Tag: Raghuram Rajan

New MPC, Governor responsible for achieving inflation target

10/08/2016 16:14

Governor Raghuram Rajan said the Reserve Bank has been operating with the objective of getting inflation down to 4 per cent by March 2018, but it would be on the new monetary policy setting panel and his successor to choose its own glide path to meet the target, reported PTI.

“When the new Governor and the new monetary policy committee (MPC) come in, they will have to give you a sense of how they view the 4 per cent target for March 2018,” Rajan told wire agency reporters at a post-policy interaction here this evening.

But the outgoing Governor, who will be demitting office on September 4, a full one month before the next policy, was quick to add that “as far as I, Dr (Urjit) Patel and Dr Michael Patra are concerned, we see the glide path as attempting to reach 4 per cent by March 2018”.

It can be noted that the notification on inflation targeting issued by the government last week has given a target to get the price index down and keep it at 4 per cent till 2021 with 2 percentage points up or down.

Rajan had earlier in the day announced that the MPC would start functioning by the time of the next policy announcement on October 4.

Achieving 4 per cent CPI inflation was first spelled out by the Urjit Patel committee on monetary policy and was adopted following an agreement between the RBI and the government under which the central bank turned its character to being an inflation-targeting one. The RBI has a leeway to keep the number 2 per cent below or above the target.

Rajan said he wanted to achieve the 4 per cent number in a gentle way, without disrupting the economic growth. With the 4 per cent medium-term term target, the RBI brass was working with short-term milestones like achieving 5 per cent by March 2017, he said.

“If you see how we have approached this, we have given a longer term path but we fixate on the next post. Sometimes later in the year, you will have to start saying what after beyond 5 per cent. Typically, later in the year, from old post to the new post. At which point, you will get some guidance from the MPC,” he said.

Meanwhile, Rajan today reiterated that it makes little sense to deploy RBI’s excess funds into re-capitalisation of state-run banks and added that the central bank will soon be coming out with a detailed paper presenting its arguments.

He said the net effect on public sector’s borrowing is zero because RBI will have to go to the public for raising the resources. But doing so will harm the RBI’s plans on permanent liquidity infusion into the system, he added.


What to expect from Rajan’s last policy meet?

08/08/2016 15:41

Three years ago when Raghuram Rajan took over the reins of the Reserve Bank of India (RBI), the rupee was languishing at a record low, the current account deficit (CAD) had widened to alarming levels and India’s inflation rate was among the highest in the BRIC countries.

The former International Monetary Fund chief economist who will chair his final meeting as the RBI Governor on Tuesday leaves behind an economy in much stronger shape, evident by India’s rising global prowess including becoming the world’s fastest growing major economy. Record high forex reserves, shrinking CAD and the rupee’s relative resilience in the event of global headwinds including Brexit jitters, China yuan devaluation crisis and US monetary tightening underscores the strength of India’s external finances.

On Tuesday, Rajan is expected to maintain status quo on interest rates as a pickup in inflation over the past three months amid a jump in food prices leaves little room for near-term monetary easing. Retail inflation, the RBI’s benchmark gauge for prices, rose to 5.77 percent in June 2016 from 5.76 per cent in May 2016 driven by higher food prices.

While a good monsoon may bolster farm output and curb the surge in food prices, there are still some upside risks to inflation including a hike in wages for government employees that may push up consumption and hence put pressure on prices. With the GST getting the green signal, consumer inflation could head northwards by at least 25 bps, economists say.

The RBI’s wings could also be clipped by the government’s notification of adoption of an annual inflation target of 4 per cent, plus or minus 2 percentage points.

With consumer inflation now at levels very close to the government’s newly notified upper tolerance limit, Rajan in his swansong may keep the repo rate unchanged at 6.5 per cent after cutting it a cumulative 150 bps since 2015.

Rajan went with majority view on policy rate on Jun 7

Rajan went with majority view on policy rate on Jun 7

29/06/2016 01:09

Reserve Bank head Raghuram Rajan went with the recommendations of majority of the external members of the monetary policy panel and did not slash the key interest rate early this month, reported PTI.

As per the summary of electronic consultation with the Technical Advisory Committee (TAC) released by RBI, three of the five external members recommended no change in policy rates.

