Monday, January 25, 2010

CRR hike for sure; interest rates may remain unchanged

Hike in CRR at this point may not immediately push up the borrowing costs for companies and individuals
I am fairly convinced that Reserve Bank of India (RBI) governor D. Subbarao will increase banks’ cash reserve ratio (CRR), or the portion of deposits that commercial banks are required to keep with the central bank, by at least half a percentage point in the 29 January review of monetary policy. This will probably be implemented in two stages and drain out about Rs22,000 crore of liquidity from the system

If RBI does not act now, it will have to resort to a larger dose of CRR and rate hikes later. The good news is that a hike in CRR at this point may not immediately push up the borrowing costs for firms and individual consumers as banks will continue to have appropriate liquidity.

Subbarao may refrain from raising interest rates even though many members of the technical advisory committee (TAC) on monetary policy at RBI, I am told, are rooting for an increase to rein in inflationary expectations.

To read more, please, visit Tamal Bandyopadhyay-livemint.com

The hollow men of monetary policy

Higher interest rates or CRR hikes not only curtail growth and employment, but also add to inflation by raising input costs. Policy pundits should know that, in fact, tight money is never a good idea
There is a cacophony of confused ideasand a deficit of genuine insight into how to fix India's runaway inflation. The mavens of the Reserve Bank of India or the Ministry of Finance, who sit in their air-conditioned offices poring over numerous numbers that pretend to tell India's economic story,should think twice — or more than that.

FALLING GROWTH

In their aggregation, these numbers mask the sheer complexity of the millions of micro-economies that make up India. Looking at these numbers and deciding that interest rates need to be raised (admittedly great for middle income savers) or that money supply has to be made tight, is simply the wrong way to go. Such an approach ignores the realities of Indian consumption and entrepreneurship.
To read more, please, visit Sumit K. Majumdar - The Hindu Business Line

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