Tag: Monetary Policy Committee (MPC)

RBI Governor Shaktikanta Das to announce first monetary policy of 2022-23 today

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) will announce its first monetary policy for the new fiscal year 2022-23 today. At 10 am, RBI Governor Shaktikanta Das will conduct a press conference to unveil the central bank’s monetary policy. On April 6, the Monetary Policy Committee (MPC) led by Das began its bi-monthly assessment. The MPC meeting will conclude on April 8.

The RBI is expected to keep key lending rates unchanged and maintain an accommodative stance in the monetary policy committee meeting. However, the RBI may change its approach in view of retail inflation reaching its upper tolerance limit and global uncertainties.

Also Read: ‘Accommodative’ stance wording may be reworked, CPI inflation likely to be projected over 6%: Report

The MPC has not changed the repo rate in the last ten meetings. The repo rate was last cut by 40 basis points by the RBI in May 2020. The report rate, often known as the short-term lending rate, is now at 4 percent. In addition, the reverse repo rate was maintained at 3.35 percent. The MPC is expected to revise the inflation target upwards.

According to a Reuters poll, RBI will likely delay its first interest rate hike by at least four months to August at the earliest. The markets are expected to stay unruffled and may also witness a relief rally if rates are left unchanged.

Earlier in February, the central bank decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy. RBI had then projected inflation to average 4.5 percent in 2022-23.

Watch Video: Editor’s take: All eyes on inflation forecast in crucial RBI monetary policy; relief rally a possibility

The US Federal Reserve, on the other hand, released the minutes of the Fed’s March meeting on Wednesday that show deepening concern among policymakers that inflation had broadened through the economy and the need for tighter monetary policy.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Pakistan hikes rate by massive 2.5% in emergency bid to arrest rupee freefall

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In a surprise move, Pakistan’s central bank–the State Bank of Pakistan–raised interest rates by 250 basis points, or 2.5 percent, following an emergency meeting of the Monetary Policy Committee, as escalating political chaos threatens to spill over into a fullblown economic crisis, reported Bloomberg.

As per the report, the key interest rate now stands at 12.25 percent, the central bank said in a statement. This makes the real rate “mildly positive” and will help preserve external and price stability, it said.

1/3 In an emergency meeting today, MPC decided to raise policy rate by 250bps to 12.25%. This strong and proactive policy response was necessitated by a deterioration in outlook for inflation and increase in risks to external stability since last meeting. https://t.co/VSRwxRQJhY

— SBP (@StateBank_Pak) April 7, 2022

“Heightened domestic political uncertainty” contributed to a 5 percent depreciation in the rupee, triggered a surge in local bond yields as well as Pakistan’s Eurobond yields and CDS spreads, the central bank said, per Bloomberg’s report.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wise to remain agile and calibrated: RBI governor on MPC’s accommodative stance

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI deputy governor Michael Patra also shared Das’s observations.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI MPC Minutes: Governor Shaktikanta Das bats for continued policy support to nurture economic revival

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI Governor Shaktikanta Das pitched for continued policy support to nurture revival in sectors especially those which are exposed to the evolving headwinds in the wake of spread of Omicron variant of COVID, showed MPC minutes released by the central bank on Wednesday. The Monetary Policy Committee (MPC) on December 8 had unanimously voted for status quo on policy rates for the ninth consecutive time.

As per the minutes, Das said there was growing uncertainty regarding the evolving global macroeconomic outlook. On the domestic front, even as the prospects for economic activity are improving, there is still a slack with key drivers like private consumption remaining well below their pre-pandemic levels, he said.

“Given these uncertainties, continued policy support is warranted for a durable, broad-based and self-sustaining rebound, especially to nurture revival in sectors which are lagging and to safeguard those which are exposed to the evolving headwinds,” the Governor said. MPC member and RBI Deputy Governor Michael Debabrata Patra too expressed concerns on the spread of the new variant of coronavirus, saying “suddenly, the global outlook has darkened”.

