A New Year. A New Monetary Policy Framework?

Posted by: Deepa Vasudevan on Sat, Jan 25th, 2014

The Patel Committee has recommended far-reaching reforms to monetary policy. The key idea in the report is that RBI should move to targeting CPI-based inflation and it should be both independent and accountable for achieving its targets. However, monetary policy is effective only if backed by sound fiscal policy Read more

A More Stable External Account

Posted by: Deepa Vasudevan on Thu, Dec 12th, 2013

The RBI's strategy of compressing imports and attracting NRI funds through the FCNR(B) scheme has greatly eased the BoP situation. If FII inflows also pick up in the remaining months, India should be able to finance its current account deficit with foreign capital inflows without dipping into its reserves. Read more

CPI and WPI: Tough to choose one over the other

Posted by: Deepa Vasudevan on Tue, Nov 19th, 2013

The new CPI index captures retail prices changes better than WPI. The two indices occasionally diverge, but since producers eventually pass on price hikes to consumers, a rising WPI is likely to pull up CPI too. Both indices need to be tracked to understand inflation patterns and monetary policy actions. Read more

Economic Slowdown and Corporate Profitability

Posted by: Deepa Vasudevan on Mon, Oct 21st, 2013

The private corporate sector has been hit by declining margins and high interest costs over the last four years. A recent RBI study shows that small and medium sized companies were the worst affected by rising interest rates.  If RBI increases rates in its October 29 policy, it may increase debt default or bad loans further.  Read more

Why did RBI increase the Repo Rate?

Posted by: Deepa Vasudevan on Mon, Sep 23rd, 2013

The RBI increased the repo rate by 25 basis points and simultaneously eased liquidity at the short end in its September monetary policy. The purpose was to swiftly suppress inflationary expectations and align monetary conditions with other emerging markets while lowering the cost of short term funds Read more