Economy
RBI keeps repo, CRR, and other key rates unchanged

While keeping key rates unchanged, the RBI said India is currently caught in a classic ‘impossible trinity’ trilemma whereby it has to forfeit some monetary policy discretion to address external sector concerns
 

The Reserve Bank of India (RBI), in its first quarter credit policy review has kept repo, reverse repo, cash reserve ratio (CRR) and bank rate unchanged. The central bank said India is currently caught in a classic ‘impossible trinity’ trilemma whereby it has to forfeit some monetary policy discretion to address external sector concerns.

 

"The recent liquidity tightening measures by the Reserve Bank are aimed at checking undue volatility in the foreign exchange market and will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling monetary policy to revert to supporting growth with continuing vigil on inflation.  It should be emphasised that the time available now should be used with alacrity to institute structural measures to bring the CAD down to sustainable levels," the central bank said in a statement.

 

With no change in key policy rates, the repo rate (the rate at which the RBI lends money to banks) remains at 7.25%. Similarly reverse repo rate (the rate at which the RBI borrows from banks), CRR, and bank rate remains at 6.25%, 4.00% and 10.25%, respectively.

 

Repo Rate.......................7.25%

Reverse Repo Rate..........6.25%

CRR.................................4.00%

Bank Rate......................10.25%

 

The central bank said its monetary policy stance over the last two years has predominantly been shaped by the growth-inflation dynamic even as external sector concerns have had a growing influence on policy calibration over the last one year. “The current situation – moderating wholesale price inflation, prospects of softening of food inflation consequent on a robust monsoon and decelerating growth – would have provided a reasonable case for continuing on the easing stance. However, India is currently caught in a classic ‘impossible trinity’ trilemma whereby we are having to forfeit some monetary policy discretion to address external sector concerns,” the RBI said.

 

The trilemma refers to the difficulty of simultaneously having free capital movement, a stable exchange rate and an independent monetary policy.

 

DK Aggarwal, chairman and managing director of SMC Investments and Advisors, said, "By announcing the measures twice this month to curb deceleration in rupee, it has become quite evident that RBI is not going to cut rate and that only happened in today policy review meeting. The past cuts also did not get transmitted meaningfully in the banking system because of rise in delinquency rates and overall deficit in the banking system. And now with the shift in policy stance we expect RBI to cut rates with a lag of three to six months."

 

"Looking at the other side of the coin, let us suppose even if RBI cut rates, then also banks would not reduce rates as now there would be shortage of funds of more than 1% of net demand and time liabilities. The recovery is yet to gather momentum and as a result of which more pain in terms of rise in non-performing assets (NPAs), fall in government revenues from the levels at which they are budgeted, may happen," Mr Aggarwal added.

 

RBI also lowered the gross domestic product (GDP) forecast to 5.5% from 5.7% and headline inflation to 5.1% from 6% for the fiscal year ending March 2014 and said that monetary policy stance would again shift towards supporting growth when normalcy returns in foreign exchange market.

 

Industry body, Confederation of Indian Industry (CII) feels that the moderation of growth outlook by the RBI is a matter of great concern and this enforces its view that actions on multiple fronts are required to help the economy revive.

 

"We have shared with the Government our concerns about the high Current Account Deficit and these concerns call for financing measures, but more importantly, we need to ensure that we are able to establish a very competitive manufacturing sector. Our exports need to increase exponentially and with a strong manufacturing sector we should be able to obviate the need for many imports, which could be very well manufactured within the country" said Kris Gopalakrishnan, president, CII.

 

Through 2012-13, the Reserve Bank persevered with efforts to address growth risks with a 100 basis points (bps) reduction in the repo rate, supported by policies to ease credit and liquidity conditions through a 75 bps reduction in the CRR, 100 bps reduction in the statutory liquidity ratio (SLR) and open market operation (OMO) purchases of about Rs1.5 trillion.

