Raghuram Rajan's first monetary policy today: Can he please all?

September 20, 2013

Raghuram_Rajan

New Delhi, Sep 20: Reserve Bank governor Raghuram Rajan faces his first big test today as he delivers his maiden monetary policy. Having won universal applause for his "rupee speech", which resulted in a dramatic change in Street sentiments, there's hope that Dr Rajan will roll back some of the emergency measures, announced in July, that have been hurting Indian Inc.

Ben Bernanke's surprise decision on Wednesday not to wind down its massive monetary stimulus has come as a shot in arm for Dr Rajan as the pressure on rupee has eased considerably. However, the Fed's decision also means that expectations have risen manifold.

The biggest challenge for Dr Rajan will be to spell out a policy that is consistent with his hardline views on inflation, and also takes into consideration India' stuttering growth, which hit a decade low in the last fiscal.

With retail inflation around the double-digit mark and headline inflation at a 6-month high, Dr Rajan is unlikely to lower the benchmark repo rate, which currently stands at 7.25 per cent. He is also unlikely to tinker with the cash reserve ratio, or the portion of deposits banks have to maintain with the central bank, unchanged at 4 per cent.

"There is a change of guard, so we don't know what the flavour will be, but Rajan is likely to be hawkish and reiterate the importance of low and stable inflation for sustained economic recovery," said Rajeev Malik, senior economist at CLSA in Singapore.

A status quo would disappoint the banking industry and millions of consumers who are struggling under the burden of high Equated Monthly Installments (EMIs). With peak festival season around the corner, demand for loans is expected to go up.

"We have made our recommendations for releasing the liquidity, making it more accessible, making it less expensive," State Bank of India (SBI) Chairman Pratip Chaudhuri said.

But, economists say holding rates will be the best step for India under current circumstance.

"We expect the RBI to keep all policy rates (repo, CRR) unchanged, in line with consensus; sound hawkish on near-term inflation risks due to supply shocks emanating from food and rupee," Nomura analyst Sonal Varma said.

What Dr Rajan is expected to do is to scale back the tight liquidity measures that have helped the rupee bounce from a record low. Dr Rajan is widely expected to leave the marginal standing facility (MSF) unchanged, a Reuters poll showed. The overnight rate is generally viewed as the central bank's effective policy rate now, since it is the major interest rate tool being used to support the rupee.

The central bank jacked it up by 200 basis points in July to 10.25 per cent so that it stood 300 basis points above the official policy repo rate, aiming to tighten market liquidity and make it more expensive to speculate against the rupee.

Still, A. Prasanna, economist at ICICI Securities Primary Dealership Ltd in Mumbai, said it was a 50/50 call as to whether Rajan cuts the MSF to 9.25 per cent.

Several economists expect Dr Rajan to reverse some of the other rupee-supporting steps. He might relax a requirement that banks meet 99 per cent of their cash reserve ratio on a daily basis. The minimum was increased from 70 per cent previously, which drained liquidity from money markets but also choked off credit.

"Out-of-the-box solutions"

India Inc. is looking forward to some unconventional measures from Dr Rajan.

"We expect the new RBI governor to initiate measures that would enthuse the market participants, boost investor sentiment and bring confidence back in the economy," said Sidharth Birla, senior vice president of industry body Ficci.

Better communications:

In his first-day press conference, Dr Rajan spoke of the need for communication and a "clear framework" as to where the central bank is headed.

"We need a more comprehensive policy statement from the RBI underlining the outlook on inflation and guidance around the future of monetary policy framework, especially with regards to inflation targeting," said Gaurav Kapur, senior economist at Royal Bank of Scotland.

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Raghuram Rajan's first monetary policy today: Can he please all?

New Delhi, Sep 20: Reserve Bank governor Raghuram Rajan faces his first big test today as he delivers his maiden monetary policy. Having won universal applause for his "rupee speech", which resulted in a dramatic change in Street sentiments, there's hope that Dr Rajan will roll back some of the emergency measures, announced in July, that have been hurting Indian Inc.

Ben Bernanke's surprise decision on Wednesday not to wind down its massive monetary stimulus has come as a shot in arm for Dr Rajan as the pressure on rupee has eased considerably. However, the Fed's decision also means that expectations have risen manifold.

The biggest challenge for Dr Rajan will be to spell out a policy that is consistent with his hardline views on inflation, and also takes into consideration India' stuttering growth, which hit a decade low in the last fiscal.

With retail inflation around the double-digit mark and headline inflation at a 6-month high, Dr Rajan is unlikely to lower the benchmark repo rate, which currently stands at 7.25 per cent. He is also unlikely to tinker with the cash reserve ratio, or the portion of deposits banks have to maintain with the central bank, unchanged at 4 per cent.

"There is a change of guard, so we don't know what the flavour will be, but Rajan is likely to be hawkish and reiterate the importance of low and stable inflation for sustained economic recovery," said Rajeev Malik, senior economist at CLSA in Singapore.

