All members of the Monetary Policy Committee expect inflation to soften

Apart from the unanimity among them in cutting short-term interest rates by 25 basis points, all members of the Monetary Policy Committee also felt inflation would soften thanks to good monsoon rains, along with signs of an economic revival.
The minutes of their meeting of 3rd and 4 October 2016, released on Tuesday, suggest the members also felt the rate cut was consistent with an accommodative stance of the policy to keep retail inflation within a band of 4%, plus or minus two percentage points, while supporting growth.
"The committee expects the strong improvement in sowing, along with supply management measures, will improve the food inflation outlook," as per the minutes of the meeting.
"It notes that the sharp drop in inflation reflects a downward shift in the momentum of food inflation -- which holds the key to future inflation outcomes -- rather than merely the statistical effects of a favourable base effect," it said.
"The momentum of growth is expected to quicken with a normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to the urban consumption spending from the pay commission's award," it added.
"The accommodative stance of monetary policy and comfortable liquidity conditions should support a revival of credit to the productive sectors."
The six-member committee has Reserve Bank of India (RBI) Governor Urjit Patel as chairman and the central bank's Deputy Governor R. Gandhi and Executive Director Michael Patra, as the institution's representatives.

Durign the meeting, RBI Governor Dr Patel stated that indicators of economic activity pointed to a subdued outlook, though gradually improving; further, continuing low capacity utilisation in industry and the persistence of the output gap suggested that pricing power is likely to remain low. "...while our model-based projections indicated upside risks to the target, a calibrated policy judgement was warranted, given that some space for policy action had opened up with the fall in inflation in the August reading. Nonetheless, inflation outcomes in Q4 will have to be carefully and continuously monitored as upside risks, albeit lower now than before, persist," he added.
The three outside experts are: Dr Chetan Ghate, Professor at Indian Statistical Institute; Dr Pami Dua, Director at the Delhi School of Economics; and Ravindra Dholakia, Professor at the Indian Institute of Management, Ahmedabad.

Dr Ghate stated that in view of a good monsoon, a decline in food inflation and better food supply management by the government, there has been some abatement of both cyclical and structural risks to the March 2017 consumer price index (CPI) inflation target. "With persistent slack in the economy evidenced by unutilised capacity over the past few years, corporate pricing power remains weak. The persistence of core inflation remains a concern. While I recognise that upside risks to meeting the objective of 5 per cent CPI inflation by Q4 of 2016-17 remain, given the current juncture, these are acceptable risks. Expectations of future inflation at the monetary policy horizon, as evidenced by the survey of professional forecasters, are closer to the inflation target, which is also expected to contribute to low and stable inflation," he added.

According to Dr Dua the modest softening of inflation and inflation expectations seen in some of the surveys conducted by the Reserve Bank, along with lacklustre private investment spending and unused capacity, provides a window for a reduction in the policy rate. Dr Dua says, "...while RBI's Industrial Outlook Survey suggests some increase in input price pressures in the manufacturing sector in the short-run, this is not expected to transmit to higher selling prices. On the other hand, input cost expectations are muted in the infrastructure sector. Additionally, the Survey of Professional Forecasters suggests anchoring of inflation expectations. In this backdrop, I feel that it is a good time to support growth by reducing the policy rate."

Dr Dholkia felt that some of the upside risks to inflation discussed in the MPC meeting, particularly arising out of the award of the 7th Pay Commission, were largely statistical. "Looking forward, in my opinion, the probability of inflation turning up from the current level is reasonably less. On the other hand, there are good chances for the consumer inflation to soften further substantially, benefiting from a good monsoon, supply management measures of the Government and ongoing reforms gaining traction in terms of reducing costs and improving output response," he added.

Dr Patra says, "...while staying focused on the path of disinflation set out in previous monetary policy statements, it is, in my view, most timely now to reduce the policy rate by 25 basis points and drive the actualisation of the macroeconomic configuration that seems to be forming - a reasonable probability of inflation converging to its target and the economy poised on the threshold of an acceleration of growth in the next three quarters of the year. It is crucial, however, to step up vigil around the upturn in inflation projected in the last quarter of 2016-17 to guard against any risk to the target."

Mr Gandhi of the RBI felt that while the pace is expected to gain gradual momentum, the private investment cycle remains depressed and is yet to respond adequately to the improving consumption demand. He said, "Recent data on production of capital goods, imports of capital goods and flow of credit to industry indicate the weak state of investment demand. In this environment, a rate cut according to me will help in stimulating investment demand while also easing somewhat the pressure on firms stemming from balance sheet repairs."

The committee, during its first meeting, cut a key lending rate by 25 basis points, bringing much relief to commercial banks and India Inc.
With that decision, the repurchase rate, or the short-term lending rate charged by the central bank on borrowings by commercial banks, was lowered to 6.25%, while the reverse repurchase rate automatically stood adjusted to 5.75%.



