Skip to main content

RBI’s pause on hiking interest rates may last only till December

By
Policy watchers surprised by the Reserve Bank of India’s (RBI) decision to hold rates in October against a widely expected hike are fairly certain that this interlude will be over as soon as December. They are probably right. The minutes of the October policy meet show that the central bank’s rate-setting committee members did not tone down their hawkishness or reduce their vigil on inflation when they had recommended a pause. In fact, long-standing hawk and RBI executive director Michael Patra said monetary policy needs to be on “high alert” on inflation. He merely felt that the need to raise rates was less because the past two rate hikes still haven’t reached all corners of the economy.
Chetan Ghate, who voted for a hike, felt that the sharp depreciation. The members of the monetary policy committee flagged off several risks to inflation even as the headline number softened for three consecutive months. 3.28 the exchange rate and rise in oil prices would unhinge inflationary expectations, something that RBI cannot afford. This was seconded by deputy governor Viral Acharya. Governor Urjit Patel, too, hasn’t lowered his guard on inflation. The urgency to keep inflation under check is evident despite the headline number consistently coming in lower than the medium term target of 4%.
Acharya isn’t convinced that the slip in core inflation is material enough. With pricing power of companies increasing, the rise in input costs would swiftly be passed on to the selling price, he noted. Wholesale price index inflation for September surged to 5.13%, indicating the pressure from input prices, a red flag that RBI will notice even though the WPI is not its anchor.
The resolution statement of the monetary policy committee (MPC) said that household expectations for inflation one-year ahead had softened. Both Ghate and Acharya had stressed that the surge in expectations of three-month ahead and sixmonth ahead inflation was a big worry. Patel added his weight to the inflation argument by listing out the upside risks to it. The minutes also show that the MPC is truly focused on inflation. The members of the committee don’t seem to have discussed financial stability at all.
 
Even the discourse on the external sector has been limited to factors that are directly influencing inflation such as oil prices and the exchange rate. The challenges in financing the current account deficit haven’t been addressed. The committee is happy with a narrow focus on its mandate for inflation. What the RBI cannot afford is to adopt this narrow focus since it is a central bank and has far more diverse responsibilities. Surprisingly, even the RBI members haven’t discussed financial stability.


The Mint, 22th October 2018

Comments

Post a Comment

Popular posts from this blog

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the...
Post a Comment
Read more

Brigade Hotel Ventures files draft papers with Sebi for Rs 900 crore IPO

By
  Brigade Hotel Ventures Ltd, owner and developer of hotels in South India, has filed draft papers with capital markets regulator Sebi to raise Rs 900 crore through an initial public offering (IPO).The proposed IPO is entirely a fresh issue of equity shares with no Offer-for-Sale (OFS) component, according to the draft red herring prospectus (DRHP).Proceeds from the issue to the tune of Rs 481 crore will go towards payment of debt, Rs 412 crore will be allocated to the company and Rs 69 crore to its material subsidiary, SRP Prosperita Hotel Ventures Ltd.Additionally, Rs 107.52 crore will be used to purchase an undivided share of land from the Promoter, BEL, and the remaining funds will support acquisitions, other strategic initiatives, and general corporate purposes.The company may raise up to Rs 180 crore through a Pre-IPO Placement.   If the placement is undertaken, the issue size will be reduced.Brigade Hotel Ventures Ltd is a wholly-owned subsidiary of Brigade Enterprises ...
Post a Comment
Read more

Govt invites applications for RBI deputy governor's post, last date Nov 30

By
  The government has invited applications for the post of deputy governor of Reserve Bank of India from interested candidates with at least 25 years of experience and below 60 years of age as on January 15, 2025.One of the deputy governors, Michael Patra’s current term will end on January 15.According to an advertisement, candidates should have at least 25 years of work experience in Public Administration, including experience at the level of secretary or equivalent in the Government of India, or persons who have at least 25 years of work experience in an Indian or International Public Financial Institutions; or persons of exceptional merit and track record at the national or international level in the relevant field.The last date of submission of the application is November 30, 2024.   It has been clarified that the Financial Sector Regulatory Appointments Search Committee (FSRASC) – a body which will select the candidates- is free to identify and recommend any other person a...
Post a Comment
Read more