A status quo would disappoint the banking industry and millions of consumers who are struggling under the burden of high Equated Monthly Installments (EMIs). With peak festival season around the corner, demand for loans is expected to go up.

"We have made our recommendations for releasing the liquidity, making it more accessible, making it less expensive," State Bank of India (SBI) Chairman Pratip Chaudhuri said.

But, economists say holding rates will be the best step for India under current circumstance.

"We expect the RBI to keep all policy rates (repo, CRR) unchanged, in line with consensus; sound hawkish on near-term inflation risks due to supply shocks emanating from food and rupee," Nomura analyst Sonal Varma said.

What Dr Rajan is expected to do is to scale back the tight liquidity measures that have helped the rupee bounce from a record low. Dr Rajan is widely expected to leave the marginal standing facility (MSF) unchanged, a Reuters poll showed. The overnight rate is generally viewed as the central bank's effective policy rate now, since it is the major interest rate tool being used to support the rupee.

The central bank jacked it up by 200 basis points in July to 10.25 per cent so that it stood 300 basis points above the official policy repo rate, aiming to tighten market liquidity and make it more expensive to speculate against the rupee.

Still, A. Prasanna, economist at ICICI Securities Primary Dealership Ltd in Mumbai, said it was a 50/50 call as to whether Rajan cuts the MSF to 9.25 per cent.

Several economists expect Dr Rajan to reverse some of the other rupee-supporting steps. He might relax a requirement that banks meet 99 per cent of their cash reserve ratio on a daily basis. The minimum was increased from 70 per cent previously, which drained liquidity from money markets but also choked off credit.

"Out-of-the-box solutions"

India Inc. is looking forward to some unconventional measures from Dr Rajan.

"We expect the new RBI governor to initiate measures that would enthuse the market participants, boost investor sentiment and bring confidence back in the economy," said Sidharth Birla, senior vice president of industry body Ficci.

Better communications:

In his first-day press conference, Dr Rajan spoke of the need for communication and a "clear framework" as to where the central bank is headed.

"We need a more comprehensive policy statement from the RBI underlining the outlook on inflation and guidance around the future of monetary policy framework, especially with regards to inflation targeting," said Gaurav Kapur, senior economist at Royal Bank of Scotland.

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News Network
January 9,2020

Dubai, Jan 9: A roadshow promoting Gujarat as an education hub of India will be held here from January 17, officials said.

Representatives of 22 universities and four colleges from Gujarat will be part of the two-day event organised by the Indian Consulate in Dubai.

"The roadshow will provide a glimpse of the thriving education sector in Gujarat and enable the interested candidates to get a first-hand understanding of the rich resources of the state in order to pursue higher education," according to a statement released by the Indian Consulate here on Wednesday.

A delegation led by Gujarat's Education Minister Bhupendrasinh Chudasama will take part in the event under the 'Study in Gujarat' campaign, the statement said.

The Principal Secretary of the state's Higher and Technical Education, Anju Sharma, will participate in the roadshow, which will conclude on January 18.

The participating educational institutions include Pandit Deendayal Petroleum University, Gujarat Forensic Science University, Nirma University, LD College of Engineering, Gujarat Arts and Science College, Vishwakarma Government College and SAL College.

"In the last decade and a half, Gujarat has been successful in establishing its identity as the leading educational hub of India. State of the art infrastructure, safe environment, curriculum at par with international standards and industry exposure gives students an edge during the course of their study," the statement said.

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News Network
April 9,2020

Thiruvananthapuram, Apr 9: The Kerala government has set up five COVID-19 helpdesks for non-resident Keralites in countries which have a substantial number of Pravasi Malayalis.

Addressing a press conference here Kerala Chief Minister Pinarayi Vijayan on Wednesday said: "In order to address the concerns and issues faced by the non-resident Keralites, we have set up five dedicated COVID helpdesks in countries where we have a substantial number of Pravasi Malayalis."

The helpdesks started by Norka Roots will be managed locally by persons and voluntary organisations active among non-resident Keralites. The Kerala government has requested the Indian Ambassadors in various places to cooperate with these helpdesks.

The Chief Minister also informed that online medical services would be made available to the non-resident Keralites through the Norka Roots website.

"Pravasi Malayalis can consult prominent doctors in Kerala by audio or video calls through the website, with prior registration. The services of various speciality doctors will be available from 2 pm to 6 pm IST," he said.

Currently, registration for the Norka Pravasi ID card is only available for the Malayali expatriates residing or working abroad for a period of not less than six months. "Now students from Kerala studying abroad can also avail this facility. The overseas student registration service would enable them to get Insurance benefits and discounts on flight tickets. This registration will be mandatory for all students presently studying abroad as well as for those going abroad, from now on," Vijayan said.

