"To a philosopher all
news, as it is called, is gossip, and they who edit and read it are old women
over their tea."
—Henry David Thoreau
(American, 1817-1862)
Word for the day
Pugnacious (Adj)
Inclined to quarrel or fight
readily; quarrelsome; belligerent; combative.
(Source: Dictionary.com)
Malice towards none
CPM almost ended UPA-I by
withdrawing support over civil nuclear deal.
A. Raja and Kanimozhi of DMK
dented the image of UPA-II government so badly that Congress is reduced to just
44 MPs in Lok Sabha.
Now Congress is joining
these forces as minor partner in state polls.
Rahul Gandhi was talking
about some ideological warfare in Assam!!!
First random thought this morning
A large part of foreign investments in India comes through
"tax friendly" jurisdictions like Mauritius. We all know it well that
not all this money is dirty.
Likewise, many Indian businessmen may have invested money overseas
by routing it through "tax friendly" jurisdictions like BVI. Not all
this money is illegal.
So why are we so excited over Panama leaks? Are we further
degenerating into an agitating society, from an argumentative one?
Rajan brings QE to India
Governor Rajan once again performed a perfect balancing act. He
pleased almost everyone - the bankers, the government, the traders and the
analysts.
Like before, there were many things which were not said in the
policy statement made by the governor but were too obvious for anyone to infer.
Some of the more prominent "between the lines" things were as
follows:
(a) The governor Rajan
added his two cents to the global QE program by announcing reversal of RBI's
stance on market liquidity.
It is important to note that for some time now RBI has kept the
system liquidity in deficit mode, with
an average liquidity shortfall
equivalent to one per cent of banks’ NDTL. The rationale has been that the
banking system would borrow from RBI liquidity facilities, ensuring that the
repo rate become the effective ST money market rates.
Reversing this stance, RBI has now announced that it will bring
the system liquidity to neutral position within a year. This could be done
through open market purchases of government securities and foreign currency.
This should ensure that (i) the NRI deposits raised in 2013 and
due for redemption later this year are redeemed without any material impact on
INR exchange rate; and (b) the additional government borrowing for meeting pay
commission and OROP payments and public investment happen at reasonable rates,
without disturbing the bond market much.
What it also means is that RBI is now more confident of the
effectiveness of the policy rates, which in its view are now trending down.
(b) RBI is also quite
realistic on inflation targets and anticipates supply side constraints to
prevail, despite good monsoon and continued global deflation. It may be a good
news for corporates as pricing power may return to them soon.
(c) Despite all political
rhetoric, RBI has been realistic on growth projections. The governor has
maintained that the growth will remain close to 7.5% even next year, assuming a
normal monsoon.
This means that RBI believes that the higher public sector
investment demand (defence, railways, roads, et. al.), and private consumption
demand (pay commission, OROP, good monsoon) will just be enough to compensate
for the poor external sector demand.
(d) The effective easing is
much higher than the headline 25bps cut in repo rate. MSF rate has been
effectively cut by 75bps and reverse repo is higher by 25bps. Also there is an
effective concession of 5% in net daily CRR obligation. This shall bring the
overnight and short term rates materially lower, thus transmitting the easing
almost immediately.
(e) RBI has
virtually announced OTC new bank licenses. The market in past has given huge
premium to the likely candidates for new license. That anomaly now ends
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