Govinda Warrier

6 days ago

There is a conscious effort on the part of government to broad-base decision making and infuse professionalism in processes, as is evident from the accommodative approach to RBI’s views on MPC and choice of government nominees from among the best available experts in the field.
The newly constituted MPC, going by the profiles of its 6 members is a professional body of experts, each member capable of applying his/her mind while participating in deliberations. RBI is known for allowing free expression of views in In-house meetings. During the Technical Advisory Committee days, though the final call was to be taken by the Governor, he benefit of individual perceptions expressed by the TAC members had helped decision-making to a great extent. Since the time the constitution of MPC was announced, a section of analysts has been apprehensive of MPC dividing itself into Team A(RBI) and Team B (GOI) and voting for constituency interests, making casting vote by Governor essential to take decisions. This uncharitable lament brings disgrace to the professional integrity of individual members.
We need to give a fair chance to MPC to evolve itself as an expert body unburdening the RBI Governor from individual responsibility for every policy decision.
Dr. Rajan during his tenure as Governor felt that, for all the unpalatable monetary policy decisions taken by the RBI by virtue of its position, the Government, the Finance Ministry, the Industrialists, Public Sector banks, and common man, affected by the decision were critical of RBI. The Governor had to bear the brunt of the attack as though he had done great injustice for his personal gains. Such a perception might have worked in favour of his support for a formal committee approach to decision-making, more than the half-baked recommendations on the subject by FSLRC.

Nifty, Sensex may continue to rally – Tuesday closing report
We had mentioned in Monday’s closing report that Nifty, Sensex were due for a bounce back. The major indices of the Indian stock markets soared on Tuesday and closed with gains of around 1.85%-1.89% over Monday’s close. The trends of the major indices in the course of Tuesday’s trading are given in the table below:
Value buying, coupled with broadly positive global indices and a strengthened rupee lifted the Indian equity markets during the mid-afternoon trade session on Tuesday. Besides, higher global crude oil prices and hopes of healthy quarterly results supported the upward trajectory at the key indices. On the NSE, there were 1,110 advances, 362 declines and 48 unchanged. On the BSE, there were 1,904 advances, 925 declines and 208 unchanged.
According to market analysts, IT (information technology), banking and pharma stocks traded firm. However, oil-gas stocks faced resistance at higher levels due to profit booking. Media-entertainment, FMCG, cement and power stocks witnessed some recovery due to short covering. 
Global credit rating agency Moody's Investors Service on Tuesday said the draft bill on the resolution of financial firms in India is a credit positive for banks in the country as it enhances overall systemic stability. In a statement Moody's said it is an important step to having a comprehensive framework in place for the resolution of financial firms. "Currently, the resolution of financial firms in India is based on minor parts of legislation enacted for other purposes," said Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.
China's central bank on Tuesday pumped 80 billion yuan ($11 billion) into the money market via seven-day and 14-day reverse repos, after draining 174.5 billion yuan on Monday. The reverse repos is a process by which central banks purchase securities from banks with an agreement to sell them back in the future, Xinhua news agency reported. Data from Wind, a financial information provider, showed that a total of 90 billion yuan was purchased by the central bank on Tuesday, meanwhile there is 132 billion yuan of medium-term lending facility (MLF) and 80 billion yuan of treasury cash deposit at maturity.
The Odisha government on Monday said it would issue a notification for e-auction of four mines in the state within two-three days. "Once the notification is issued, the bidders would be invited to participate in the e-auction process," said Steel and Mines Minister Prafulla Mallick. He said three limestone mines and one manganese mine located in Rayagada, Nuapada and Malkangiri districts would be auctioned. He said reserve and bidding price of these mines has been decided.
The top gainers and top losers of the major indices are given in the table below:
The closing values of the major Asian indices are given in the table below:


How a USD15 device can hack US presidential election
During its "Hack the Vote" election simulation, cyber security firm Symantec has revealed three easy ways an attacker with the right level of intelligence and motivation could impact the US presidential election and it will cost just $15.
To analyse the ecosystem of an election -- from electronic voting machines to data transfers, vote tabulation and broadcasting the results -- the company tested the actual direct-recording electronic (DRE) voting machines and other equipment to simulate a real-world voting system. 
According to the general process, voters use a chip card to cast their vote. Once someone has voted, the same card is re-used by the next voter. 
"Just like credit cards, these cards are essentially a computer with its own RAM, CPU and operating system. Which means they can be exploited like any computing device," the company said in a statement.
"In examining the election process for vulnerabilities, we discovered that there's an opportunity for a hacker to modify the code put on a voter's chip card. Anyone who knows how to programme a chip card and purchases a simple $15 Raspberry Pi-like device, could secretly reactivate their voter card while inside the privacy of a voting booth," added Symantec.
The card can be faked in two different ways -- one, reset the card to allow someone to vote multiple times using the same chip card and second, programming the card to allow multiple vote casting. 
"There was no form of encryption on the internal hard drive of the voting machines we purchased, which were running an outdated operating system to display the ballots and record votes," Symantec found.
The second method to influence the votes is tampering with tabulation. 
All the votes are registered in the voting and attackers could compromise the integrity of the voting data by manipulation of cartridges as these storage cartridges function like a USB drive which stores data in plain text with no embedded encryption. 
Thirdly, by propagating misinformation on social media networks, a hacktivist or attacker could also change voter behaviour.
Symantec said that these vulnerabilities can easily be fixed by installing security software at all points of the process. 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.


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