 

During May this year, the central bank continued with its easing stance with a reduction in the policy repo rate by a further 25 bps to support growth in the face of gradual moderation of headline inflation. With upside risks to inflation still significant in the near term, however, the Reserve Bank indicated that it saw little space for further policy easing and warned that risks because of the CAD could warrant a swift reversal of the policy stance. In its mid-quarter review of June, the Reserve Bank paused its policy easing. This policy stance was informed by the need to wait for a durable receding of inflation and to be prepared for the impact of growing uncertainty in global financial conditions.

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COMMENTS

Dayananda Kamath k

4 years ago

it appears to be subbaraos rehabilitation policy after the end of term. the finance minister whose election petition is still pending has declared the policy one day in advance and another tota rbi after cbi has reiterated it.it has given wrong signal to the fiis

REPLY

Vinay Joshi

In Reply to Dayananda Kamath k 4 years ago

Mr.Dayananda Kamath K,

You have no comments on Q1 RBI review, its policy rate declaration & its implications.

FYI, Dr.Duvvuri Subbarao, HAS HIMSELF ruled out an extension.

FYI, he is not the stooge of North Block!? He has proved himself.
That's the reason he had had an earlier 2yr extension, single handedly INSULATING THE INDIAN ECONOMY in the aftermath of US 2008 crisis!

Today, July 31, US 2Q13 GDP figures are out, 1.7% growth against 1.1% predicted [of course job employment figures will be out on Aug2]. This can reflect FED moves.

One should appreciate, w/o Govt. support, is battling to reverse the crashing economy, SUPPORT the rupee to WARD off volatility, [not targeting ex-rate], inflation.

In contrast Ben Bernanke is struggling to pull back the billions poured over the years.
[in fact in one of my int'l post i had put 'will the hypothetical $trn coin be a possibility'!? It can't, the idea was mooted.]

So Mr.Dayananda Kamath K, answer on policy rate.

Regards,

Dayananda Kamath k

In Reply to Vinay Joshi 4 years ago

the answer is in your own reply.since he is not getting extension he has to be rehabilitated.so he has followed his masters voice by not changing the rates. but what it has done is he has sent a wrong signal to the market.when he says that the policy aim is to stabilise rupee. on the anouncement rupee has weekened further.it is just like changing guidelines of gold import now they have made it free because there is no mechanism to check the violators.and banks are free to allow imports.by a footnote that all past guidllines on gold import stand withdrawn.which will allow third party lc by nominated agencies to import gold which was banned by rbi.because indians are good at finding loopholes in rules and encash. even for banning it rbi took almost 5 years from my reporting these violations. and strangley rbi did not initiate any action on violaters. but i had to fae lot of harrassment for bringing out these irregularities. now also not changing rates but incerasing cost of borrowing of banks by almost 2% who is going to be benefitted. only hni and cash rich companies geting higher interest on cd and ordinary depositors will not get higher interest. they will charge lower interst to favoured ones and exorbitantly to other borrowers. india did not had the financial crisis then why india should have follwed cheap money policy of the effected countries. that is the reason for tdays problem and now the borrowers are unable to honour their commitments. the main reason for any financial crisis and scams is real estate rates.and in india banks are giving cheap loans for housing and costliest for manufacturing. then were can be growth? it will only help in generating black money and inflation. which is what our ruling class wants as they have the controll as well as can manipulate land holdings.

Vinay Joshi

In Reply to Dayananda Kamath k 4 years ago

Dear Mr.Dayananda Kamath K,

I had no inclination to reply to you on a stale subject a week later. But I’m putting up things in perspective. [i seldom have time for these things.]

FYI, its evident that you don’t follow macroeconomic scenario.

Secondly had the present respected RBI Guv; not been at loggerheads with the North Block there would have been a detrimental cumulative cascading effect. [to repeat he is the same person who insulated the Indian economy post US crisis with his STRINGENT policies, unwavering, AS OF NOW.]

CAN YOU SUBSTANTIATE WHAT THE FIN/MINISTER SAID & WHAT WAS POLICY ANNOUNCEMENT? Next day! YOU HAVE TO STATE IT. [ref yr post a week back.]