The Pravasi ID card is a multi-purpose photo identity card that entitles every non-resident Keralite to avail all services and facilities offered by Norka Root. The card comes with an add-on Personal Accident Insurance (PAI) coverage. Two prominent airlines are offering a discount on the base fare for air tickets booked by Norka Id card holders. 

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Agencies
June 29,2020

From March through May, around 1 crore migrant workers fled India’s megacities, afraid to be unemployed, hungry and far from family during the world’s biggest anti-Covid-19 lockdown.

Now, as Asia’s third-largest economy slowly reopens, the effects of that massive relocation are rippling across the country. Urban industries don’t have enough workers to get back to capacity, and rural states worry that without the flow of remittances from the city, already poor families will be even worse off -- and a bigger strain on state coffers.

Meanwhile, migrant workers aren’t expected to return to the cities as long as the virus is spreading and work is uncertain. States are rolling out stimulus programs, but India’s economy is hurtling for its first contraction in more than 40 years, and without enough jobs, a volatile political climate gets more so.

“This will be a huge economic shock, especially for households of short-term, cyclical migrants, who tend to come from vulnerable, poor and low-caste and tribal backgrounds,” said Varun Aggarwal, a founder of India Migration Now, a research and advocacy group based in Mumbai.

In the first 15 days of India’s lockdown, domestic remittances dropped by 90%, according to Rishi Gupta, chief executive officer of Mumbai-based Fino Paytech Ltd., which operates the country’s biggest payments bank.

By the end of May, remittances were back to around 1750 rupees ($23), about half the pre-Covid average. Gupta’s not sure how soon it’ll fully recover. “Migrants are in no hurry to come back,” Gupta said. “They’re saying that they’re not thinking of going back at all.”

If workers stay in their home states long term, policymakers will have more than remittances to worry about. If consumption falls and the new surplus of labor drives wages down, Agarwal said, “there will also be a second-order shock to the local economy. Overall, not looking good.”

India announced a $277 billion stimulus package in May and followed it up with a $7 billion program aimed at creating jobs for 125 days for migrants in villages across 116 districts. Separately, local authorities are also looking for solutions.

Officials in Bihar have identified 2,500 acres of land that could be made available to investors, said Sushil Modi, deputy chief minister of Bihar, a state in east India. “We can use this crisis as an opportunity to speed up reforms,” he said.

The investors haven’t materialised yet, and in the meanwhile, state governments are relying on the national cash-for-work program that guarantees 100 days worth of wages per household.

Skilled workers don’t want to do manual labor offered through the program, and even if they did, says Amitabh Kundu of RIS, many think of it as beneath their station. “There will be an increase in social tensions,” he predicts. “Caste may again start playing a role. It’s absolute chaos.”

For skilled workers, initiatives vary:

* Uttar Pradesh, which received 3.2 million people, is compiling lists of skilled workers who need employment and trying to place them with local manufacturing and real estate industry associations. So far, the government says, it’s placed 300,000 people with construction and real estate firms.

* Bihar has placed returners in state-run infrastructure projects and hired others to stitch uniforms and make furniture for government-run schools, even as they waited in quarantine centres, said Pratyay Amrit, head of the state’s disaster management department.

* The eastern state of Odisha announced an urban wage employment program aimed at putting as many as 450,000 day labourers to work through September. Some 25,000 people have been employed, so far, under the scheme, G. Mathivathanan, principal secretary for housing and urban development said.

Attracting Investments

It’s not clear any of this will be enough to make a dent, says Ravi Srivastava, professor at New Delhi-based Institute of Human Development, adding that the states don’t have much of a track record on economic development.

“It was the failure of these states to improve governance and put development plans in place that led to the out-migration in the first place,” he said.

But officials and workers’ rights advocates see opportunity. Uttar Pradesh has established liaisons to encourage companies from the US, Japan and South Korea to establish manufacturing in the state. There and in Madhya Pradesh and Rajasthan, the government has made labour laws more friendly to employers, making it easier to hire and fire workers.

Modi, the minister from Bihar, said the migration may also give workers--historically a disenfranchised group--new power, particularly as urban centres struggle. “The way industries treated workers during the lockdown -- didn’t pay them, the living conditions were poor -- now these industries will realize the value of this force,” Modi said.

“In the days to come, labour will emerge as a force that can’t be ignored anymore,” he added. “That’s the new normal. We will work out how to ensure dignity, rights to our people who are going to work in other states.”

Bihar is due for elections by November, a vote that could be an early test of the mass migration’s political consequences. The state is currently governed by a coalition that includes Prime Minister Narendra Modi’s Bharatiya Janata Party. Amitabh Kundu, a fellow at the Research and Information System for Developing Countries, a New Delhi-based government think-tank, said migrant workers are likely to be angry voters.

“Chief ministers are telling these migrants that they will not have to go back for work,” he said. “But their capacity to do something miraculous in the next four to five months is doubtful. If they can retain even one-fourth of the migrants, I would call it a success.”

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