Also Read | QUICK TAKE: Decoding RBI’s variable reverse repo gambit and its impact on rates

“As countries race to contain Omicron with travel restraints and new quarantine and social distancing measures, the global recovery and the inflation outlook are at risk again,” he said.

All MPC members, — Shashanka Bhide, Ashima Goyal, Mridul K. Saggar, Michael Debabrata Patra and Shaktikanta Das, except Jayanth R Varma, voted to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

Varma had expressed reservations on this part of the MPC resolution, the minutes said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI says banks need no approval to infuse capital in branches, overseas arms

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Reserve Bank of India(RBI) Governor Shaktikanta Das on Friday announced that no approval will be required for banks to infuse capital in their branches and overseas arms.

“At present, banks incorporated in India can infuse capital in their overseas branches and subsidiaries; retain profits in these centres; and repatriate/ transfer profits therefrom with prior approval of the RBI. With a view to providing operational flexibility to banks, it has been decided that banks need not seek prior approval of the RBI if they meet the regulatory capital requirements,” said Das in his statement.

The Monetary Policy Review Committee on Wednesday voted to keep benchmark signalling rates unchanged while maintaining its ‘accommodative’ stance.

The repo rate stands unchanged at 4 percent, the reverse repo rate at 3.35 percent, the marginal standing facility and the bank rate have been maintained at 4.25 percent.

RBI Governor Shaktikanta Das said the country was better prepared to deal with economic disruption from COVID. He said that in several sectors, the pre-pandemic levels of output had been surpassed, but also said that the economy is not yet strong enough for self-sustaining growth and so would need policy support for some more time. The RBI retained its GDP growth forecast at 9.5 percent for the current fiscal (2021-22).

The RBI has revised its quarterly projections for the next year due to the uncertainty caused due to the Omicron variant of the COVID-19 virus and with an eye on the US Federal Reserve’s liquidity tapering expectations.

On the inflation front, the has projected the Consumer Price Index (CPI) inflation at 5.3 percent for the financial year 2022, the same it had projected in the October meeting.

Das said the headline inflation might peak in the fourth quarter of FY22. While in Q3 FY22, the inflation is projected at 5.1 percent, it can peak to 5.7 percent in Q4 FY22. It will cool to 5 percent in the Q1 and Q2 of FY23, he said.

Click here for our live blog on RBI monetary policy for more updates

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI maintains status quo: Here’s full speech of Governor Shaktikanta Das

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Monetary Policy Committee (MPC) on Wednesday (December 8) kept key policy rates unchanged while maintaining ‘accommodative’ stance. The repo rate remained unchanged at 4 percent, the reverse repo rate at 3.35 percent, while the marginal standing facility and the bank rate have been maintained at 4.25 percent.

RBI Governor Shaktikanta Das said the country was better prepared to deal with economic disruption from COVID. However, he added that the economy is not yet strong enough for self-sustaining growth and so would need policy support for some more time. The RBI retained its GDP growth forecast at 9.5 percent for the current fiscal (2021-22).

Here’s the full text of RBI Governor’s speech:

As I make this statement, I look back at the traumatising experience with two waves of an existence-defining pandemic. Virtually every aspect of human life has been drastically altered. Yet, what has been achieved on this troubled journey has been no less extraordinary. We are now better prepared to deal with the invisible enemy, COVID-19, which keeps threatening the entire world from time to time and even more recently.

Media interaction on Monetary Policy with Shri Shaktikanta Das, Governor, Reserve Bank of India https://t.co/zpBKBwh95V

— ReserveBankOfIndia (@RBI) December 8, 2021

2. The Indian economy has literally hauled itself out of one of the deepest contractions in the first quarter of 2020-21 to a position in which the GDP has expanded by 13.7 per cent in the first half of 2021-22, in alignment with our projection. In several sectors of the economy, pre-pandemic levels of output have been crossed. Inflation is broadly aligned with the target of 4 per cent, barring short-lived spikes. External financing requirements are very modest and strong buffers should withstand any global spillovers. Public finances have been strengthened by buoyant tax revenues. The Central and State Governments and the Reserve Bank of India (RBI) mobilised policy actions on an unprecedented scale and scope to bring about this outcome. Equally, the selfless and tireless efforts of our unsung warriors among municipal and local bodies; healthcare, police and administrative personnel; philanthropic entities; and civil society are praiseworthy. They remind us of a quote from Mahatma Gandhi: “The best way to find yourself is to lose yourself in the service of others”1. I think this pandemic truly brought India together and could just be the moment of India’s arrival as a global growth driver.