Before contemplating any easing of policy rate, these members wanted to see substantially lower inflation relative to the 2016-17 target of 5 per cent on a durable basis and assess the effect of the monsoon in the next couple of months.

They also wanted further clarity on the US Fed’s take on the rates.

Meanwhile, in a sweeping change, the government yesterday enforced a law for setting up a broad-based, six-member committee that is likely to decide on interest rate at the next monetary policy in August, with RBI Governor having a casting vote in case of a tie.

The review will be the last monetary policy of Rajan, who completes his three-year term on September 4.

The summary further said that the other two members recommended a policy repo rate reduction of 25 basis points.

According to them, the shortfall of demand in the economy calls for some stimulus and the effect of the predicted good monsoon would keep food prices under check. They also opined that there is a window of opportunity before a possible the Fed rate hike in mid-June.

One of these two members was of the view that, given the fragmentation and incompleteness of India’s financial markets, the repo rate has proved to be a much less effective instrument of monetary policy than in well developed markets like in the US, the summary said.

Consultation with external members of the TAC was held electronically during May 24-30, in the run up to the Second Bi-monthly Monetary Policy Review of the fiscal 2016-17.

On June 7, Rajan kept the key policy rate unchanged citing higher upside risks to ‘inflation trajectory’ but said the central bank will remain accommodative provided data are supportive.

All the five external members — Shankar Acharya, Arvind Virmani, Errol D’Souza, Ashima Goyal, and Chetan Ghate — sent their feedback through e-mail.

Members noted that global economy recovery is struggling to gain momentum.

On domestic economic growth, the sustained weakness of industrial production continues to be a source of concern, and a drag on overall activity. Low capacity utilization numbers suggest that some sectors of the economy are operating below potential.

Most of the members expressed concern on inflation outlook since food inflation rose by 100 basis points, headline inflation moved up by 60 basis points, and even excluding food, fuel, petrol and diesel, inflation edged up marginally and remained sticky in April.

RBI cuts interest rates by 25 bps to 5-year low

RBI cuts interest rates by 25 bps to 5-year low

05/04/2016 11:31

As expected, the Reserve Bank of India (RBI) on Tuesday delivered an interest rate cut, its first in six months while signaling a continued accommodative monetary policy stance to help power growth in Asia’s third biggest economy.

The central bank lowered the repo rate by 25 basis points to the lowest level since March 2011 at 6.5 per cent from 6.75 per cent. The RBI increased the reverse repo rate by 25 basis points to 6 per cent.

Raghuram Rajan, the RBI governor indicated that further interest rate cuts will hinge upon macroeconomic developments including the monsoon rains which could dictate the near-term inflation outlook and financial developments.

“The stance of monetary policy will remain accommodative,” Rajan said in the statement.

“The Reserve Bank will continue to watch macroeconomic and financial developments in the months ahead with a view to responding with further policy action as space opens up”, he added.

The government’s vow to stick to its budget deficit goals, easing inflation and a recent reduction in the interest rates on small savings instruments have given the apex bank additional room to bolster monetary easing in a bid to buoy demand and revive investments in the country’s economy.

The RBI kept unchanged its gross-value added growth projection for FY 2017 at 7.6 per cent while inflation is expected to decelerate at a modest rate to hover around the 5 per cent mark through March 2017.

RBI policy review: Rajan faces calls to pull the trigger

RBI policy review: Rajan faces calls to pull the trigger

05/04/2016 00:10

The Reserve Bank will unveil its first bi-monthly policy review for this fiscal today amid expectations of a 0.25-0.50 per cent cut in interest rates to boost industrial growth and economy, said the PTI report.

Finance Minister Arun Jaitley had pitched for policy easing, saying high rates could lead to a sluggish economy.

Bankers and experts too are expecting lower borrowing costs as the inflation trajectory is down and the government has pledged to stay on the fiscal consolidation path.

Keen to show that it means business, the government has pared the small savings interest rate by up to 1.3 per cent, providing cushion to the Reserve Bank for lowering the policy rate and for banks to pass on its benefits to consumers.

Bank of Maharashtra CMD Sushil Muhnot said: “There is possibility of RBI reducing rate by 0.25 per cent as inflation has eased.”

According to a senior official from a state-owned bank, although a 0.25 per cent rate cut has been factored in by the market, there is also a high possibility of RBI slashing it by 0.50 per cent.

