Friday 9 August 2019
Thursday 8 August 2019
India Market Map: July 2019
Foreign Exchange
Tuesday 6 August 2019
Third Bi-monthly Monetary Policy Statement, 2019-20 to be released tomorrow: What should the RBI do?
Please see my last blog dated June 5, 2019 titled "A review of monetary policy: there is a serious need to correct flawed policy execution". This was a day before the release of the second bi-monthly statement.
At the second statement, the MPC finally changed the monetary policy stance from neutral to accommodative - a move that I suggested made sense in my blog. The repo rate was reduced to 5.75% from 6% - I had espoused a sharper cut to 5.5%.
I expect tomorrow the MPC to reduce the repo rate by 0.25% to 5.5% but I feel the RBI should reduce the repo rate more aggressively to 5.25%.
The RBI expects inflation in the region of 3.55% ( range of 3.4% to 3.7%) in H2 OF 2019-20. With the one-year treasury bill rate at about 6%, the real rate is about 2.5%. This is far too high for a weak economy, where sector after sector is showing signs of distress - infrastructure, banks, airlines, NBFCs, automobiles...
Please see my review blog of June 5. I have held the view that when the economy is abnormally weak and the financial system is under severe stress, then the real rate needs to be kept lower than what is should be at normal times. At one time, the RBI looked at a real rate of 1.5-2%. We need to be at the lower end of the range - 1.5%.
I, therefore, suggest once again a 0.5% cut in the repo rate to 5.25% from the current 5.75%.
June CPI inflation came in at 3.18%, while WPI was just above 2%. Credit growth seems to be stalling and deposit growth is pedestrian in FY19-20.
At the second statement, the MPC finally changed the monetary policy stance from neutral to accommodative - a move that I suggested made sense in my blog. The repo rate was reduced to 5.75% from 6% - I had espoused a sharper cut to 5.5%.
I expect tomorrow the MPC to reduce the repo rate by 0.25% to 5.5% but I feel the RBI should reduce the repo rate more aggressively to 5.25%.
The RBI expects inflation in the region of 3.55% ( range of 3.4% to 3.7%) in H2 OF 2019-20. With the one-year treasury bill rate at about 6%, the real rate is about 2.5%. This is far too high for a weak economy, where sector after sector is showing signs of distress - infrastructure, banks, airlines, NBFCs, automobiles...
Please see my review blog of June 5. I have held the view that when the economy is abnormally weak and the financial system is under severe stress, then the real rate needs to be kept lower than what is should be at normal times. At one time, the RBI looked at a real rate of 1.5-2%. We need to be at the lower end of the range - 1.5%.
I, therefore, suggest once again a 0.5% cut in the repo rate to 5.25% from the current 5.75%.
June CPI inflation came in at 3.18%, while WPI was just above 2%. Credit growth seems to be stalling and deposit growth is pedestrian in FY19-20.
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