Also Read: RBI Monetary Policy: Rates unchanged, Das says growth good but economy needs support

3. Let me now turn to the deliberations of the Monetary Policy Committee (MPC) which met on 6th, 7th and 8th December, 2021. Based on an assessment of the macroeconomic situation and outlook, the MPC voted unanimously to maintain status quo with regard to the policy repo rate and by a majority of 5 to 1 to retain the accommodative policy stance. Consequently, the policy repo rate remains unchanged at 4 per cent, and the stance remains accommodative as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

The marginal standing facility (MSF) rate and the bank rate remain unchanged at 4.25 per cent. The reverse repo rate also remains unchanged at 3.35 per cent.

4. I would now like to dwell briefly on the MPC’s rationale for maintaining status quo on the policy rate and the stance. Noting that economic activity is broadly evolving in line with its assessment in October, the MPC was of the view that the sharp and sustained reduction in new COVID-19 infections and the rise in vaccination coverage are contributing to consumer confidence and business optimism. The prospects for economic activity are steadily improving, including for contact-intensive services that were hit hard by the pandemic. The MPC noted the supply side measures taken by the government to contain food prices as also the calibrated reductions in central excise duties and state VAT (value added taxes) on petrol and diesel. Crude oil prices have also softened since end-November. These would alleviate, to an extent, the domestic cost-push build-up.

5. The recovery of aggregate demand hinges on private investment, which is still lagging. The MPC regarded the accentuation of headwinds emanating from global developments as the main risk to the domestic outlook, which is now somewhat clouded by the Omicron variant of COVID-19. Moreover, given the slack in the economy and the ongoing catching-up of activity, especially of private consumption, which is still below its pre-pandemic levels, continued policy support is warranted for a durable and broad-based recovery. Against this backdrop, the MPC decided to retain the prevailing repo rate at 4 per cent and continue with the accommodative stance.

Assessment of Growth and Inflation

Growth

6. The NSO’s release on November 30, 2021 confirmed that the recovery of the Indian economy is gaining traction, with real GDP growth at 8.4 per cent, year-on-year (y-o-y), for Q2:2021-22 subsequent to 20.1 per cent in the preceding quarter. All components of GDP registered y-o-y growth, with exports and imports strongly surpassing their pre-COVID levels.

7. Incoming information indicates that consumption demand has been improving, with pent-up demand getting reinforced by the festive season. Rural demand is exhibiting resilience and farm employment is picking up with the robust performance of agriculture and allied activities, supported by a strong start to rabi sowing, continuing direct transfers under the PM-Kisan scheme and extension of free foodgrains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) till March 2022. Urban demand has also shown signs of strengthening, with spending on travel and tourism surging in the last few months. Other indicators like railway freight traffic, port cargo, GST receipts, toll collections, petroleum consumption and air passenger traffic have also picked up in October/November. The recent reductions in excise duty and state VAT on petrol and diesel should support consumption demand by increasing purchasing power. Government consumption is also picking up from August, providing support to aggregate demand.

8. Enabling conditions for a revival of investment activity are also falling into place. The production of capital goods remained above the pre-pandemic level for the third month in a row during September, while imports of capital goods increased by double digits during October for the eighth consecutive month. The Central Government’s relaxation of additional market borrowings by states equivalent to 0.5 per cent of gross state domestic product (GSDP) subject to certain capex related milestones and the decision to front-load tax devolution are likely to bolster capital outlays of the states. The government’s focus on capex should crowd in private investment, which has remained in a prolonged state of muted activity. Further, there has been significant deleveraging of corporate balance sheets amidst congenial monetary and financial conditions engendered by the Reserve Bank’s liquidity measures.

