After peaking in January, the rupee in real terms - REER - has now fallen for four consecutive months by 5% . Please also see my blog for December 2017 on the rupee.
Friday 18 May 2018
Thursday 10 May 2018
First Bi-monthly Monetary Policy Statement for 2018-19: MPC does the expected
No change in the repo rate, and monetary policy continues to be neutral.
Looking into 2018-19, RBI expects inflation to end the year at about 4.5% - steady as the year that just got over. Growth is expected to pick to 7.4% from 6.6% last year. Unless government spends much more, my sense is that this pick-up may not materialise. See my recent blog on the sharp portentous fall in the deposit growth in the year that just got over, combined with weak credit growth.
At this point in time, I see no change in the policy rate over the next year.
The rupee has since the start of the financial year fallen by 4% against the U.S. Dollar. Will the RBI raise the key policy rate as a way of stemming the fall of the rupee. I doubt it, unless there is a precipitous fall. This fall in the rupee should be welcome - I have been saying for some time that the Rupee on a real basis has been signficantly overvalued against a basket of currencies.
The RBI's media calls have become boring after the usefully long, interactive, and educative calls at the time of the former Governor Rajan. And now analyst call transcripts are not made public.
Looking into 2018-19, RBI expects inflation to end the year at about 4.5% - steady as the year that just got over. Growth is expected to pick to 7.4% from 6.6% last year. Unless government spends much more, my sense is that this pick-up may not materialise. See my recent blog on the sharp portentous fall in the deposit growth in the year that just got over, combined with weak credit growth.
At this point in time, I see no change in the policy rate over the next year.
The rupee has since the start of the financial year fallen by 4% against the U.S. Dollar. Will the RBI raise the key policy rate as a way of stemming the fall of the rupee. I doubt it, unless there is a precipitous fall. This fall in the rupee should be welcome - I have been saying for some time that the Rupee on a real basis has been signficantly overvalued against a basket of currencies.
The RBI's media calls have become boring after the usefully long, interactive, and educative calls at the time of the former Governor Rajan. And now analyst call transcripts are not made public.
Tuesday 8 May 2018
The flow of money in 2017-18 : Now both credit and deposit growth are portentously weak
Credit growth has bounced back, but still just a recovery to the already weak numbers seen in the two years leading up to demonetisation in 2016-17. Deposit growth has fallen sharply - to some extent expected as individuals and firms withdrew money forcefully deposited in banks in 2016-17 following demonetisation, but the fall in 2017-18 is to multi-decade lows! Some of it is due to reports that there is a shift in assets among households from cash to equities and bonds, but this fall suggests new income generation is weak.
Weak deposit and credit growth suggests something is wrong both on the demand side and supply side of the economy. Will the economy recover to a the RBI's expectation of about 7.5%?
Perhaps it is worth taking another look at deposit and credit growth all the way back to the start of liberalisation in 1990-91, and the real growth in deposits and credit (I have used the GNP deflator to strip away inflation from the nominal growth number - as in the table above- in credit and deposits).
By my estimates, real deposit growth in 2017-18 is not the lowest since 1990-91 - there were two years when the number was lower! But this gives hardly any comfort. Real credit growth, unlike the nominal number, has recovered to the level seen in the five years leading up to demonetisation in 2016-17.
The nominal and real growth numbers of the
past few years pale in comparison with the super charged growth of the decade
or so from about the start of the new millennium in 2000. Have the excesses of
the first decade still have time to play out? The unusually sharp fall in
deposit growth and the low credit growth could well be a warning that there is
worse to come.
Please read last quarter's blog, and my earlier blogs on this subject.
Saturday 5 May 2018
Monitoring the NaMo Bull Market in Stocks: Update as of April 2018
Please see my blog of July 9, 2014 for the original note on using TMV/GNP ratio to gauge whether the market is cheap or expensive, and my nonthly blogs on this subject.
Friday 4 May 2018
India Market Map: April 2018
A monthly bird’s eye view of the performance of India’s financial markets.
Foreign
Exchange
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