'There's scope for banks to cut rates'
The Economic Times, January 28, 2009, Page 17
With no certainty on when the worst of the crisis will be behind us. For now, the central bank is maintaining a flexible stance. The governor D Subbarao, while refusing to take credit for the decline in inflation, is sticking to his objective of making money available at reasonable price. In a media interaction, the governor speaks about why he does not fear deflation despite the possibility of the wholesale price index moving into the negative territory.
What are the objectives of the latest monetary policy?
The current monetary policy review is set in times of increasing uncertainty, where IMF has been continuously bringing down its estimates for the global GDP. RBI has been mainly working with three principal objectives - ample rupee liquidity, comfortable dollar liquidity and monetary policy aimed at continued flow of credit to the economy. Till date, we have injected, or at least made available, more than Rs 4 lakh crore of liquidity through various measures.
But not all banks are cutting rates?
Transmission of monetary policy in the money and GSec markets has been effective, but the same in the credit market has been subdued. Most banks have reduced lending and deposit rates, but some have not. The latest RBI stance leaves a lot of scope for banks to adjust their lending rates, even for those that changed rates recently.
How badly is India affected in the global slowdown? Has it hurt bank credit?
Globalisation is a double edged sword. Although it has often helped India, the impact on the real and financial sector is mainly due to globalisation. India is much more integrated today than ten years ago, at the time of the Asian financial crisis. There is a view that bank credit is decelerating. But non-food credit has expanded faster (23.9%) than the same period last year (22%). So this view is not all that correct, but one must not exaggerate this piece of information. However, there has been a reduction in non-bank resources to commercial sector. Urban consumption is likely to fall from hereon, but rural consumption will hold up because there is no wealth effect here.
Is RBI pleased about inflation? Are inflation worries behind us?
Not withstanding the decline in the wholesale price index, we must note that inflation of primary articles is still in double digits. Inflation projection and inflation estimation is not just about looking at a WPI number. We look at CPI and inflation expectations too. However, the stance in the last few months has shifted from inflation to growth and priority has been to adjust moderation in growth.
The Economic Times, January 28, 2009, Page 17
With no certainty on when the worst of the crisis will be behind us. For now, the central bank is maintaining a flexible stance. The governor D Subbarao, while refusing to take credit for the decline in inflation, is sticking to his objective of making money available at reasonable price. In a media interaction, the governor speaks about why he does not fear deflation despite the possibility of the wholesale price index moving into the negative territory.
What are the objectives of the latest monetary policy?
The current monetary policy review is set in times of increasing uncertainty, where IMF has been continuously bringing down its estimates for the global GDP. RBI has been mainly working with three principal objectives - ample rupee liquidity, comfortable dollar liquidity and monetary policy aimed at continued flow of credit to the economy. Till date, we have injected, or at least made available, more than Rs 4 lakh crore of liquidity through various measures.
But not all banks are cutting rates?
Transmission of monetary policy in the money and GSec markets has been effective, but the same in the credit market has been subdued. Most banks have reduced lending and deposit rates, but some have not. The latest RBI stance leaves a lot of scope for banks to adjust their lending rates, even for those that changed rates recently.
How badly is India affected in the global slowdown? Has it hurt bank credit?
Globalisation is a double edged sword. Although it has often helped India, the impact on the real and financial sector is mainly due to globalisation. India is much more integrated today than ten years ago, at the time of the Asian financial crisis. There is a view that bank credit is decelerating. But non-food credit has expanded faster (23.9%) than the same period last year (22%). So this view is not all that correct, but one must not exaggerate this piece of information. However, there has been a reduction in non-bank resources to commercial sector. Urban consumption is likely to fall from hereon, but rural consumption will hold up because there is no wealth effect here.
Is RBI pleased about inflation? Are inflation worries behind us?
Not withstanding the decline in the wholesale price index, we must note that inflation of primary articles is still in double digits. Inflation projection and inflation estimation is not just about looking at a WPI number. We look at CPI and inflation expectations too. However, the stance in the last few months has shifted from inflation to growth and priority has been to adjust moderation in growth.
Let me repeat, we’ve not conquered inflation once and for all. Today we were having a meeting with bankers and one of them suggested it’s disturbing that inflation is coming down so fast. If it’s coming down so fast it is not because of structural reasons, but because of many other factors over which we have no control. We will continue to have concerns about inflation going forward. There is a possibility that there will negative WPI inflation too. But I do not see a prolonged deflation as in other developed markets or structural deflation. It may only be more of a statistic. Groucho Marx once said – never make a forecast, especially about the future. So we do not want to make any forecasts, we’ve learnt our lessons from the past.
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