FYI, RBI, beyond your comprehension you’ve commented to prove your understanding.

FYI, the present Guv, rehabilitation aspect does not arise, to toe the Govt. line, DISRECPECTFULLY STATED BY YOU AS ‘TOTA’.

FYI, PC HAD ASKED HIM TO CONTINUE TILL YEAR 2014, BUT FIRST HE SENT A MSG FROM HIS MOSCOW ADDRESS [G20 Finance Heads] THAT NO MORE WOULD HE LIKE TO CONTINUE!? As a scholar he will be visiting professor as he professed.

WHAT YOU FOLLOW IS ONLY – changing rates!? WHAT DO YOU UNDERSTAND ON RATES? WHY HAVE YOU NOT COMMENTED ON MY EARLIER POST ON EFFECTIVE RATE?!

MR.DAYANANDA KAMATH K , I HEREBY ASK YOU WHAT IS THE RATIONAL OF CHANGING RATE?!

C’MON ANSWER ME IF YOU CAN, IF AT ALL! 25 BPs POLICY & SO CRR RATE CUT THEN WHAT WAS THE SIGNAL?!?

TO UNDERSTAND, TO COMMENT ONE HAS TO HAVE THE INTRICATE KNOWLEDGE!

DO YOU UNDERSTAND THE MECHANISM OF EFFECTIVE POLICY RATE?!

IT CAN BE UNDERSTOOD ONLY BY THOSE WHO CAN UNDERSTAND IT!

DO YOU KNOW WHAT IS MSF? DO YOU KNOW THE MARKET FORCES?!

YOU ALSO DO NOT KNOW ‘ANYTHING’ ABOUT GOLD IMPORTS!?

MR.DAYANANA KAMATH K , WHAT & WHERE YOU REPORTED ABOUT LC?
PLEASE LET ME KNOW!? IF AT ALL!? WHAT YOU THEN UNDERSTOOD?!

I WOULD ALSO LIKE TO KNOW ABOUT INCO TERMS! YES FROM YOU!

IF YOU CAN UNDERSTAND BANKING SYSTEM, COST OF FUNDING, YOU NEVER COULD HAVE MADE THE ST.

TELL ME WHICH CORPORATE/HNI GETS 2% HIGHER THAN NOMINAL DEPOSIT?
SUBSTANTIATE YOUR ST.

WHAT CONTRADICTORY ST.YOU MAKE – BANK COST BORROWING INCREASED BUT THEY CAN GIVE HIGHER RETURN TO HNI/OTHERS OF SIMILAR 2%!!!!????

WHY ARE CASH RICH CO’s RESORTING TO ECB’s?!

WHY RIL [90KCR+] NEGOTIATED US$ 1.75Bn MULTI CURRENCY LOAN & MANY OTHERS?

WHAT WAS THE PROBLEM IN US 2008? DO YOU HAVE ANY INCLINATION?
WHAT WAS THE PROBLEM IN 1997? ASIAN CRISIS! ANY INCLINATION?

CAN YOU EXPLAIN CHEAP MONEY?
CAN YOU EXPLAIN “FINANCIAL CRISIS” – THEN NOT HAVING & NOW HAVING?!

ARE YOU AWARE THAT CAD SURPLUS COUNTRIES CURRENCIES HAVE ALSO DEPRECIATED? [Do you know the reason?]

WHY EM's facing problems along with EU? WHY S'KOREA HAVING TOUGH TIME? WHY JY DEPRECIATED?!

HAD YOU KNOWN BANKING POLICY YOU WOULD NOT HAVE TALKED ABOUT HOME LOANS & MFGR!

DO YOUR HOMEWORK TO UNDERSTAND THE BENEFITS IN BANKING TO SSI/SME AS WELL MSME & THAT “NO COLATERAL WILL BE REQUIRED”!?

