by admin | May 25, 2021 | Banking, C S R, Corporate, News
New Delhi, (IANS) Taking a dig at the Centre, former finance minister P. Chidambaram on Saturday wondered whether the Narendra Modi-led BJP government “deserves” RBI Governor Raghuram Rajan and described him as “one of the most outstanding economists” in the world.
“I am beginning to think whether this government deserves Dr Rajan?” Chidambaram replied when asked whether the RBI governor should be given a second term.
The Reserve Bank of India (RBI) governor’s three-year term ends in the first week of September. BJP leader Subramanian Swamy has been consistently urging that Rajan should not be given an extension.
“UPA government appointed one of the most outstanding economists of the world as the governor of RBI. We placed full confidence in him at that time, we continue to place full confidence in him today,” Chidambaram added.
The former finance minister chose not to comment on Swamy’s letter to the prime minister asking him to sack Rajan.
“If the finance minister or PM make similar comments I will comment. In the absence of the FM and the finance minister making a similar comment, there is no need for Congress party to respond,” Chidambaram told mediapersons.
To a question on Finance Minister Arun Jaitley having differences with Rajan on the issue of interest rates, Chidambaram said: “World over finance ministers and central bank governors engage in a dialogue. That doesn’t mean finance minister is questioning the competence of the RBI governor. Each one approaches the economy in his or her perspective. Government’s perspective is growth and central bank governor’s perspective is monetary stability.”
“Two out of 10 times the finance minister may have some reservations with regard to some decisions. This is true of all finance ministers and central bank governors all over the world,” he added.
He further said: “As far as we are concerned, we had the best of relationship with all central bank governors and as long as we were in government, we had the best relationship with Dr Raghuram Rajan.”
He also took a dig at Union Commerce and Industry Minister Nirmala Sitharaman when asked about her criticism of Rajan.
“If I can put the question by a straw vote by this audience, between Dr. Rahguram Rajan on one hand and the commerce minister on the other, you know how the vote will take place?” said Chidambaram.
Indicating that the RBI and the government were not on the same page on various issues, Chidambaram said: “CPI (consumer price index) inflation has risen from 3.7 percent in July 2015 to 5.4 percent in April 2016.
“It is not clear whether the government and the RBI are agreed on the strategy for inflation management. In absence of an agreed strategy, inflation is bound to increase,” he said.
by admin | May 25, 2021 | Banking, Corporate, Corporate finance, News
Raghuram Rajan, Governor, Reserve Bank of India delivering inaugural speech at the SAARCFINANCE Governors’ Symposium in Mumbai
“Good policy has been essential to our stability”, said Dr. Raghuram Rajan, Governor, Reserve Bank of India in his inaugural speech at the SAARCFINANCE Governors’ Symposium held today in Mumbai. For India, undertaking a variety of structural reforms to enhance growth; outlining and adhering to a path of fiscal consolidation to reduce the fiscal deficit; containing inflation through a combination of better food management, a new inflation framework and calibrated monetary policies; and embarking on a cleanup of bad debts in the banking system so as to free bank balance sheets to support growth are elements of what India has practised in the wake of global uncertainties.
The government has also undertaken structural reforms to revive growth, including significant efforts in the agricultural sector to boost productivity through irrigation, insurance, access to markets, a strong push to deregulate business, especially for start-ups, resolve distress in power distribution companies, and an immense effort to expand financial services to the excluded through the provision of bank accounts and direct benefit transfers. Leaving aside the much anticipated Goods and Services Tax reform, a number of other significant reforms had also taken place, including the recent passage of the new Bankruptcy bill, which was likely to speed the resolution of distress tremendously. Moreover, the cleaning up of the process of allocating public resources like spectrum and mines, as well as the process of appointing critical personnel, such as, public sector bank chiefs was one of the most effective reforms undertaken by the government. “This is significantly increasing transparency in our system”, the Governor pointed out.
The Governor also talked of four elements of defence against the external imbalances namely, good policies; prudent capital flow management and swap arrangements; preventing extreme forex volatility; and building reasonable forex reserves.
