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RBI holding interest-rates: Despite positive signs, Raghuram Rajan sticks to dovish stance

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RBI
By Gaurav Sharma

At the bi-monthly review of RBI’s monetary policy today, Raghuram Rajan, the Central bank governor announced his decision to keep interest rates unchanged at 7.25 per cent, maintaining status-quo of RBI’s cautionary stance towards easing the economic environment in the country.

The announcement came in the backdrop of an uncertain monsoon season and a sudden surge in inflation (both food and non-food inflation) along with the spiraling down of global oil prices.

As of now RBI’s Consumer Price Index (CPI) inflation forecast for January 2016 stands at 6 per cent, down a notch from its prediction two months ago. On the other hand, growth expectation for the current year stands at 7.6 per cent.

“We held the policy rate of 7.25 per cent as we await data on whether the recent increases in inflation, including non-food are temporary and whether the monsoon will continue to be near-normal”, remarked the RBI governor in his media interaction.

Another factor which has had a bearing on Rajan’s decision to hold the interest rates is that the effects of transmission of three rate cuts implemented by RBI since January this year, are yet to actualize.

The repo rate (the rate at which the RBI lends to other commercial banks in the country) has been reduced by a combined 75 basis points since January. A basis point is one hundredth of one percentage point.

Following the decision, investors at Dalal Street turned cautious, resulting in the Sensex and the Nifty snapping a four-day winning streak. Both indices shed half-a-percentage point, closing at 28,071 and 8516 points respectively.

While RBI has been forthright in stating the necessity of determining interest rates based on a medium-term view and an emphasis on ensuring stability of the economy, there have been calls for a reduction in interest rates from market players, such as industrialists, businessmen and consumers alike.

Monsoon has so far vitiated concerns of a below-average crop in the agriculture sector. Investment flows have been tardy, both in infrastructure and plant and machinery. The policy statement itself highlighted a decline in lending rates, which as per the RBI noting, has led to an escalation in the inflation-adjusted growth in credit this year.

The writing is clear on the wall. The signals should serve as an impetus for the RBI governor to lower down interest rates yet he has decided to hold his horses before announcing any further cooling down of interest rates.

Meanwhile, the fracas caused by the standoff between the Indian government and the RBI Governor over who should be responsible for the determining the interest rates has subsided. In this regard, Raghuram Rajan’s decision to accept the government’s proposal of a Monetary Policy Committee (MPC) is laudable.

The landmark decision will result in stripping the Governor’s veto power over interest rates and holds the prospects of sparking a domino effect; decentralization of the current modus operandi of the Central Bank besides reducing pressure on an individual for making a critical economic decision.

Concerns raised by financial experts over a clampdown on the independent functioning of the RBI have now been put to rest by the Governor himself.

The transmission problem has been a rather pricking issue for some time now. It cannot (and should not) be used as a ruse to procrastinate lowering of interest rates. Rajan should be the first person to sort out the kinks in that department.

As far as the issue of bad loans (bad debt) is concerned, it is the prerogative of the Indian government to bring in a Bankruptcy Code so that both infrastructure companies and banks are freed from bad loans, lenders can stem their losses and the locked-up assets can be redeployed elsewhere.

Still, however, keeping in mind the overall situation of the economy, it is surprising that Rajan has chosen to stick to his dovish stance on interest rates. As an economist of high repute, Rajan should be bold and forthright in making the decision to lower interest rates.

 

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Raghuram Rajan’s Name in Clarivate List of Nobel Prize Worthies

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Rahuram Rajan
Former RBI governor Raghuram Rajan. ians

New Delhi, Oct 7: Former Reserve Bank of India (RBI) Governor Raghuram Rajan’s name figures in this year’s list of possible winners of Nobel Prize in economics brought out by Clarivate Analytics.

The economics prize will be announced in Stockholm on Monday, according to Nobelprize.org.

Clarivate Analytics, earlier a Thomson Reuters unit, publishes a list of possible Nobel Prize winners based on research citations, ahead of the formal announcement by the Nobel committee.

Raghuram Rajan is currently the Katherine Dusak Miller Distinguished Service Professor of Finance at the Booth School of Business, University of Chicago.

Giving the list of six possible candidates for the economics Nobel, Clarivate said these were Citation Laureates — standouts whose research is clearly “of Nobel Class” according to its significance and utility, as attested by markedly high citation tallies recorded in the Web of Science.

According to information available on Clarivate’s website, in the last 15 years, 45 of the selected researchers had gone on to receive a Nobel — nine in the same year in which they were tipped by Clarivate and 18 within two years of the distinction.

Raghuram Rajan’s three-year term as RBI governor ended on September 4, 2016.

Exactly one year after his term as RBI governor came to an end, Rajan published a book with his “commentary and speeches” to convey what it was like to be at the helm of the central bank in “those turbulent but exciting times”.

Rajan, who was considered a vocal RBI Governor, in his book “I Do What I Do” said The demonetisation tool used by the Indian government to drive out black money could have long-term benefits but its short-term economic costs would outweigh them.

“I was asked by the government in February 2016 for my views on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them, and felt there were potentially better alternatives to achieve the main goal,” he wrote.

The Indian government undertook the demonetisation drive on November 8, 2016 by banning high denomination Rs 1,000 and Rs 500 notes.

Raghuram Rajan is said to have predicted the 2008 market crash caused by the housing market crisis in the US that put its economy into deep recession and set off a global slowdown.

In 2011, he published the acclaimed “Fault Lines” on how hidden financial fractures threaten the world economy.