ALSO UNDERSTAND THE INTEREST RATE CUT FOR EXPORT SECTOR! If you can?

THE RIGHT TO PROPERTY IS A ‘CONSTITUTIONAL RIGHT”, WHY CAN’T YOU TAKE EFFECTIVE MEASURES?!

MR.DAYANANDA KAMATH K, YES I APPRECIATE YOUR CONCERNS FOR THE COMMON INDIVIDUAL ONLY IF PUT ACROSS IN IT’s RIGHT PERSPECTIVE & NOT TO COMMENT ON MACRO-MICRO OR THE GLOBAL ASPECTS NOT UNDERSTOOD.

LEAST OF ALL RBI GUV & IT’s POLICIES.

CAN YOU TALK ON IT sec 1941A - INTENTION TO DETERMINE VALUATION TRANSACTION?!

Dear Mr. Dayananda Kamath K, I expect you to answer this post asap, IF AT ALL!

Regards,











Vinay Joshi

4 years ago

The INR has to stabilize for RBI measures. What about inflation?

Will revert to policy decision rates later.

I don’t think the Rupee will be rallying soon. The INR depreciated by 1.07 to 60.49 close July 30.

The Finanance Minister has stated that gold imports were higher in July as compared to June.

Chinas pain CAN be India’s gain if INR remains stable.

Speculation yet not got out of the system, in NSE currency futures USDINR 290713 close was 59.3075 – turnover 3576.06CR & 19051 trades.
Why on July 30, 60.49?! Any answer is an answer.

Coming to the policy rate.

Effective repo rate is 10.25% & CRR 4.25% - only if it can be understood by those who can understand irrespective of policy rate unchanged, July 30.

So RBI [rather resp. D.Subbarao] equalizing MSF with repo, is a right step forward though at variance with controlling liquidity. [As a matter of fact corporate’s can benefit by issuing CP/CD. They should at 10.5-11-11.25%]

Try to analyze RBI priorities, depreciation, inflation, growth.

Why do we have linked FOREX rate instead of fixed?! [monitored as PRC]

Irrespective of policy rate changes the banks [PSU] who depend upon wholesale funding will see a cost push rather than retail funded. So interest rates are bound to rise, EMI’s will be higher in the coming months.

ALL SAID & DONE IT’s PREDOMINANT THAT RBI ADDRESSES THE DECELERATING INR! No other priority be it inflation or growth.

Is there any demand for credit? Banks are battling their NPA’s!? Restructuring!
[Do not confuse with retail credit]

No one will take into consideration the forex loss coz of ban on iron ore exports!
[declined to less than 15% & imports of lumps & pellets risen, production down by 48%.]

CII Prez wants manufacturing to grow! Is CII in coordination with FIMI, or other APEX trade representative bodies? Had it been so the CII Prez comment would have been different.

Jim O’Neil, the person who had coined the word BRIC, a decade back, has stated that INDIA will teach a lesson to the pessimists!?

My aspects -- not if the political establishment goes to its opposite extreme, ironically can’t check fiscal deficit, turns blind eye to the speculative deceleration & growth.

Regards


Industry leaders seek removal of hurdles to investment

Industry leaders asked the prime minister to remove hurdles facing large projects and create an environment for investment driven growth, which has taken a battering due to external and internal factors

India leaders on Monday asked prime minister Manmohan Singh to remove hurdles facing large projects and create an environment for investment driven growth, which has taken a battering due to external and internal factors.

 

Reliance Industries (RIL) chairman Mukesh Ambani, ICICI Bank MD and CEO Chanda Kochhar, HDFC chairman Deepak Parekh, along with heads of leading industry chambers brainstormed with the prime minister the problems facing the country.

 

Others who attended the meeting include Rahul Bajaj, Narayana Murthy, Azim Premji, Swati Piramal, Deepak Parekh, Jamshyd N Godrej, Venu Srinivasan, Sunil Kant Munjal, S Gopalakrishnan and Sunil Bharti Mittal, among others.

