- RBI’s bi-monthly statement released in March contained developmental and regulatory issues critical for the financial sector. These were otherwise only discussed in annual and half-yearly policy statements.
- The question that arises is whether the RBI had any scope to change the repo rate during the time of elections when the govt is prevented from making any policy announcement. Contrary to its claims, the govt was not constrained from slashing the repo rate or the CRR (Cash Reserve Ratio). It was RBI’s own conviction to maintain status quo that led it to action.
- Even on bank licenses, the first two clearances were given to IDFC and Bandhan Financial Services Private Limited., the very next day without waiting for the formation of the new government. This sends out a strong message that monetary policies are economic and regulatory documents, which even in the run up to the polls shouldn’t be stained with politics.
- The idea behind the policy stance always stems from the developing macro-economic situation. . Economic growth is slated to rise from below 5% to around 5.5 (in a range of 5 to 6 per cent) in 2014-15. Factors that may hinder GDP growth:
- unsatisfactory monsoons,
- uncertainty in the setting up of minimum support prices,
- the new government’s approach to macroeconomic problems
- Easing of domestic supply-side bottlenecks and clearance of stalled projects will brighten prospects. The current account deficit has reduced significantly as a result of sustained forex inflows and swift govt moves The obstacles faced by RBI to achieve a CPI inflation target at 8 per cent for January, 2015:
- vegetable prices shooting up again,
- global commodity prices rising as a result of economic recovery in the advanced economies
- If inflation decreases as intended, RBI will have no need to tighten monetary policy. Recommendations of The Urjit Patel Committee’s that have been accepted by the RBI:
- Reduce liquidity access to overnight repos while making a corresponding increase in term repos has been accepted.
- Adoption of CPI as the key measure,
- Explicit recognition of the ‘glide path’ for disinflation
- Transition to a bi-monthly monetary policy cycle.
- Inflation-indexed bonds will be made more customer-friendly. Foreign investments to be encouraged, and entry costs will be eased and the risks from volatility will be reduced to facilitate the same. Reviewing of policy frameworks to be done to overcome the problems of bad loans.
Exams Perspective:
- RBI
- Monetary Policy
- Fiscal Policy
- CPI
- CRR (Cash Reserve Ratio)
- Urjit Patel Committee