purchasing power. The RBI raised the repo rate 13 times since March 2010, and brought it to 8.5 per cent in October 2011. The reverse repo was revised to 7.5 per cent and the Marginal Standing Facility was fixed at 9.25 per cent.
Interest rate on savings bank and NRE accounts was deregulated. And sensing the mood of the investing community against further interest rate hikes and seeing some respite in inflation, the RBI decided to keep the rates unchanged in its policy review in December 2011.
But production costs have increased, not only because of the hike in interest rates but also because of input costs going up, reducing thereby the profit margins and fresh investments.
The fiscal policies have not been moving in tune with monetary policies. The general opinion is that the RBI alone is taking action and the Government has been keeping quiet on various fronts.
Direct and indirect tax revenues, which are directly linked to GDP growth, have not been keeping pace with Budget expectations, and the Government is falling behind in achieving the disinvestment targets due to poor market and other conditions.
Infrastructure required for industrial production, particularly energy, has not picked up for want of fresh administrative policies and proper implementation of existing ones.
Fresh impetus
The economy needs a morale boost and this can come only from the Government. To start with, the Government and the RBI should jointly review the monetary and fiscal policies pursued so far and initiate measures to revive the confidence of the investors.
Since food inflation has started declining and the overall inflation is expected to fall to around 7 per cent by March 2011, the RBI can consider effecting some reductions in its policy rates.
Dr.T.V.Gopalakrishnan
(This article appeared in The Hindu-Business Line dt16/01/12)
January 15, 2012:
The Indian economy, which till a couple of years back was going strong and raising expectations of overtaking even China and other strong economies, has turned weak.
The US financial crisis of 2008, which brought down many economies, did not affect the domestic economy as the crisis was well managed both by the Government and the Reserve Bank of India.
In terms of broad parameters such as GDP growth, inflation, financial stability, exchange rate stability, and so on, the economy was doing well. But the situation changed since 2009.
Erosion of confidence
Many scams, one after another, were detected, revealing governance deficit. Corruption and black money attracted much attention and affected decision making at various levels.
Inflation raised its ugly head and continued to remain unabated. Industrial production declined, with hike in interest rates being cited as one of the major reasons for it. Infrastructure development did not get the priority it deserved.
Favourable monsoon did not bring down food inflation as supply chain constraints and periodical increases in fuel prices affected the marketing and distribution of food products at reasonable prices.
The trade gap widened due to increased imports and reduced exports. And exchange rate fluctuations added fuel to fire. The rupee depreciated by around 17 per cent since August 2011.
Administrative policies were not implemented as expeditiously as the economic conditions of the country demanded. Investments, especially FDI, slowed. And FIIs started pulling out their investments, creating volatility in the stock market.
The downgrading of the US economy and the European crisis have aggravated the situation.
Inflation focus
The Reserve Bank took a series of measures, basically to contain inflation. The approach was to make money dearer and reduce the purchasing power. The RBI raised the repo rate 13 times since March 2010, and brought it to 8.5 per cent in October 2011. The reverse repo was revised to 7.5 per cent and the Marginal Standing Facility was fixed at 9.25 per cent.
Interest rate on savings bank and NRE accounts was deregulated. And sensing the mood of the investing community against further interest rate hikes and seeing some respite in inflation, the RBI decided to keep the rates unchanged in its policy review in December 2011.
But production costs have increased, not only because of the hike in interest rates but also because of input costs going up, reducing thereby the profit margins and fresh investments.
The fiscal policies have not been moving in tune with monetary policies. The general opinion is that the RBI alone is taking action and the Government has been keeping quiet on various fronts.
Direct and indirect tax revenues, which are directly linked to GDP growth, have not been keeping pace with Budget expectations, and the Government is falling behind in achieving the disinvestment targets due to poor market and other conditions.
Infrastructure required for industrial production, particularly energy, has not picked up for want of fresh administrative policies and proper implementation of existing ones.
Fresh impetus
The economy needs a morale boost and this can come only from the Government. To start with, the Government and the RBI should jointly review the monetary and fiscal policies pursued so far and initiate measures to revive the confidence of the investors.
Since food inflation has started declining and the overall inflation is expected to fall to around 7 per cent by March 2011, the RBI can consider effecting some reductions in its policy rates.
