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Friday, 7 October 2016

Fourth Bi- Monthly RBI Monetary Policy 2016 – Right Move at the Right time

Even his predecessor would have done the same thing and everybody would have hailed him. Our esteemed financial experts and analysts would have fainted with gratification, “At last Mr. Rajan has cut rates, when he thought was the right time”. Mr. Rajan’s unpredictability added to his larger than life image. When it comes to Mr. Patel, he is predictable from the very first day. No body cares that CPI inflation is down at 5.03% from 6.07% MOM. That he is absolutely data dependent and IIP is not galloping and the so called cost of capital is still high.

Why did he cut the repo rate by 25 basis points soo soon. He could have taken some time, adjusted to his new duties and then……… May be people here are expecting him to forecast US Elections and US interest rate hike and then take a call. I think he has already done that. December is going to be pretty volatile & uncertain for global markets and October 4th was the most appropriate timing for a repo rate cut. And what about the MPC which voted unanimously for the rate cut. For our knowledgeable experts who think the RBI is on the same page, same paragraph and even the same line with the Government, should understand that the three external MPC members with fixed term of 4 years will outlive the RBI Governor’s and even the Present Government’s tenure making them extremely independent.

Now coming to the Monetary policy, Repo rate stands at 6.25% after a 25 basis cut, Reverse Repo rate at 5.75% and both Marginal Standing Facility Rate & Policy Rate at 6.75%. RBI maintains its accommodative stance and is confident of achieving the objective of 5% CPI inflation by fourth quarter of 2016-17 and the medium-term target of 4% within a band of +/- 2 per cent.  The Central Bank has injected Rs. 20000 crore over the last two months through OMOs and surplus ranges between Rs. 60000 – Rs. 70000 crore leading to soft interest rate regime. A number of banks have already started adjusting their MCLRs. So what is needed more by the brightest economy in the world as per foreign analysts. Our own domestic ones are busy anticipating the next trigger factor, guess what…… FCNR redemptions…. then US elections in November and its implications on India if either party wins and then our own December monetary policy. Oh… my GOD…. They are so amazingly busy. I envy them and I hope they envy me some day. As for Mr. Patel, Don’t worry Sir, Time Justifies Everything.


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