 

The high-level meeting of the Prime Minister’s Council on Trade and Industry was attended by finance minister P Chidambaram, commerce and industry minister Anand Sharma and PMEAC chairman C Rangarajan, among others.

 

The prime minister wanted a report within a month on what could be done in the next 2-3 months to revive growth.

 

“We have given suggestions in two categories, one for the near term and one for the longer run. For the near term, we have suggested clearing of large projects and those projects which were cleared should now be executed," Ficci president and HSBC India head Naina Lal Kidwai said after the meeting that lasted 160 minutes.

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COMMENTS

pravsemilo

4 years ago

Our leaders would do well to have aam aadmi in their durbars instead of having a bunch of people who are rather famous for exploiting the natural (and human) resources of our country.

One should wonder if they were batting for their industry or for our country?

REPLY

Shadi Katyal

In Reply to pravsemilo 4 years ago

Kindly educate the nation that how without industry and utilization and not exploiting resources a nation Evan survive.This idea of living in such climate shows that all developments should be stopped even populating the nation is also exploitation.Milking cows is also.
Maybe you can shed some light on your statement.
No wonder nation is still poor with all the resources as people wish to close down industries and go on strike. There is no such thing as a free meal or lunch and we Indians who have no working ethics, this fits nicely.One has to plant thew rice of whert before one can eat.
These industries provide jobs and products and we saw what happened with PSU?
Tell us how you intend to improve aam aadmi????

pravsemilo

In Reply to Shadi Katyal 4 years ago

I am afraid you are getting me wrong here. I am questioning the intent of the people who were present in the meeting. Please have a look at http://www.moneylife.in/article/should-t.... When government has time for such people, then why doesn't it have time for aam aadmi? Isn't it that industry is trying to lobby for its own selfish good?

Regarding charities, you might want to check about Wipro (Azim Premji Foundation, Azim Premji Trust). Few months back there were reports how shares were transferred to these trusts. A few years back, there was also a news report how Premji earned a hefty dividend income by virtue of his shareholding. Same can be said about foundations run by industrialists listed above. I hope you remember the ads broadcasted when Satyamev Jayate was aired.

Industry is creating jobs, true. We need jobs, true. But is industry creating sub standard jobs, also true. This is very true of IT sector, where the promoter is the only beneficiary. Have a look at http://www.moneylife.in/article/is-india....

Shadi Katyal

In Reply to pravsemilo 4 years ago

I think you have this common idea of Socialism that everything should be free for the aam aadmi and thus we should have learnt lessons from PSU
I AGREE THAT WE ARE UNABLE TO INNOVATE ANYTHING AS WE SPEND MORE TIME ON TALK AND TALK.What industry produces is not of world standard and greed is first motto and yet being under the false socialism we accept such goods as hands of industry are also tied.
IT has been the biggest dot connecting industry in India but same boys have done very well in other nations Why? Because of our and no changes. There is something
wrong in our genes as we are unethical and undisciplined why?
We object to any changes and object any new industry and since we have failed to produce quality goods we also object MNC coming in so we wish to live in same climate as our forefathers lived. We depend on others for technologies even after 6 decades WHY? because lack of climate to flourish.
As for Premji and his trust is concerned,it is under the trust Board Laws which such trust operates. He is very simple person and has shown his moral standing in society have wrong ides that an investor should not benefit but look at the benefits nations enjoys with such investments. Premji has paid taxes for such profits.
It is not the industry which is creating substandard jobs but failure of our students and workers.IT has a field which our Indians have taken advantage in USA and created local jobs but in India it is the climate and thinking of the people that has put road blocks and thus IT engineers are called dot collecting and nothing else.Who is responsible we those who have failed to move ahead and think this is Nirvana.
Compere China which was at Pr with India in 1990 and can now buy every industry in India.
NRI were and are resented in India and even in early days their remittance were taxed.
China started building their industry with the help of ex patriots and encouraged other investments but we are still twiddling our thumbs as we act as a wounded civilization and need love and petting from rest of the world while talking trash and negative to them. We have no friends abroad or in the neighborhood . We are in deep trouble and think of future.
Any nation which has so many controls cannot flourish as middle income groups are essential for development and not negative thinking

