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The Monetary Policy Debate

The Monetary Policy Debate
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First Published: Wed, Jul 27 2011. 05 23 PM IST

Leif Eskesen, Chief Economist for India & ASEAN HSBC Global Research, Singapore
Leif Eskesen, Chief Economist for India & ASEAN HSBC Global Research, Singapore
Updated: Wed, Jul 27 2011. 05 23 PM IST
Expert views on RBI rate hike
Thankfully tightening to its own tune
Leif Eskesen, Chief Economist for India & ASEAN HSBC Global Research, Singapore
The RBI on Tuesday continued the tightening cycle and thankfully took a more decisive step with a 50 basis point hike, beating market expectations. The case for an aggressive move was strong, but the heightened uncertainty about the global economy and exaggerated concerns about the moderation in the domestic economy had actually raised pressures for a pause, mostly from groups seeking to protect their own short-term interests, rather than internalizing what is ultimately the best for the economy as a whole.
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Time for a breather?
Sonal Varma, India Economist, Nomura Financial Advisory and Securities (India) Pvt. Ltd
The Reserve Bank of India’s (RBI) decision to hike the repo rate by 50 basis points to 8% has come as a surprise. While global uncertainties have risen, the RBI remains confident that moderation of domestic growth is not yet broad-based, even as the rise in inflation is becoming more so. Inflation expectations are becoming entrenched due to persistently high food prices, while rising wages are another worry. In this backdrop, the RBI remains firmly on the tightening path that started 16 months ago. The key question, going forward, is whether more tightening is necessary.
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The ‘unfinished’ task of taming inflation
Saugata Bhattacharya, senior vice-president (business and economic research) at Axis Bank
The 50 basis points (bps) increase in the repo rate by the Reserve Bank of India (RBI) was an even bigger surprise this time than the similar increase in early May 2011 (one basis point is one-hundredth of a percentage point). The question is, why now? In late April, with global commodity prices climbing, and the peak in inflation still some time away, the January-March quarter financials still looking strong, credit growth at close to 23%, front loading of rate increases might have been the logical policy response.
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RBI’s action: a suboptimal policy mix
A.Prasanna, vice-president, ICICI Securities Primary Dealership Ltd
The central bank rolled back a few years and proceeded to shock financial markets with a 50 basis points hike in the repo rate. The previous regime at the Reserve Bank of India (RBI) viewed surprising markets as a useful tactic. Under the current governor, RBI preferred to be more transparent and believed in guiding markets about near-term policy direction. The July rate action was thus a clear departure from this template.
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Banker’s Trust | Three surprises and one lesson
Tamal Bandyopadhyay, deputy managing editor, Mint
The decision of the Reserve Bank of India (RBI) to raise its policy rate by half a percentage point surprised the market as the widespread expectation was a quarter percentage point hike. And this is not the only surprise in the Indian central bank’s quarterly review of monetary policy. There are other surprises too. For instance, RBI has admitted that growth is slowing, but has not changed its growth projection for the year, even though the year-end inflation projection has been raised from 6% with an upward bias to 7%. Unchanged at 8%, the growth projection for fiscal 2012 seems a bit optimistic at this point.
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Mark to Market | Manas Chakravarty
The reasons for the 50 bps hike
Manas Chakravarty senior editor, Mint
Why did the Reserve Bank of India (RBI) raise its policy rate by 50 basis points (bps) this time? The risks to growth from uncertainties abroad, which were made much of by the central bank in its mid-quarter policy statement in June, have increased instead of dissipating. The central bank also acknowledges that domestic growth has moderated somewhat in the first quarter of 2011-12, although it reiterates the slowdown is still not broad-based.
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Ourview | RBI’s tough message
The Reserve Bank of India (RBI) on Tuesday raised the repo and reverse repo rates by 50 basis points (bps). Its aggressive policy posture was accompanied by a stern message: the absence of appropriate steps by the government had put a question mark on sustaining growth without strong inflationary pressures.
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RBI shocks with 50 bps rate hike
Corporate and individual loans will become more expensive after the Reserve Bank of India (RBI) on Tuesday surprised the market with a half percentage point hike in its policy rate to reign in high inflation, even as it highlighted the government’s own inadequacy to tackle what has been, for well over a year now, the country’s most pressing macroeconomic problem.
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Interview | This is a decisive change in stance, says Gokarn
Subir Gokarn, deputy governor, RBI
The inflation trajectory has changed and with this there is a decisive change in the central bank’s policy stance, said Reserve Bank of India (RBI) deputy governor Subir Gokarn in an interview.
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Run-up to monetary policy
Are we getting close to end of rate hike cycle?
Banker’s Trust | Tamal Bandyopadhyay
Commercial banks as well as Indian corporations do not want the country’s central bank to go for yet another rate hike, the 11th since March 2010, when it unveils the quarterly review of monetary policy on Tuesday, but the Reserve Bank of India (RBI) is unlikely to oblige them. My guess is RBI governor D. Subbarao will once again take his now-famous baby step and hike the policy rate by 25 basis points (bps) to 7.75%, raising it by 450 bps in the current rate tightening cycle.
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Tamal Bandyopadhyay is a deputy managing editor of Mint.
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One more rate increase likely
Samiran Chakraborty
The backdrop to the Reserve Bank of India (RBI) monetary policy meeting next week is not very different from what it has been in the recent past. Inflation is clearly at an unacceptable level and growth is moderating, but not collapsing. So, it is quite likely that the policy response from RBI will be a 25 basis points rate increase to reiterate its anti-inflationary stance. However, there is considerable uncertainty over the policy trajectory going forward and hence the policy statement will be scrutinized closely for RBI’s assessment of the current economic situation and any forward looking cues.
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Samiran Chakraborty is Asia economist, Standard Chartered Bank.
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Carry on hiking the policy rate
Richard Iley
Pause in response to building downside risks to global and domestic growth? Or press on with its long-established campaign of lifting policy rates to combat inflation? That, in a nutshell, is the policy choice facing the Reserve Bank of India (RBI) at its latest policy review meeting next week.
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Richard Iley is chief economist for Asia Pacific excluding Japan at BNP Paribas SA.
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• No time to slacken policy rate
Ajit Ranade
Imagine the following scenario: The central bank has been trying valiantly to control inflation. It is using every trick in its books to tame the monster. Apart from frequent interest rate hikes, it makes hawkish sounds, curtails credit, and also urges the central government to cut wasteful spending, and rein in the fiscal deficit.
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Ajit Ranade is chief economist, Aditya Birla Group.
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• Inflation control: chasing a chimera
Siddhartha Roy
We have had 10 rate hikes in past 15 months, yet inflation continues to be stubbornly persistent. Will a 25 or even a 50 basis points hike help in containing it? One basis point is one-hundredth of a percentage point.
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Siddhartha Roy is economic adviser, Tata group.
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• Taming inflation needs audacity
Jahangir Aziz
The economy is slowing on many fronts. Industrial production, car sales, Purchasing Managers’ Index—all point to activity moderating. On cue, there has been a lot of hand wringing over this. But a slowing economy is not necessarily a bad thing. Indeed, the real risk is the economy will not slow sufficiently to bring down the raging inflation.
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Jahangir Aziz is senior Asia economist, JPMorgan Chase.
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First Published: Wed, Jul 27 2011. 05 23 PM IST
More Topics: RBI | The Debate | Monetary Policy | RBI | CRR |