9. Overall, the recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable. This underscores the vital importance of continued policy support.

10. Downside risks to the outlook have risen with the emergence of Omicron and renewed surges of COVID-19 infections in a number of countries. Besides, notwithstanding some recent corrections, headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in global financial markets due to a faster normalisation of monetary policy in advanced economies, and prolonged global supply bottlenecks. Considering all these factors, the projection for real GDP growth is retained at 9.5 per cent in 2021-22 consisting of 6.6 per cent in Q3 and 6.0 per cent in Q4 of 2021-22. Real GDP growth is projected at 17.2 per cent for Q1:2022-23 and at 7.8 per cent for Q2:2022-23.

Inflation

11. Headline CPI inflation ticked up in October to 4.5 per cent from 4.3 per cent in September, after falling sharply between June and September. This uptick mainly reflected a spike in vegetable prices due to unseasonal rains in some parts of the country. Hardening international energy prices have kept domestic LPG and kerosene prices elevated for nearly three quarters, edging up fuel inflation to 14.3 per cent in October. The persistence of high core inflation (i.e., CPI inflation excluding food and fuel) since June 2020 is an area of policy concern in view of input cost pressures that could rapidly be transmitted to retail inflation as demand strengthens. In this context, the reduction of excise duty and VAT on petrol and diesel will bring about a durable reduction in inflation by way of direct effects as well as indirect effects operating through fuel and transportation costs.

12. The inflation trajectory is, therefore, likely to be in line with our earlier projections, and price pressures may persist in the immediate term. Vegetable prices are expected to see a seasonal correction with winter arrivals in view of bright prospects for the rabi crop. Supply side interventions by the Government have limited the fallout of continuing high international edible oil prices on domestic prices. Though crude oil prices have seen some correction in the recent period, a durable containment of price pressures would hinge on strong global supply responses to match the pick-up in demand as pandemic restrictions ease. Cost-push pressures continue to impinge on core inflation, though their pass-through may remain muted due to the slack in the economy. Over the rest of the year, inflation prints are likely to be somewhat higher as base effects turn adverse; however, it is expected that headline inflation will peak in Q4:2021-22 and soften thereafter. Taking into consideration all these factors, CPI inflation is projected at 5.3 per cent for 2021-22: 5.1 per cent in Q3; 5.7 per cent in Q4 of 2021-22, with risks broadly balanced. CPI inflation is then expected to ease to 5.0 per cent in Q1:2022-23 and stay at 5.0 per cent in Q2:2022-23.

13. Our monetary policy stance is primarily attuned to the evolving domestic inflation and growth dynamics. Yet, imminent shifts in monetary policy settings by systemically important global central banks are bringing about fresh challenges for domestic macro-financial stability in the form of spillovers. In such a scenario, domestic macro-fundamentals need to be resilient, with appropriate policy stances and actions, and strong buffers. In this context, a well-entrenched nominal anchor provided by the flexible inflation targeting framework has imparted credibility and flexibility to monetary policy to effectively address growth concerns during the pandemic. In the current situation, it is important to keep inflation aligned with the target while focusing on a robust growth recovery. Simultaneously, the Reserve Bank remains cognisant of the need to ensure that financial conditions are rebalanced in a systematic, calibrated and well-telegraphed manner while preventing build-up of financial stability risks. Price stability remains the cardinal principle for monetary policy as it fosters growth and stability. Our motto is to ensure a soft landing that is well timed.