While speaking of good policies in the context of the challenges SAARC countries faced in a globally interconnected world, and lauding the performance of SAARC economies, the Governor said that the region had shown continued resilience in the face of turbulent international markets, maintaining its spot as the fastest-growing region in the world. However, the region was now facing newer challenges arising from uncertainties in other parts of the world. Possible moves by the US Fed, a potential rebound of oil prices, possible Brexit, geopolitical risks in the Middle East and volatility in financial markets due to risk-on or risk-off sentiment were some of the possibilities, he pointed out. Sharp slowdown of the Chinese economy, according to him though still remained a significant risk for the global economy and the SAARC region. The sharp contraction in China’s imports over the past year, for instance, had already led to spillovers through the trade, confidence, tourism and remittance channels and SAARC nations had not been able to avert its impact. More negative externalities could follow as Chinese economy adjusted to a more sustainable path.
Further, China already suffered from the twin-ailment of overcapacity and high leverage. Bad loans in the banking system were likely to grow over current levels and in addition there might be serious weaknesses in the shadow banking system, which could feed back to banks. Both could be significant downside risks as they could have second round effects for SAARC economies. Chinese growth would depend not just on its policies, but also on growth elsewhere in the world.
As second level defences, India has taken measures, such as, being careful about foreign borrowing, especially at the very short term. In addition, government’s liberalisation of FDI regulations have resulted in record FDI inflows last financial year. Further, RBI has been moderating periods of extreme volatility in the currency through exchange intervention, though only when the movement is excessive, and increasing access to foreign exchange reserves, including pooling of reserves. India’s SAARC swap arrangement with a number of SAARC countries had been drawn on by some to alleviate short term foreign exchange needs, and had hopefully been helpful, the Governor averred.
In conclusion, the Governor said that being conscious of the role the Indian economy plays in influencing growth in other SAARC economies, India has kept the objective of securing and preserving macro-stability at the top of her agenda to avoid any negative externalities and hoped that together the SAARC countries could hopefully be an island of relative stability and co-operation in the turbulent world.
Note for editors:
SAARC1, as a regional bloc was set up in 1985 with the aim of promoting the welfare of the people of South Asia, to accelerate regional economic growth, strengthen collective self-reliance and contribute to mutual trust, understanding and appreciation of one another’s problems in the region. SAARC nations share a common goal of sustainable economic development, and face several similar developmental challenges. In terms of GDP based on purchasing power parity (PPP), SAARC’s share in the globe has increased rapidly from 4.0 per cent in 1980 to 9.0 per cent in 2016.
by admin | May 25, 2021 | Banking, Corporate, Corporate Governance, News
Raghuram Rajan
Mumbai: (IANS) Springing a surprise, the Reserve Bank of India (RBI) on Tuesday cut its short-term lending rate by 50 basis points, but also made a pitch for it to be passed on to end-consumers in the form of cheaper personal and commercial credit.
While the repurchase rate, or the interest charged on short-term borrowings, stands cut to 6.75 percent, it will take commercial banks to lower their own lending rates for personal, automobile, housing and commercial loans to also get reduced, translating into lower EMIs.
The indexed reverse repo rate, or the interest payable by the central bank on short-term deposit, automatically stood reduced to 5.75 percent. There was no cut in the 4 percent cash reserve ratio that banks have to maintain in the form of liquid assets and designated government securities.
“Markets have transmitted Reserve Bank’s past policy actions via commercial paper and corporate bonds, but banks have done so only to a limited extent,” Reserve Bank Governor Raghuram Rajan said in the fourth bi-monthly monetary policy statement for the current fiscal year.
“Median base lending rates of banks have fallen by only about 30 basis points, despite extremely easy liquidity conditions,” the governor said.
“This is a fraction of the 75 basis points of the policy rate reduction during January-June, even after a passage of eight months since the first rate action by the Reserve Bank. Bank deposit rates have, however, been reduced significantly, suggesting that further transmission is possible.”
There was pressure this time on the central bank to cut rates from all stakeholders, including a veiled nudge from government functionaries, especially since India’s growth has been floundering and inflation and the pressure on the price line has been seemingly under control and declining.
by admin | May 25, 2021 | Banking, Corporate, Corporate finance, News
The Governor of Reserve Bank of India, Raghuram Rajan calling on the Prime Minister, Shri Narendra Modi, in New Delhi. (file Photo)
By Arun Kumar
Washington:(IANS) Reserve Bank of India (RBI) governor Raghuram Rajan says he is trying to bring down India’s high inflation rate while navigating complications like manufacturers who are hurt by higher interest rates and a stronger currency.