Jaitley said: “The government has stuck to fiscal deficit commitments and inflation has been under control. I do hope that this movement will continue in order to make our economy more competitive with more competitive interest rates.”

Industry chambers on their part are pitching for 0.5 per cent reduction in the key interest rate.

“A 0.25 per cent cut in the policy rate is almost given, but the real impact of falling lending cost can be felt only if the central bank goes in for a bold reduction of at least 0.50 per cent,” industry body Assocham said.

Retail inflation as measured by the consumer price index eased to 5.18 per cent in February as food prices rose at a slower pace while the wholesale price index stayed in the negative territory for the 16th month in a row.

RBI Governor Raghuram Rajan had last month said the government sticking to the fiscal consolidation road map in Budget was comforting, a statement which raised hopes for a rate cut in April 5 monetary policy.

RBI, in 2015, had lowered interest rates by 1.25 per cent.

RBI expected to cut rates by 25 bps: BofA-ML

RBI expected to cut rates by 25 bps: BofA-ML

29/03/2016 14:31

A report has said that India’s retail inflation for March is expected to be around 5 per cent and the Reserve Bank is likely to cut its key rate by 25 basis points each at its policy reviews on April 5 as well as in August.

According to Bank of America Merrill Lynch (BofA-ML), its inflation indicator is tracking March CPI inflation at 5 per cent, slightly lower than February’s 5.2 per cent.

Commenting on the issue, a BofA-ML Official told the media, “We continue to expect the RBI to cut rates 25 bps on April 5 and in August.”

The declining inflation and negative industrial outlook have strengthened the case for RBI cutting interest rate in its first bi-monthly monetary policy for 2016-17 on April 5.

RBI Governor Raghuram Rajan on February 2, left the key interest rate unchanged citing inflation risks and growth concerns.

Sensex, Nifty in red; oil stocks drag

02/02/2016 14:35

The key domestic benchmark indices pared all the gains and slipped into negative territory during the late noon trading session amid weakness in the oil shares on account of declining crude oil prices coupled with losses in Index heavyweights.

At 14:17 hours, the 30-share benchmark index, Sensex was trading at 24706.04 down by 118.79 points or by 0.48 per cent, while the NSE Nifty was at 7497.9 down by 58.05 points or by 0.77 per cent.

Investors turned cautious on Moody’s Investors Service report which says that RBI’s target to bring down retail inflation at 5 per cent by March 2017 will face some risks from monsoon uncertainty and execution of 7th Pay Panel recommendations, while macro-economic factors will be critical for sustaining growth.

The Reserve Bank of India (RBI) has today kept the policy repo rate unchanged at 6.75 per cent due to inflation concerns. RBI governor Raghuram Rajan expects inflation to be around 5 per cent by the end of 2016-17.

In the choppy trade so-far, Sensex touched intraday high of 24928.75 and intraday low of 24661.09 The NSE Nifty touched intraday high of 7576.3 and intraday low of 7496.75. Major laggards on the D-street included Tata Steel Ltd. (Rs. 237.25,-4.87%), Cipla Ltd. (Rs. 580.50,-2.89%), Sun Pharmaceutical Industries Ltd. (Rs. 847.30,-2.63%), NTPC Ltd. (Rs. 136.70,-2.53%), Bharat Heavy Electricals Ltd. (Rs. 137.00,-2.46%), among others.

Meanwhile, some buying interest was seen in index heavyweights including Bharti Airtel Ltd. (Rs. 302.05,+1.87%), Bajaj Auto Ltd. (Rs. 2356.25,+1.21%), Infosys Ltd. (Rs. 1183.85,+1.07%), Tata Consultancy Services Ltd. (Rs. 2422.95,+0.86%), Housing Development Finance Corporation Ltd. (Rs. 1188.90,+0.80%), among others.

Among the sectors, metal and Oil & gas indices remained under pressure, declining by 3.21 per cent and 1.85 per cent respectively.

The Market breadth, indicating the overall strength of the market, was weak. On BSE out of total shares 2696 traded, 1141 shares advanced, 1417 shares declined while 138 were unchanged.

On the global front, Asian peers ended the day on mixed note as oil rout resumed coupled with persistent concerns over the health of Chinese economy. Meanwhile, European counters were also reeling under pressure with all CAX, DAX and FTSE trading down 1.5 per cent each.