Thursday, April 9, 2015

Monetary Policy Report - April 2015

Macroeconomic Outlook

The prospects for growth in 2015-16 have improved for the followings -
  • The broad-based decline in retail inflation since September 2014
  • Plans announced in the Union Budget 2015-16 to step up infrastructure investment
  • Depressed Commodity prices
  • Upbeat financial market conditions

Retail inflation is projected to remain below 6 % in 2015-16, within the target set for January 2016 (Inflation targeting). 

Persisting slack in the economy and restrained input costs should sustain dis-inflationary impulses, unless -
  • Disrupted by reversal in global commodity prices, and/or,
  • Deficiency in the South-west monsoon

Outlook for Inflation

CPI Inflation will remain below the target of 6 % for January 2016, hovering around 5 % in the first half of 2015-16, and a little above 5.5 % in the second half.

Uncertainties surrounding commodity prices, monsoon and weather-related disturbances, volatility in prices of seasonal items and spillovers from external developments through exchange rate and asset price channels are reflected in a 70 % around the baseline inflation projection of 5.8 % for Q4 of 2015-16.

Outlook for Growth

Real GDP growth for 2014-15 was projected by RBI at 5.5 %. The Central Statistical Office (CSO)'s provisional estimates of GDP (base: 2004-05) tracked projected path up to Q2 of 2014-15.

The new GDP data (rebased to 2011-12) released by the CSO at the end of January 2015 and on February 9, came as a major surprise as it produced significantly higher growth at constant prices

Data revisions and their after-effects are not unique to India, but the magnitude of the gap in real GDP growth rates between the old and the new series for 2013-14 and 2014-15 has complicated the setting of monetary policy. Undoubtedly, the new GDP data embody better coverage and improved methodology as per international best practices. Yet these data cloud an accurate assessment of the state of the business cycle and the appropriate monetary policy stance.

Gross Value Added (GVA)

GVA + taxes on products - subsidies on products = GDP

Growth at basic prices for 2015-16 is projected at 7.8 %, with risks evenly balanced around this baseline forecast. For 2016-17, real growth in GVA at basic prices is projected at 8.1 %.

Balance of Risks

The baseline paths projected for growth and inflation are subject to realization of a set of underlying assumptions, under plausible risk scenarios, as below -
  • Sharp Increase in Crude Oil Prices - Global crude oil prices are assumed to increase gradually over the forecast horizon in the baseline projection.
  • Below Normal Monsoon in 2015-16 - As against the normal monsoon assumption in the baseline, there is a risk of monsoon turning out to be deficient in 2015.
  • Depreciation of the Rupee - Uncertainties surrounding the exchange rate persist. 
  • Easing of Food Inflation - Headline inflation could also undershoot from the baseline, if food inflation moderates by more than what is envisaged
  • Crude Oil Price Declining Further - If crude oil prices decline below the baseline by USD 15-20 per barrel in the near-term as a result of excess supply conditions / low global demand in a stable geo-political environment - inflation would come down.
  • Revision in CSO's GDP Estimates - Considerable uncertainty surrounds the advance estimates of GDP growth for 2014-15 and information on real economic activity to Q4 is expected to be better captured in the revised estimates, which would be released around the end of May 2015.
  • Pick-up in Investment Demand - If the boos to investment expenditure announced in the Union Budget for 2015-16 helps in crowding in private investment, and correspondingly, if investment demand picks up, GDP growth will rise considerably.

Revision of Consumer Price Index (CPI)

Beginning January 2015, the CSO revised the base year of the CPI to 2012 (from 2010 = 100). The weighting patterns of the revised series is based on the 2011-12 Consumer Expenditure Survey (CES 2011-12), of the National Sample Survey Office (NSSO), which is more representative and recent than the CES 2004-05 used for the old series.

[Compiled from RBI's Monetary Policy Report - April 2015]

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Tuesday, April 7, 2015

Monetary Policy of RBI

Monetary Policy

Monetary policy is the process by which central bank, the monetary authority of a country, controls the supply of money in the economy. In India, Reserve Bank (RBI) is the sole authority to frame the monetary policy. 

As per the recommendations of Urjit Patel Committee, RBI adopted the release of monetary policy on bi-monthly basis, i.e., bi-monthly monetary policy.

Operating Target and Operating Procedure of Monetary Policy

To understand the Monetary Policy of RBI, you have to understand the following terms specified by it -

1.  Policy Rate
The fixed overnight repurchase rate (repo rate) under the Liquidity Adjustment Facility (LAF) is the single monetary policy rate.

2.  Operating Target
The Weighted Average Call-money Rate (WACR) is the operating target of monetary policy.
Note that Call money is the overnight funds that are lent by one bank to another bank.

3.  Operating Procedure
Once the policy rate is announced in the bank's statements on Monetary policy, the operating procedure aims at modulating liquidity conditions so as to achieve the operating target (meaning - anchor the call money rate around the policy rate / repo rate). This is the first leg of monetary policy transmission to the financial system and the economy.