Liquidity and Financial Market Conditions

14. The global context is evolving rapidly. Appearance of the Omicron variant has added to the complexity of the situation even as several economies are still battling the virus while others continue to deal with the lingering scars of COVID-19. As economies reopened, the spurt in catch-up demand has met with choked supply chains, shortage of key inputs and tightening labour markets. Combined with high energy and commodity prices, this has ignited long-dormant inflation in a number of countries, even before output has returned to pre-pandemic levels. Several central banks in both advanced and emerging market economies have begun unwinding from crisis-time policies as warranted by their own growth-inflation dynamics. Now, with fears of further restrictions on travel and activity, there is considerable uncertainty at this moment on how the growth-inflation dynamics will pan out in the immediate months. The financial conditions are turning increasingly volatile as a consequence.

15. The Reserve Bank has maintained ample surplus liquidity in the banking system to nurture the nascent growth impulses and support a durable economic recovery. This has facilitated swifter and more complete monetary policy transmission and the orderly conduct of the market borrowing programme of the Government. The Reserve Bank will continue to manage liquidity in a manner that is conducive to entrenching the recovery and fostering macroeconomic and financial stability.

16. In our endeavour to restore the revised liquidity management framework instituted in February 2020, the Reserve Bank has been rebalancing the liquidity surplus by shifting it out of the fixed rate overnight reverse repo window into the variable rate reverse repo (VRRR) auctions of longer maturity. The objective is to re-establish the 14-day VRRR auction as the main liquidity management operation. This rebalancing followed a pre-announced glide path whereby VRRR auction amount was progressively enhanced to Rs 6.0 lakh crore by December 3. In response to this increase, overnight collateralised money market rates have mildly firmed up in recent times. By and large, the rebalancing of liquidity has proceeded in a timely and non-disruptive manner as planned. It is also fulfilling its objective of strengthening the Reserve Bank’s control over the liquidity overhang which, in turn, reinforces the ability of the Reserve Bank to normalise liquidity conditions when warranted.

17. The Reserve Bank will continue to rebalance liquidity conditions in a non-disruptive manner while maintaining adequate liquidity to meet the needs of the productive sectors of the economy. With this objective, it is now proposed to enhance the 14-day VRRR auction amounts on a fortnightly basis in the following manner: Rs 6.5 lakh crore on December 17; and further to Rs 7.5 lakh crore on December 31. Consequently, from January 2022 onwards, liquidity absorption will be undertaken mainly through the auction route.
18. As announced earlier, the RBI has been conducting fine-tuning operations from time to time to manage unanticipated and one-off liquidity flows so that systemic liquidity conditions evolve in a balanced and evenly distributed manner. The RBI has also been conducting 28-day VRRR auctions. Going forward, the main operation of 14-day VRRRs will continue to be complemented by longer term VRRRs, the size and maturities of which will be decided on the basis of continuous assessment of the evolving liquidity conditions. The Reserve Bank also retains the flexibility to conduct fine-tuning operations of varying amounts/maturities as and when required. As I have repeatedly stressed in my statements and speeches, the endeavour of the Reserve Bank is to put in place an effective liquidity management framework that is consistent with an economy emerging out of the pandemic and having a nascent but strengthening recovery. The Reserve Bank also stands committed to undertake Operation Twists (OT) and regular open market operations (OMOs) as may be required for effective monetary transmission and anchoring of interest rate expectations in line with the evolving macroeconomic and financial conditions.

19. As a step towards rebalancing the liquidity surplus, it has now been decided to provide one more option to banks to prepay the outstanding amount of funds availed under the Targeted Long-Term Repo Operations (TLTRO 1.0 and 2.0) announced on 27th March and 17th April, 2020. It may be noted that banks have already prepaid Rs 37,348 crore in November 2020, which constituted about one-third of Rs 1,12,900 crore availed under the scheme.

20. The on-tap liquidity windows of Rs 50,000 crore for ramping up COVID-related healthcare infrastructure and services and Rs 15,000 crore for certain contact-intensive sectors will continue till their terminal date i.e., March 31, 2022.

21. Further, given that the usage of the MSF window has been rare due to surplus liquidity conditions, we propose to return to the normal dispensation under the MSF. Consequently, banks will be able to dip up to 2 per cent of net demand and time liabilities (NDTL) instead of 3 per cent for overnight borrowing under the MSF from January 1, 2022. This dispensation which was provided at the beginning of the pandemic had boosted market confidence at a crucial time.

