The biggest threat to 'acche din': Raghuram Rajan - Moneylife

The biggest threat to 'acche din': Raghuram Rajan - Moneylife

My VIEW:

Let me restrict my comment to issues which are relevant from a policy perspective (The article carries more personal comments on Dr Rajan). Based
on the August 2015 Monetary policy statement, I have made the following
observation:
According to RBI assessment, liquidity
conditions have been very easy in June and July. A seasonal reduction in demand
for currency and increased spending by Government coupled with structural
factors such as low credit deployment relative to the volume of deposit
mobilisation contributed to surplus conditions in the money markets. This
resulted in a significantly lower average daily net liquidity injection under
the fixed rate repos under LAF, and variable rate term repo/reverse repo and
MSF at 477 billion in June, down from 1031 billion in May. In July there was
net absorption of 120 billion through these facilities. In response to the
reduction in the policy repo rate in June the weighted average call rate eased
from 7.47 per cent in May to 7.11 per cent in June.
.
Those who are making a plea for more
‘cuts’ may try and understand the following observation in the policy
statement:

“Since the first rate cut in January, the
median base lending rates of banks has fallen by around 30 basis points, a
fraction of the 75 basis points in rate cut so far. As loan demand picks up in
Q3 of 2015-16, banks will see more gains from cutting rates.”


RBI has a much larger role than that of a
Rate-cutter as is being made out by some analysts.
M G Warrier

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