Thought for the day
“A wise and frugal Government, which shall restrain men
from injuring one another, which shall leave them otherwise free to regulate
their own pursuits of industry and improvement, and shall not take from the
mouth of labor the bread it has earned. This is the sum of good government, and
this is necessary to close the circuli of our felicities.”
-
Thomas Jefferson (American, 1743-1926)
Word for the day
Gnomist (n)
A writer of aphorisms.
(Source: Dictionary.com)
Teaser for the day
Should Congress hold a free and fair organizational poll to
save herself?
Firmly
consistent
·
No change in Repo (8%), Reverse Repo (7%), MSF
(9%) and CRR (4%).
·
50bps cut in SLR to22.5%.
·
FIIs allowed additional US$10mn limit in
currency derivative market over and above their normal hedging requirements.
·
Remittance limit under LRS increased to
US$1,25,000 from present US$75,000.
·
CPI target 8% FY15 and 6% FY16
·
Growth target for FY15 5 to 6%. 1QFY15 growth to
remain sluggish.
·
Inflationary risk at balance despite expected
sub-normal monsoon.
The policy stance of RBI, as reiterated in Tuesday’s
bi-monthly review statement, is firmly consistent, in my view.
Through his statement, Governor Rajan not only successfully
alleviated the concerns about change in policy trajectory due to change in
government in New Delhi, he also demonstrated remarkable resolve in achieving
the objective of greater predictability and consistency of policy.
The key highlights of latest policy statement are as
follows:
· Inflation targeting is now definitely the
primary driver of monetary policy. This not only brings objectivity to policy
formulation but also add fair degree of predictability to it. The chances of
speculation around the policy and undue political intervention are thus
minimized.
The latest statement in this regard
reads “The Reserve Bank remains committed to keeping the economy on a
disinflationary course, taking CPI inflation to 8 per cent by January 2015 and
6 per cent by January 2016. If the economy stays on this course, further policy
tightening will not be warranted. On the other hand, if disinflation, adjusting
for base effects, is faster than currently anticipated, it will provide
headroom for an easing of the policy stance.”
· RBI is also consistent in its move to bring
about some structural reforms in monetary policy and stability in money market.
I view reduction in SLR and small
opening of currency derivative to foreign investors from this angle. In short
term SLR reduction may not have any material impact as most banks are already
running a high SLR deposit. However, a structural decline in SLR is desirable
from prudent financial management angle and driving government borrowing closer
to market rate. Moreover, this will prepare banks for the expected pickup in
credit demand later this fiscal.
Gradually opening currency derivative
market to foreign investors will help relocating large offshore INR derivative
market to Indian shores, thus providing RBI better control over currency
volatility.
· In its last policy review RBI had begun to
unwind some of the measures taken last summer to check excessive volatility in
Fx market. Further in this direction RBI has relaxed US$75000 remittance limit
under LRS to US$1,25,000.
In pursuance of the Dr. Urjit R. Patel
Committee’s recommendation to move away from sector-specific refinance towards
a more generalised provision of system liquidity without preferential access to
any particular sector or entity, the Reserve Bank has decided to limit access
to export credit refinance while compensating fully with a commensurate
expansion of the market’s access to liquidity through a special term repo
facility from the Reserve Bank (equivalent to 0.25 per cent of NDTL). This
should improve access to liquidity from the Reserve Bank for the system as a
whole without the procedural formalities relating to documentary evidence, authorisation
and verification associated with the ECR. This should also improve the
transmission of policy impulses across the interest rate spectrum and engender
efficiency in cash/treasury management.
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