22. Let me reiterate that we remain committed to our stance in support of our overarching priority at this juncture to broaden the growth impulses while preserving monetary and financial stability. We will also continue to encourage adequate flow of credit to all productive sectors of the economy.
Additional Measures

23. Based on our continuing assessment, certain additional measures are also being announced today. The details of these measures are set out in the statement on developmental and regulatory policies (Part-B) of the Monetary Policy Statement.

The additional measures are as follows:

Infusion of Capital in Overseas Branches and Subsidiaries of Banks and Retention/Repatriation/Transfer of Profits by these entities

24. At present, banks incorporated in India can infuse capital in their overseas branches and subsidiaries; retain profits in these centres; and repatriate/ transfer profits therefrom with prior approval of the RBI. With a view to providing operational flexibility to banks, it has been decided that banks need not seek prior approval of the RBI if they meet the regulatory capital requirements.
Discussion Paper on Review of Prudential Norms for Investment Portfolio of Banks

25. The extant prudential norms on classification and valuation of investment portfolio by scheduled commercial banks are largely based on a framework introduced in October 2000. In view of the significant developments since then in domestic financial markets and global standards/best practices in this area, a need has been felt to review and update these norms following a consultative process. In this direction, a Discussion Paper will be placed shortly on the RBI’s website for comments.

Discussion Paper on Charges in Payment Systems

26. Concerted efforts by all stakeholders have led to a significant increase in digital payments in recent years. There have, however, been some concerns on the reasonableness of various charges incurred by customers for digital payments through credit cards, debit cards, prepaid payment instruments (cards and wallets), Unified Payments Interface (UPI) and the like. It is proposed to release a discussion paper on various charges in the payment system to have a holistic view of the issues involved and possible approaches to mitigating the concerns so as to make digital transactions more affordable.

UPI: Simplification, Deepening and Enhancement of Limits

27. UPI is the single largest retail payment system in the country in terms of volume of transactions, indicating its wide acceptance, particularly for small value payments. In order to further deepen digital payments and make them more inclusive, ease transactions for consumers, facilitate greater participation of retail customers in various segments of financial markets and enhance the capacity of service providers, it is proposed to (i) launch UPI-based payment products for feature phone users, leveraging on innovative products from the RBI’s Regulatory Sandbox on Retail Payments; (ii) make the process flow for small value transactions simpler through a mechanism of ‘on-device’ wallet in UPI applications; and (iii) enhance the transaction limit for payments through UPI for the Retail Direct Scheme for investment in G-secs and Initial Public Offering (IPO) applications from ₹2 lakh to ₹5 lakh.
External Commercial Borrowing (ECB)/Trade Credit (TC) – Transition from LIBOR to Alternative Reference Rate (ARR)

28. At present, interest rates on ECB and trade credits are benchmarked to LIBOR or any other interbank rate applicable to the currency of borrowing. As we transition away from LIBOR, guidelines enabling use of any widely accepted interbank rate or alternative reference rate (ARR) for such transactions are being issued separately.

Concluding Remarks

29. Globally, economies are opening up and activity levels are reaching pre-pandemic levels. At the same time, the recurrence of COVID-19 waves in many parts of the world including the appearance of the Omicron variant, stubborn inflation and headwinds from continuing supply bottlenecks cast a shadow on the outlook. Given the evolving growth-inflation dynamics across countries, monetary policy is also reaching an inflection point, keeping financial markets edgy.

30. The Indian economy is relatively well-positioned on the path of recovery, but it cannot be immune to global spillovers or to possible surges of infections from new mutations including the Omicron variant. Hence, fortifying our macroeconomic fundamentals, making our financial markets and institutions resilient and sound, and putting in place credible and consistent policies will assume the highest priority in these uncertain times.