4.  Liquidity Management
RBI uses the pro-active liquidity management mechanism to achieve the operating target. The main features of this framework, which was announced on August 22, 2014, and implemented since September 5 are as follows -

a.  Assured Liquidity Operations -
Assured access to central bank liquidity of 1 % of bank's Net Demand and Time Liabilities (NDTL) (meaning Demand deposits - Current and Savings; and Time deposits - Term and Recurring). This 1 % comprises -

  • 0.25 % of NDTL provided through overnight fixed repo auctions, conducted daily at the policy rate (repo rate), and
  • 0.75 % of NDTL provided through 14-day variable rate term repo auctions, conducted on every Tuesday and Friday.

b.  Fine-tuning Operations -
Fine-tuning operations through variable rate repo / reverse repo auctions of maturities ranging from overnight to 28 days, to even out frictional liquidity mismatches that occur in spite of assured Liquidity Operations

c.  Open Market Operations (OMO) -
Outright OMO through auctions and anonymous screen-based trading on the Negotiated Dealing System - Order Matching (NDS-OM) platform to mange enduring liquidity mismatches

d.  Special Operations -
Special Operations are also conducted on holidays to help market participants tide over pressured arising from one-off events such as tax payments, government spending, balance sheet adjustments and payment and settlement requirements.

5.  Standing Facilities

a.  Marginal Standing Facility (MSF) -
A Marginal Standing Facility (MSF) allows market participants to access central bank liquidity at the end of the day (including Saturdays), even after providing assured and fine-tuning operations.

Under MSF, up to 2 % of their (market participant's) stipulated Statutory Liquidity Ratio (SLR) holdings of government securities in addition to excess SLR as collateral at a rate set at 100 basis points (bps) above the policy rate (meaning - MSF rate = Repo rate + 1 %)

b.  Reverse Repo -
Fixed rate daily overnight - reverse repo auctions are conducted at the end of the day (including Saturdays) to allow market participants to place their surplus liquidity with the RBI at a rate set at 100 bps below the policy rate (meaning - Reverse Repo rate = Repo rate - 1 %). It operates as a de facto standing facility.

Note that the MSF rate and the fixed overnight reverse repo rate define an informal corridor for limiting intra-day variations in the call rate.

1st Monetary Policy - April 7, 2015

RBI governor Shri Raghuram Rajan has decided to keep the policy rate and cash reserve ratio unchanged. Followings are the current rates -

  • Repo rate (policy rate) - 7.5 % (rate charged by RBI to banks)
  • Reverse Repo rate = Repo rate - 1 % = 6.5 % (rate at which RBI pays interest to banks)
  • MSF rate = Repo rate + 1 % = 8.5 % (rate charged by RBI to banks)
  • Bank rate = 8.5 % (rate charged by RBI to banks)
  • Cash Reserve Ratio (CRR) - 4 % (percent amount to be stored with RBI, in terms of account balance or reserves)
  • Statutory Liquidity Ratio (SLR) - 21.5 % (percent amount to be stored with itself, in terms of golds or government securities - cannot be lent to public)

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Monday, April 6, 2015

IBPS SO IV Final Result

IBPS SO IV Final Result

IBPS has released its Specialist Officers (SO IV) Final result (Written + Interview) in its website. Check your marks in the following link -

Click here

Cutoffs for Specialist Officers

* all the posts in Scale - I

  • IT Officer - 57.6 (UR), 54.4 (OBC), 51 (SC), 45.2 (ST)
  • Agricultural Field Officer - 34.2 (UR), 33.6 (OBC), 28.6 (SC), 22 (ST)
  • Rajbhasha Adhikari - 34.2 (UR), 39 (OBC), 37.4 (SC), 30 (ST)
  • Law Officer - 48.4 (UR), 43.2 (OBC), 40 (SC), 37.6 (ST)
  • HR Officer - 54.4 (UR), 49 (OBC), 46.6 (SC), 43.6 (ST)
  • Marketing Officer - 51 (UR), 48.4 (OBC), 44.4 (SC), 36.2 (ST)

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Market Stabilization Scheme (MSS)

MSS Background

In the year 2004, Foreign Institutional Investors (FIIs) started buying Indian stocks in dollars. This resulted in an oversupply of USD in Indian market.

To counter this, RBI started buying USD, and in return, supply equivalent amount of Indian Rupees (INR) in the market. This action resulted in over-liquidity in Indian market (due to rupee supply), and at the same time massive increase in forex reserves (due to dollar purchase).

This liquidity overhang situation forced the government to mop up the Rupees from the market by creating MSS Bonds.

Market Stabilization Scheme (MSS)

Under this scheme, RBI, on behalf of government, raises money from the market by providing government securities, like Treasury Bills, Dated Securities, etc.

But the difference is - the raised money doesn't go to the government account (as in normal cases). Instead, the money is stored in separate Market Stabilization Scheme Account (MSSA). The sole purpose of this scheme is to suck out the over-liquidity from the market (as in the above situation), not for government expenditure.

Note the term - 'Market Stabilization'

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