Tuesday, 17 December 2019
Monitoring the NaMo Bull Market in Stocks: Update as of November 2019
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 monthly blogs on this subject.
India Market Map: November 2019
Foreign Exchange
Tuesday, 3 December 2019
Fifth Bi-monthly Monetary Policy Statement, 2019-20 : RBI should reduce the repo rate by 0.5%
Let's
look at some data points to support my suggestion that the MPC (in the
statement to be released on December 5, 2019) should reduce the repo rate
to 4.85% from the current 5.15%.
The
economy has fallen off the cliff - for six consecutive quarters growth has
slowed from 8.1% in Q4 of 2017-18 to 4.5% in Q2 OF 2019-20. Inflation has been
benign and well below RBI’s target of 4%: except for last month's number of
4.69%, since July 2018 there has not been a single month when CPI inflation
crossed 4%. Bank credit, the fuel that runs the economy has been at astandstill this financial year.
The
international inflation environment has been benign. World growth has been
tepid. The ECB, the Federal Reserve and Japan's central bank are in a easing mode.
About $15 trillion of bonds, including some corporate bonds, in the developed
world have negative yields.
Given the
crisis of growth of India's economy, there is a strong case for the RBI to
focus its energy on stimulating growth. To stimulate growth using the
interest rate as a policy tool, the RBI needs to sharply reduce the real
interest rate - surely to 0.5% or even to zero for a suitable period of time.
The real
interest rate prevalent in the economy is just too high. The table below gives
the one-year treasury bill rate, CPI inflation, and the real rate, which
is the difference between the two. As one can see, the real rate, as per this
measure, has been well above 2%, which was at one time the target of the RBI.
The RBI
needs to target a real rate of 0.5% or even zero. I feel that even if inflation
perks up for the rest of the financial year to about 5% - a worst case scenario
- there is still a case for a near zero real interest rate to stimulate growth.
A repo
rate of 4.85% is quite consistent with this goal.
Please
see my earlier blogs on monetary policy, which will give a full background to
my stance, in particular two notes titled A review of monetary policy: there is a serious need to correct flawed
policy execution of June 5, 2109 and Monetary
Policy: A look back over the last year of July 27, 2017.
Wednesday, 6 November 2019
Fourth Bi-monthly Monetary Policy Statement, 2019-20: Another well deserved round of easing
This time round the MPC reduced the repo rate by 0.25% instead of 0.35%. I am all for easing the repo rate. Please see my blog dated June 5, 2019 titled "A review of monetary policy: there is a serious need to correct flawed policy execution".
Things are pretty dire on the growth front: RBI reduced its estimate of GDP growth for 2019-20 from 6.9% to 6.1% - practically a 1% reduction is a huge adjustment. In this context, please see the virtual halt to the growth of credit in H1 OF 2019-20
Inflation projection for H2 of 2019-20 remains at 3.6%.
Things are pretty dire on the growth front: RBI reduced its estimate of GDP growth for 2019-20 from 6.9% to 6.1% - practically a 1% reduction is a huge adjustment. In this context, please see the virtual halt to the growth of credit in H1 OF 2019-20
Inflation projection for H2 of 2019-20 remains at 3.6%.
Monitoring the NaMo Bull Market in Stocks: Update as of October 2019
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 monthly blogs on this subject.
India Market Map: October 2019
Foreign Exchange
Bank Deposits
Real Estate
Wednesday, 16 October 2019
The flow of money up to Q2 2019-20 : credit growth comes to a complete halt!
Tuesday, 15 October 2019
Monday, 14 October 2019
Monitoring the NaMo Bull Market in Stocks: Update as of September 2019
India Market Map: September 2019
Foreign Exchange
Government Bonds
Gold
Money Market
Policy Rates
Bank Deposits
Public Provident Fund
Post Office Deposits
Home Loans
Real Estate
Stocks
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