He has won the British magazine Central Banking’s Central Banker of the Year award for his handling of the rupee crisis in 2013 and bringing back foreign investors to the country.

A graduate of the Indian Institute of Technology, Delhi, Raghuram Rajan served as visiting professor at Stockholm School of Economics and at Kellogg School of Management.

He was also a visiting professor at MIT Sloan School of Management.(IANS)

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Key Indian Indices traded in Green: Healthy Buying witnessed in Oil and Gas, Banking and IT Stocks

The wider 51-scrip Nifty of the National Stock Exchange edged up by 27 points or 0.33 per cent to 8,155.75 points

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Indian Currency. Pixabay

Mumbai, December 6, 2016: Hopes of a monetary policy easing, coupled with broadly positive global cues, along with rupee appreciation marginally lifted the Indian equity markets during the mid-afternoon trade session on Tuesday.

The key Indian indices traded in the green, as healthy buying was witnessed in oil and gas, banking and IT stocks.

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The wider 51-scrip Nifty of the National Stock Exchange (NSE) edged up by 27 points or 0.33 per cent to 8,155.75 points.

The barometer 30-scrip sensitive index (Sensex) of the BSE, which opened at 26,403.62 points, traded at 26,432.73 points (at 1.45 p.m.) — up 83.63 points or 0.32 per cent from the previous close at 26,349.10 points.

The Sensex has touched a high of 26,502.43 points and a low of 26,393.99 points during the intra-day trade so far.

The BSE market breadth was skewed in favour of the bulls — with 1,633 advances and 828 declines.

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“The markets traded on a flat-to-positive note following largely positive global indices and the rupee gaining momentum,” Astha Jain, Senior Research Analyst at Hem Securities, told IANS.

“Investors’ sentiments are buoyant on the hopes of a repo rate cut by the RBI by 25 basis points.”

According to Dhruv Desai, Director and Chief Operating Officer of Tradebulls, IT, oil-gas, cement and power stocks traded with firm sentiments.

“However, banking, pharma, textile and aviation stocks traded with bearish sentiments,” Desai said.

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“Auto and media-entertainment stocks witnessed resistance at higher levels due to profit booking.”

On Friday, the equity markets closed on a higher note, as investors’ sentiments were buoyed on hopes of a monetary policy easing and positive global cues.

The barometer index was up 118.44 points or 0.45 per cent , while the NSE Nifty rose by 41.95 points or 0.52 per cent. (IANS)

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Blame Game continues as UK Citizens are only left with Brexit to counter their problems

A major move made by the ‘The United Kingdom of Great Britain and Northern Ireland’ challenging the aim of integration.

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Representational Image, Brexit. Image source: www.catholicherald.co.uk
  • UK is in the state of mourning and there’s an atmosphere of politic toxicity
  • Brexit was a boiling pot waiting to explode, that the resentment of the public in UK had reached its ‘Breaking Point’
  • There’s a petition doing the rounds that is demanding for a second EU referendum

Brexit- Britain exit- a final act by the UK to seal shut their borders, to put an end to the growing fears of Terrorism, to retain the 350 mn pounds a week, which went as Membership fees to the EU and well, to be in charge of making their own laws and relationships. All the above and then some more were the reasons cited by some civilians and the far right parties for being Pro-Brexit.

There are always two sides to a coin. In this case there was a side, which resulted in Sensex plummeting down, Pound dropping down to levels not seen since 1985 and then the silver lining -Immigration being controlled. And then there was the side of the progressive citizens, the ones believing in Co-operation and not confrontation, a side, which believed in pulling together because without immigrants UK will collapse. On Thursday, June 23, UK saw the former being voted by 51.9% of the population.

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Currently, UK is in the state of mourning and there’s an atmosphere of politic toxicity. While the world was still trying to wrap their head around the recent separation, David Cameron, British Prime minister announced his resignation saying, “I do not think it would be right for me to try to be the captain that steers our country to its next destination”. Nigel Farage, leader of the UK Independence Party publicly retracted his claim that there’d be £350M a week set out for NHS (National Health Service) after the outcome of Brexit, after 17 million people voted to leave, some solely based on that piece of information. And all of the above happened in 24 hours. Phew!

Brexit (Representational IMage) Image source: The Street
Brexit (Representational IMage) Image source: The Street

Some would argue that Brexit was a boiling pot waiting to explode, that the resentment of the public in UK had reached its ‘Breaking Point’- headline of a controversial poster showing a vast queue of refugees which was unveiled by Nigel-and that the wrong doing of the government, the unemployment scene and the anti-immigrant feeling, all of it together had resulted in what UK stands as today. Separated but failed.

Impact on the Indian Market

“India remains a haven of stability in the risk environment” says Jayant Sinha, Minister of State for Finance. Even as he spoke, the fact that Brexit knocked off Rs. 4 Lakh crore from Indian Stock market remained a fact. Tata Motors and Tata Steel have the most significant exposure to UK and fell over 10% on Thursday,June 23, due to Brexit snowball effect. Needless to say Indian owned Businesses in the UK would also feel the heat.

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Situation Today

There’s a petition doing the rounds that is demanding for a second EU referendum. This petition was introduced by William Oliver Healey and it reads, “We the undersigned call upon HM Government to implement a rule that if the Remain or Leave vote is less than 60 per cent based a turnout less than 75 per cent there should be another referendum.” It’s already signed by more than a million people and the numbers just seem to be going up. The response of the Government on the above matter is still pending.

As of now we can simply go by the statement, ‘The British people have spoken and the decision shall be respected.’

-This report is compiled by a Staff-writer at NewsGram.

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