31. Managing a durable, strong and inclusive recovery is our mission. We need to be persevering, patient and persistent in our efforts. We also need to be aware, alert and agile to the new realities confronting us. Our efforts over the past one year and nine months have given us the confidence and a head start to face the challenges that lie ahead. To quote Nelson Mandela, “Part of being optimistic is keeping one’s head pointed toward the sun, one’s feet moving forward”2. Our journey ahead is clearer now and our mission is cut out. Let us work together towards a strong, stable and vibrant economy, inspired by the words of Mahatma Gandhi: “My success lies in my continuous, humble, truthful striving. I know the path. It is straight and narrow. It is like the edge of a sword. I rejoice to walk on it. …. he who strives never perishes. I have implicit faith in that promise….”.

Thank you. Stay safe. Stay well. Namaskar.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Equity outperformance raises concerns of overstretched valuations, says RBI article

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The November bulletin of the Reserve Bank of India’s (RBI’s) monthly impression of ‘The State of the Economy’ is crucial as it is the last report before the next monetary policy announcement on December 8.

The central bank is worried about the state of the equity markets. Of course, equity markets have been the outperformers in 2021 but that has led to “overstretched valuations”, the report said. A number of global financial firms have already pointed that out.

By traditional metrics like price to book and price to equity, it is high, but RBI also uses a metric called earnings yield that tells how much one is earning for the price paid for the share. Usually, the difference between the 10-year yield and the earnings yield tends to be 1.65 percentage points, but it has now expanded to 2.47 percentage points, the RBI pointed out. This means prices have really stretched compared to historical levels and that is a worry, according to the central bank’s report.

The October consumer price index (CPI) came in at 4.5 percent. The RBI report highlights that the CPI is over and above the October 2020 inflation of 7.6 percent, which is really high. Lead indicators coming for November from the Ministry of Consumer Affairs suggest that prices of cereals have still risen in the first 10 days of November whereas tomatoes, and onions continue to rage high. It must be noted October inflation was largely vegetables-led as vegetables have risen 14 percent month-on-month, a concern pointed out in the report.

Reflecting on the money absorbing instrument variable rate reverse repo (VRRR), RBI report said in the various variable rate reverse repo auctions, the yield has systematically gone up from 3.65 in early October to 3.91 in late October and to 3.95 on November 3.

It is to be seen that since the reverse repo auctions have already pushed up the yield, will the RBI raise the reverse repo in the December 8 policy. This is a doubt that comes to people who are reading the report to market participants.

The central bank’s report ends on a positive note saying India is better off than the global economy. “We have at least a steady recovery and falling infection rate as of now, whereas the world is still beset with rising inflation, very sharp inflation in the US, and rising infections and supply disruptions. But that could also mean that global central banks could tighten faster than expected however, India is resilient,” it said.

However, this time Deputy Governor and MPC member Michael Patra who usually writes the report did not write it.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI policy today: Economists expect status quo on rates, move towards pre-pandemic liquidity framework

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With less than 3 hours to go for the Reserve Bank of India’s monetary policy decision, it’s all boiling down to whether it will be a dovish hike or a hawkish pause. If they hike the rates, they will sound very dovish on the economy and in the future normalisation. If they don’t hike, but keep rates as is, then they will be a little hawkish in how they normalise.

To parse the economy and the Monetary Policy Committee’s actions, CNBC-TV18 caught up with economists, Abhishek Upadhyay, Senior Economist, ICICI Securities Primary Dealership; Saugata Bhattacharya, Chief Economist, Axis Bank; and Pranjul Bhandari, Chief India Economist, HSBC.

When asked how the economy has changed compared to what it was when the MPC met in August, Bhattacharya said the signals are muddled. On the one side, there are signs that the economy has stabilised leading indicators in September, based on a small set, which seems to suggest that we are past the pre-COVID levels. But on the other side, many risks have arisen in the system. One is the global environment, particularly China. Exports were a very significant engine of growth when the MPC had met last in August, and that remains a concern because with China leading and some of the growth signals that we are seeing from the other developed markets, how much exports will continue, he added.