RBI’s policy process, among other things, involves “trying to take the heat away from the political economy and put it on frameworks, technical models, projections”, he said at the Federal Reserve Bank of Kansas City’s annual economic symposium on Saturday.
“What we’re doing is disinflation without worrying too much about distribution,” he said.
“To some extent, that framework allows us protection,” Rajan was quoted as saying at the conference in Jackson Hole, Wyoming, by the Wall Street Journal.
The role of politics and history was a little-discussed but important force in determining the goals and tactics of economic policy makers, he said, speaking on a panel about global inflation dynamics.
For instance, when it comes to modern central banks’ focus on targeting inflation, “which side of the inflation band is emphasized stems from history and political economy”, Rajan said.
He said some have argued the US focus on the costs of low inflation or deflation reflects in part from the business bankruptcies in the 1920s and 1930s.
On the other hand, the German experience with very high inflation in the 1920s “would explain the focus on the upper bound, that is, protecting against high inflation”.
Rajan also asked if Japan’s aging population and “the political power of the elderly” might help explain the country’s tolerance for deflation.
“Political economy is not an aberration, but a reality that should be accounted for in our policy analysis,” he said.
Other participants on the panel were Federal Reserve Vice Chairman Stanley Fischer, Bank of England Governor Mark Carney and European Central Bank Vice President Vítor Constâncio.
(Arun Kumar can be contacted at arun.kumar@ians.in)
by admin | May 25, 2021 | Opinions
Bombay Stock Exchange
By Vatsal Srivastava
It’s like 2008 again. But during such times, it is important to remember that there was a March 2009.
Looking at the price action yesterday (Aug 24) , particularly during the US session, where the Dow tumbled by almost 1,000 points (although the closing was not so bad) and the wild moves in currencies, especially the euro and the yen, there surely looks to be more pain ahead for the financial markets.
After almost two decades since the Asian crisis, it is the emerging market space, especially China, which is dictating markets in the developed world. Emerging market currencies are near ‘crisis valuations’ against the dollar while the Dollar Index is getting hammered as US 10-year yields trade at two percent, implying that a September Fed liftoff is certainly off the table.
What is even scarier is the fact that the recent sell-off across global equities has also been built upon a global growth scare. So, even if China launches a huge stimulus package, a sharp rebound will most likely be sold into. The RBI, unlike its western counterparts, who are already in QE mode and at the zero-bound, has sufficient ammunition to stabilise the free fall in the Indian markets.
It took capitulation in the financial markets for RBI Governor Raghuram Rajan to come out and finally sound slightly dovish and admit that interest rates should fall further in the current macro environment. He also reiterated that our vast FX reserves could be used to defend the INR depreciation.
Although delayed, his comments on rate cuts will surely restore some sense of calm and confidence in our financial system. However, Rajan must be careful about his timing when it comes to defending the rupee. Having failed to cap the USD/INR upside at 65-66, he should let the market take rupee where it wants to till the US Fed rate hike. It is only when the market has more clarity on the Fed hike (which now seems to be in December) will the dollar strength resurge. Further, even speculators will find it hard to go aggressively short at the rupee at these levels as we cannot be clubbed together with the export oriented “tiger” economies. So, keeping the old ‘don’t fight the Fed’ rule in mind, the rupee is best left untouched as of now and should be guided by market forces alone.
Rajan may or may not agree with the easy monetary policies in the Euro zone, the US and Japan. But in crisis times, he must adapt to pick up some smart strategies from his counterparts. Like the Bernanke put, Draghi’s put or his “whatever his takes” comment and the Bank of Japan’s Kuroda put, Rajan must immediately provide the Indian economy with a ‘Rajan put’. This should of course start with a 50 basis point rate cut.
In times like these, economies and markets decouple only when policymakers take urgent steps. There is no point playing catch up with contagion.
(Vatsal Srivastava is consulting editor with IANS. The views expressed are personal. He can be reached at vatsal.sriv@gmail.com)
