Thought for
the day
“If you ask me anything I don't know, I'm not going to
answer.”
-
Yogi
Berra(American, 1925 - )
Word of the
day
Somnambulism
(n)
Sleepwalking
(Source: Dictionary.com)
Shri Nārada Uvāca
Should the election commission direct that during coming
election:
(a)
All lotus ponds should be covered.
(b)
All people should keep their hands covered at
all times.
(c)
All bicycles should be kept under cover.
(d)
All elephants should be kept under cover.
(e)
All brooms be kept under cover and Delhi roads
may not be swept.
Some said, some unsaid
RBI governor released the second quarterly review of monetary
policy for FY14. Apparently there were no surprises in the statement made by
the governor and the changes in monetary policy stance. We highlight some key
points that might have remained unsaid in the policy statement.
Said: “Domestically,
while industrial activity has weakened, strengthening export growth, signs of
revival in some services along with the expected pick-up in agriculture could
increase the real GDP growth from 4.4 per cent in Q1 to a central estimate of
5.0 per cent for the year as a whole. The revival of large stalled projects and
the pipeline cleared by the Cabinet Committee on Investment may buoy investment
and overall activity towards the close of the year.”
Unsaid:
The modest economic recovery in 2HFY14 would totally depend on improvement in
external sector and revival of large stalled projects. Reversals in global
recovery and/or a dysfunctional government prior to elections would mean growth
could end up at lower end of the projected 4.2% - 6.2% range.
Said: “In the
meantime, with many large entities holding back on payments, liquidity
pressures are building up on small and medium enterprises. A number (of SMEs)
are facing conditions of financial distress. Remedies partly lie in the
speed-up of government and public sector payments, and on measures to channel
credit to small and medium enterprises.”
Unsaid:
The financial stress in the system is mostly due to inefficiencies,
inaction and corruption at the government and PSU level. Excessive risk
aversion at Bank level may also be responsible for this to some extent.
Said: “Both wholesale
and consumer price inflation are likely to remain elevated in the months ahead,
warranting an appropriate policy response.”
Unsaid:
Good monsoon outcome may not bring down food inflation. We need more
effective policy measures (read supply side augmentation) to bring consumer
inflation under control. In the meantime expect rates to remain higher.
Said: “We have
calibrated liquidity management to the system’s requirements. We are providing
liquidity through overnight LAF repos, through export credit refinance and
through 7-day and 14-day term repos. We have also given greater flexibility in
managing reserve requirements. Going forward, however, the more durable
strategy for mitigating mismatches between the supply of, and demand for, funds
is for banks to step up efforts to mobilise deposits.”
Unsaid:
RBI does not have more leverage for providing additional liquidity. Banks
should raise deposit rates to mobilize additional deposits. Real rates need to
be positive to achieve equilibrium between credit demand and deposits.
…to continue tomorrow
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