Shadi Katyal

In Reply to pravsemilo 4 years ago

It is unfortunate that while the nation is suffering we get such rem,arks.
Industry provides jobs and products for the consumers and these are not charity organisations though some of them do help charities and hospitals etc.

do we wish to stay poor for ever or join the world ?

pravsemilo

In Reply to Shadi Katyal 4 years ago

I would also like to add a point regarding the charities and trusts run by industrialist. Apart for charity their main purpose is to avail tax benefits for the promoter, hold shares on behalf of promoter - by virtue of this they have indirect control, earn tax free dividend income and also in some cases, they are the ones on which CSR (Corporate Social Responsibility) spends are credited.

Most of these trusts are run by the promoters directly or by their family members. Many among the list above are doing this.

Shadi Katyal

In Reply to pravsemilo 4 years ago

One wonders what your idea of an industry is.
You wish to learn about Charity, look at TATA model.
Thee is no such thing as free meal or free lunch and one doesnot invest without any profit and if tax incentive are thee ,that money is used for charities and education.Would you prefer to be without job or have slef respect with some job.Creating industries is a very difficult task and evidently you had no idea what it involves except looking down on those who are trying to make the nation grow.
It is unfortunate that this kind of thinking with no ethics of work and discipline that now even the investors are looking for Vietnam and Burma and India is being ignored.
Would you rather have foreigners come and do charity work as yuou object the good deeds of our industrialist.
Can a AAM AADMI run govt Durbar as you think or any industry???

pravsemilo

In Reply to Shadi Katyal 4 years ago

If business are not for charity, they shouldn't lineup for charity either. Do you really think that lobbying for the industry will pass the benefits to the common man? The list of people above are infamous otherwise for their business activities.

Shadi Katyal

4 years ago

Why has nation to suffer with Red tape and bureaucracy and the Permit Raj has become worst. can our leaders not learn from the Eastern Europe after their freedom from Russia. Why are we still tied to a model of a nation which has imploded and we are on that ROAD.
Even Bangladesh has made progress in garment industry and our hands are tied.
Why is the parties interested in their own power and not the nation
Where are any constructive Bills for industry,labour and unions.?
My hats of to Indian Industrialist who have worked under such difficult conditions with shortage and road blocks more from GOVT.
Will India ever develop or we keep talking
Time to dissolve and abolish Ministries of Labour,Industry and Trade etc
Why the question of Talangna came because there is no industry and nothing being done for the nation.

SEBI imposes Rs1.5 lakh fine on Highline Finance for violating share disclosure norms

The penalty has been imposed for failure to comply with the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations

The Securities and Exchange Board of India (SEBI) has imposed a fine of Rs1.5 lakh on Highline Finance for not making disclosures about its shareholding in Raj Packaging Industries   (RPIL) within the prescribed time frame.

 

In an order dated 26th July, SEBI has imposed “a penalty Rs1.5 lakh on Highline Finance & Investment Pvt Ltd” for the failure to comply with...the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations.”

 

In its show-cause notice, SEBI had charged that Highline Finance, which held 9.14% stake in RPIL as on 30 June 2010, sold 84,000 shares by 14 September 2010 resulting in a change of 2.12% of holding of the company.

 

It further said that from 15 September 2010 to 4 October 2010, Highline offloaded 84,857 shares, amounting to 2.13% stake, of RPIL.

 

No disclosures in this regard were made to the company by Highline Finance in the prescribed format and within the specified timelines under SEBI’s Prohibition of Insider Trading regulations, the regulator said.

 

According to SEBI’s norm, any person who holds more than 5% shares or voting rights in any listed company is required to disclose to the company in a prescribed format about the number of shares and voting rights held and change exceeding 2% of the total shareholding or voting rights in the company within two working days of such change.

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