Dr.T.V.Gopalakrishnan
(This article appeared in The Hindu-Business Line dt16/01/12)
Wednesday, September 21, 2011
RBI 's lone role to contain inflation
My comment on the article "RBI Governor: The loneliest job in India" appeared in ET dated 21/09/11. The link is here
The author is right in saying that the Governor's job is the loneliest. The Reserve Bank has raised the interest rates 12 times Since March 2010 to combat inflation without success.Had the Reserve Bank not hiked the rates, perhaps,inflation would have been much higher and done more damage to the economy is a fact to be acknowledged both by the Industrialists and the Government.The Govt cannot claim to have taken any fiscal or administrative measures to support the monetary measures to contain inflation which is driven by excess demand,supply constarints and external factors where the Reserve Bank has very limited control.On the contrary, the prices of petroleum products have been hiked several times though warranted,challenging the monetary measures and creating diffidence in the whole management of the economy keeping at heart the welfare of aam admi.The Govt had several other issues other than managing the economy during the last several months and the the issue of containing inflation became the solitary responsibility of the Reserve Bank.
Speculation in commodities particularly gold and silver has been at its peak and the black money generation in these transactions has always been the rule rather than an exception.Corruption, black money, maladministration in the procurement, processing,storage, transportation,distribution, export and import of commodities which affect the supply and demand where RBI has absolutely no say have an inflationary impact and the Govt can play an effective and supportive role to bring down prices. Agricultural credit has been on the decline for the past several years and it needs to be tackled to improve agricultural productivity and marketing of the agricultural products. Here Central Govt, State Govts and NABARD can contribute a lot leaving RBI.Industrialists have a tendency to clamour for more from the Govt and Banks and this time they find RBIthe scapegoat for their failure.It is time they realiseit.
Dr.T.V.Gopalakrishnan
The author is right in saying that the Governor's job is the loneliest. The Reserve Bank has raised the interest rates 12 times Since March 2010 to combat inflation without success.Had the Reserve Bank not hiked the rates, perhaps,inflation would have been much higher and done more damage to the economy is a fact to be acknowledged both by the Industrialists and the Government.The Govt cannot claim to have taken any fiscal or administrative measures to support the monetary measures to contain inflation which is driven by excess demand,supply constarints and external factors where the Reserve Bank has very limited control.On the contrary, the prices of petroleum products have been hiked several times though warranted,challenging the monetary measures and creating diffidence in the whole management of the economy keeping at heart the welfare of aam admi.The Govt had several other issues other than managing the economy during the last several months and the the issue of containing inflation became the solitary responsibility of the Reserve Bank.
Speculation in commodities particularly gold and silver has been at its peak and the black money generation in these transactions has always been the rule rather than an exception.Corruption, black money, maladministration in the procurement, processing,storage, transportation,distribution, export and import of commodities which affect the supply and demand where RBI has absolutely no say have an inflationary impact and the Govt can play an effective and supportive role to bring down prices. Agricultural credit has been on the decline for the past several years and it needs to be tackled to improve agricultural productivity and marketing of the agricultural products. Here Central Govt, State Govts and NABARD can contribute a lot leaving RBI.Industrialists have a tendency to clamour for more from the Govt and Banks and this time they find RBIthe scapegoat for their failure.It is time they realiseit.
Dr.T.V.Gopalakrishnan
Saturday, September 17, 2011
Interest Rates and industrial growth
This comment in response to the Article "RBI right in sticking to its guns" appeared in The Hindu Businessline dated 17/09/11.
The author is right in the sense that the interest cost cannot be cited for the problems faced by the industrial sector.The credit off take is more than the expectations and the credit deposit ratio has been on the higher side indicating continuous demand for credit and banks are meeting them thanks to the liquid adjustment facility made available by the Reserve Bank.Industrialists by nature clamour for more facilities and concessions as they do not want to sacrifice a bit of profit though they have umpteen ways to cover up the small interest cost caused due to RBI's monetary policy. The inventory management and luxurious style of living by our corporates' bigwigs add to the cost of production and it is time special measures are taken to avoid excess inventory, avoidable waste and introduce austirity measures in the over all expenditures of the company. The accountability of auditors has been virtually absent in our corportae accounting practices and this needs to be reviewed.
Dr.T.V.Gopalakrishnan
The author is right in the sense that the interest cost cannot be cited for the problems faced by the industrial sector.The credit off take is more than the expectations and the credit deposit ratio has been on the higher side indicating continuous demand for credit and banks are meeting them thanks to the liquid adjustment facility made available by the Reserve Bank.Industrialists by nature clamour for more facilities and concessions as they do not want to sacrifice a bit of profit though they have umpteen ways to cover up the small interest cost caused due to RBI's monetary policy. The inventory management and luxurious style of living by our corporates' bigwigs add to the cost of production and it is time special measures are taken to avoid excess inventory, avoidable waste and introduce austirity measures in the over all expenditures of the company. The accountability of auditors has been virtually absent in our corportae accounting practices and this needs to be reviewed.
Dr.T.V.Gopalakrishnan
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