Domestic conditions, particularly now with the government appearing to spend more, domestic demand conditions might look a little better, if not immediately but over the next couple of months, particularly with the capex cycle moving up with government spending, with exports continuing for, at least for some time. The overall situation is that there are still many risks and they still maintain a 9.5 per cent growth forecast, but the risks are to the downside, said Bhattacharya.

On inflation, Bhandari said last time, the RBI had a very high patient forecast. However, inflation remains a big worry and does not think that the high commodity prices that we have seen through this year have been fully passed through consumers.

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“Our own sense is that the big companies who have gained pricing power in this pandemic have passed it on, but the medium and small companies haven’t yet and now when they face another round of energy price increases, it will be very hard for them to take it on their bottom line and my sense is that as you know, vaccination rates rise, demand picks up, they will get the confidence of passing on more to consumers, and that would lift core inflation, which has been high through the pandemic, it’s been 5 per cent or more and that is where the real pressure lies,” she said.

She added that we won’t see this in the numbers in the next three months because next three months we have a favourable base protecting inflation. But it is there in the system and anybody who tracks month-on-month will see it and the RBI will not be able to escape it come January.

There has been Rs 11.9- 12-lakh crore surplus liquidity and daily absorption is at Rs 8.5-lakh crore. So, what do you expect RBI to do about liquidity? Upadhyay said, all the decisions which fall under the purview of MPC, we don’t expect any tweaks there for repo rate, accommodative stance or forward guidance for accommodative stance. It is RBI that needs to walk back some of the exceptional accommodation it has delivered in the pandemic.

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“Broadly three areas of focus for us in the policy in that context. Firstly, the G-SAP programme, RBI would vary of adding further liquidity. So, we would expect the G-SAP programme to be converted to a twisted kind of programme. This is already reasonable evidence that RBI is leading to that site based on their decision to convert the last two tranches of G-SAP 2 into twist options,” he said, adding that they would expect RBI to scale back the size of the programme itself. It was 1,20,000 crores in the last quarter this could come down by Rs 50,000 or Rs 60,000 crores which would mean a monthly average buying of about Rs 15,000 to 20,000 crores.

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According to us, we may not get a quarterly schedule now and it is possible that RBI transitions to a monthly kind of programme, which would then give them the flexibility to transition to ad-hoc purchases either before or around the next policy or later.

The second thing is from a money market standpoint where already if you see money market yields have risen by about 20 to 30 basis points over the last month, primarily account of some high cut-offs we got in the variable rate reverse repo (VRRR) auctions. But we would expect RBI to continue to move towards its pre-pandemic liquidity framework, where they were withdrawing the majority of banking system surplus through VRRRs.

Currently, they are absorbing about 5.5 trillion through that route. We would expect, you know, that increases to around 7 trillion by the time of next meeting, said Upadhyay.

Finally, the macro forecasts which were discussed earlier, we don’t think there will be any change to the growth forecast that stays at 9.5 per cent. There have been some comments by the Governor and the Deputy Governor recently in their speeches to that effect. The inflation we have to see but we expect fully a number to be revised down based on favourable surprises and October-December number will be lower. But we don’t expect any major tweaks to January-March numbers or April-June numbers that they have printed, Upadhyay stated.

When asked what they expect in terms of rates and liquidity.

Upadhyay said they do not expect a change in reverse repo rate, which is the effective policy rate right now and bigger absorption through VRRRs.

Bhattacharya said G-SAP cut back, won’t make an impact on yield, the borrowing programme is much smaller. So, no change in rates but they will reduce the amount of G-SAP absorption.

Also Read | Rbi Monetary Policy Highlights: Mpc Maintains Status Quo; Gdp Growth Forecast Unchanged At 9.5%, Revises Cpi Inflation Outlook To 5.7% For Fy22 

Bhandari said no change in rates. G-SAP programme to be suspended from here on and announce more VRRRs.

For the full discussion, watch the video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow