Money & Banking
Unchanged interest rates not surprising: Moody's
The Reserve Bank of India's (RBI) decision to leave the policy interest rates untouched was in line with the predictable and transparent monetary policy, said global credit rating agency Moody's Investors Service.
 
The central bank's decision to leave policy interest rates unchanged on Tuesday was no surprise to market participants.
 
"In the next few months, we expect continuity in the RBI's policymaking. In particular, the government's notification of the inflation target at 4 per cent +/- 2 percent through to 2021 denotes ongoing commitment to keeping inflation at moderate levels," Marie Diron, senior vice president, Sovereign Risk Group was quoted as saying in a statement issued by Moody's.
 
"Meanwhile, the formation of a monetary policy committee is in line with common practice in many central banks around the world. We do not expect the RBI's shift to such a structure to have any significant implications for the conduct of monetary policy," Diron added.
 
According to Diron, the larger than average monsoon rainfall will help maintain moderate food price inflation to keep the headline inflation rate within or close to target this year. In the medium-term, the inflation will remain moderate.
 
"There are upside risks related to the implications of the rise in public sector wages with the implementation of some of the Pay Commission's recommendations. Should higher wages boost consumption significantly, inflationary pressures could rise," Diron said.
 
According to Diron, inflationary pressure could arise when the full recommendations are implemented due to increase in housing allowances.
 
"However, the less accommodative monetary policy stance at present than in 2009-13, when the RBI's policy interest rates were well below inflation, mitigates these risks," Diron said.
 
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.
  

 

User

RBI keeps monetary policy rates unchanged
The Reserve Bank of India (RBI), in its third bi-monthly credit policy review on Tuesday for FY2016-17 has kept the policy rates unchanged. The repo rate will remain at 6.50% while the reverse repo rate under the liquidity adjustment facility (LAF) will also remain at 6%. The marginal standing facility (MSF) rate and the bank rate also remain static at 7.0%. 
 
In a statement, RBI Governor Dr Raghuram Rajan said, "Risks to the inflation target of 5% for March 2017 continue to be on the upside. Furthermore, while the direct statistical effect of house rent allowances under the 7th Central Pay Commission (CPC)’s award may be looked through, its impact on inflation expectations will have to be carefully monitored so as to pre-empt a generalisation of inflation pressures. In terms of immediate outcomes, much will depend on the benign effects of the monsoon on food prices. In view of this configuration of risks, it is appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for policy action. The stance of monetary policy remains accommodative and will continue to emphasise the adequate provision of liquidity. Easy liquidity conditions are already prompting banks to modestly transmit past policy rate cuts through their marginal cost of funds based lending rate (MCLRs) and pro-active liquidity management should facilitate more pass-through."
 
Here are the latest policy rates following RBI review… 
 
 
"The recent sharper-than-anticipated increase in food prices has pushed up the projected trajectory of inflation over the rest of the year. Moreover, prices of pulses and cereals are rising and services inflation remains somewhat sticky. There are early indications, however, that prices of vegetables are edging down. Going forward, the strong improvement in sowing, on the back of the monsoon’s steady progress, along with supply management measures, augurs well for the food inflation outlook. The prospects for inflation excluding food and fuel are more uncertain; if the current softness in crude prices proves to be transient and as the output gap continues to close, inflation excluding food and fuel may likely trend upwards and counterbalance the benefit of the expected easing of food inflation. In addition, the full implementation of the recommendations of the 7th CPC on allowances will affect the magnitude of the direct effect of house rents on the CPI. On balance, inflation projections as given in the June bi-monthly statement, i.e. of a central trajectory towards 5 per cent by March 2017 with risks tilted to the upside, are retained," Dr Rajan, who is stepping down next month, said in his last monetary policy statement.
 
 
Commenting on the policy review, Arundhati Bhattacharya, Chairman of State Bank of India (SBI) said, "The RBI decision to maintain status-quo was as per market expectations. The decision to frontload liquidity provisions through an announcement of open market option (OMO) is a well thought out move as capital flows have been relatively slow this year given the global uncertainties, resulting in lower net foreign exchange acquisition. We believe transmission of rates will happen gradually over the next few months as credit growth picks up pace".
 
Looking ahead, the RBI says, the momentum of growth is expected to be quickened by the normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to consumption spending that can be expected from the disbursement of pay, pension and arrears following the implementation of the 7th CPC’s award. The passage of the goods and services tax (GST) Bill augurs well for the growing political consensus for economic reforms. 
 
"While timely implementation of GST will be challenging, there is no doubt that it should raise returns to investment across much of the economy, even while strengthening government finances over the medium-term. This should boost business sentiment and eventually investment," the central bank added.
 
RBI feels the current accommodative stance of monetary policy and comfortable liquidity conditions should also provide a congenial environment for the reinvigoration of aggregate demand conditions. However, successive downgrades of global growth projections by multilateral agencies and the continuing sluggishness in world trade points to further slackening of external demand going forward. Accordingly, RBI retained the gross value added (GVA) growth projection for 2016-17 at 7.6%, with risks facing the economy at this juncture evenly balanced around it. 
 

User

COMMENTS

MG Warrier

10 months ago

When Reserve Bank of India came out with the last Monetary Policy Statement during the current tenure of Dr Raghuram Rajan’s governorship, it was great fun watching media and even most of the analysts searching for Dr Rajan’s ‘last words’. They didn’t find any of them. The document did not look different in presentation and content from the previous ones during the last three years. There was a difference, which went unnoticed.
Dr Rajan effectively put into use the management lessons he picked up from IIMA and his international experience in monetary management, supplemented by the expertise in teaching what he learnt, from day one at Mint Road, with plans to remain active as Governor till September 4, 2016. His reference during his post-policy interaction with media on August 9 to the slew of measures affecting the financial sector to be announced on August 25, 2016 is proof enough to show that the coming weeks are not going to be spent in late night farewell parties by him or his colleagues in RBI.
The challenge Dr Rajan has thrown out to RBI by leading from the front is daunting. He has demystified the central bank’s functioning and has changed the way in which the institutional system in the financial sector in India was functioning. The sector was playing a subservient role for which scripts were being written by corporate and political leadership, with implicit support from the babus in the North Block. RBI will definitely rise to the occasion and move forward.
M G Warrier, Mumbai

Gopalakrishnan T V

10 months ago

Very safe and right approach. No cut or hike in the rates and silenced all critics of RBI Governor. Inflation Risk is very high and the expectation that this will be at 5% by March 2017 is something hard to believe. Maintaining inflation at reasonable rate cannot be the full responsibility of RBI and the rate cut by RBI cannot ensure industrial growth as interest rate contribution to growth is insignificant. The monsoon seems to have favoured and this can have a smoothening effect on inflation but the pay hike of seventh pay commission and other transportation and distribution constraints observed in the supply chain can definitely add to the inflation. However, the present approach off RBI is very appropriate .

Money Muling: a tool to launder illicit funds
Criminals employ various methods to disguise the identity of their ill-gotten money. One method is to recruit ‘Money Mules’ to achieve their nefarious purpose. This essentially means conning people into lending their identity and bank account to route and transfer illegitimate money. Using people to transfer drugs or money has been a long-standing practice of the criminals. It is now on the rise and is being replicated in a high-tech crime environment. 
 
SS Mundra, Deputy Governor of the Reserve Bank of India (RBI) in a recent speech mentioned that JanDhan accounts are vulnerable to being recruited as money mules. However, the problem is not limited to India. There is a consistent rise in money muling since 2012 and even Singapore, which ranks among the strictest and least corrupt countries in the world, has admitted to rising incidence of money muling. 
 
Many people may unwittingly become money mules. Allow me to explain how this works. 
 
A ‘money mule’ is someone who is recruited by criminals to launder funds fraudulently obtained funds. The term, "mule” actually comes from the narcotics trade. Here, an individual is paid a fee to transport illicit drugs. Such an individual is known as a drugs Mule. A money mule is slightly different in that there is no physical transportation of money it is through the mule’s bank accounts. 
 
 If ‘money makes the world go round (from Cabaret, the musical) then money mules are the vehicle used by economic criminals to make it happen.  They are a necessary link for criminals but usually unrelated to the criminal activity that generate illicit funds. Their only utility is to transfer, and disguise the origins of illegal proceeds of crime by routing transactions through the bank accounts of mules.
 
How it operates
Money mules are usually people who are desperately looking for employment. Money mules can consciously choose to act as intermediaries with a view to earning money easily, but they are often unaware that they are being used. Criminals dupe innocent victims into laundering money by pretending to offer legitimate jobs via newspapers, chatrooms, job websites or ‘work-at-home advertisements’. They target vulnerable groups such as migrant workers or university students, who are tempted to earn some extra cash for receiving money from a victim’s account and transferring it to the criminal using a payment service. Sometimes, the money is transferred through multiple accounts and even countries to hide the trail. The mule is paid an attractive commission for the use of the account. Things get more dangerous when people are used to transfer funds for terrorist activity.
 
How customers should protect themselves
The websites of most banks have detailed warnings and guidlines for customers to follow so as not to get trapped as a money mule. Unfortunately, most people do not read. 
 
Here are a few dos and don’ts to avoid these traps. 
1. Do not  respond to emails asking for bank account details.
2. Verify any company offering you a job and check if the phone number, email address and website are correct. Remember, some mules clone the websites or legitimate companies. 
3. Be especially wary of job offers from people or companies that are overseas 
4. Beware of a company asking you to carry out international financial transactions for them through your bank account.
5. Do not get carried away by attractive commissions for
consent to receive unauthorised money.
6. Infrom the bank if you notice any unauthorised transaction in your account
7. Be very cautious of unsolicited offers or opportunities to make easy money. Remember the saying…If something looks too good to be true, then it probably is not true. 
8. Advertisements written in poor English with grammatical errors and spelling mistakes are usually a giveaway. Watch out for these. 
9. Be careful of companies seeking ‘representatives’ or ‘agents’ to act on their behalf for a period of time, sometimes to avoid high transaction charges or local taxes.
10. Never give your bank account details to anyone, unless you know
and trust them.
 
Risks in being used as money mule
  • A criminal could be posing as an employer
  • Acting as a mule is illegal and ignorance is no defence. 
  • “Money laundering consists of the conversion or TRANSFER of property …or of ASSISTING any person who is involved in the commission of the crime…”Money mule will be taken as a party to money laundering, as the money being   transferred is stolen, and this is called money laundering, which is illegal. Involvement in money laundering is a criminal offence and will lead to imprisonment.
 
Consequences, when these money mules are caught
  • Their bank accounts get suspended/ frozen, causing inconvenience,
  • Potential financial loss, 
  • Likely a long-term impact on credit scores. 
  • Likely legal action for being part of a fraud, long litigation and even imprisonment if you are unable to prove innocence.

     
(SSA Zaidi is a retired banker and consultant for training and development. He is also author of Anti Money Laundering /Anti-Terrorism Financing & Know Your Customer)

User

COMMENTS

Ramesh Poapt

10 months ago

Too good! It is difficult to escape a trap indeed!!

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)