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RBI quarterly policy review july 2013

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RBI quarterly policy review July of 2013 analysed by PGDM student of Era Business School, New Delhi

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RBI quarterly policy review july 2013

  1. 1. • • • • • • Extracts of Review Management of Rupee – Top Priority; 60? Monetary policy alone? Blame it on Rio (oops!)…external sect risks. Reservations about Sovereign Bond Issuance. Plunge of 0.2 to 5.5%. Moderating WSPI + Prospect of softening of Food Free K Movmt Inflation + Decelerating Growth = Stable ER Indep MP
  2. 2. Time Travel….. • Monetary Policy Statement 2013-14/07May’13:- A. CAD related risk. B. Sudden stop and reversal of capital flows. C. Negative I sentiments. D. Supply constraints. • Appearance of Chairman, Fed in front of Congress/22 May’13:– Tapering and QE. – 0 hour over.
  3. 3. …..Time Travel
  4. 4. US Treasury Note Yield = 2.4% Indian Yield = 7.3%
  5. 5. …..Time Travel…. • Mid Qtr Policy Review/17June’13:– Capital reversal still on. – Rupee still under pressure. – Macroeconomics week. – Good Monsoons but crucial over next three months. – WPI down to 4.7% but Food Index still close to 10%. – Need to have conducive environment for investments. – Fiscal deficit brought down to 4.8%. • Actions Taken:– Gold import restrictions and duty raised. – Liquidity reduced – CRR, Bonds, Raised margins of currency derivatives , Marginal Standing Facility & Liquidity Adjustment Facility restrictions.
  6. 6. …..Time Travel: RBI Acts • June 5 - Import of gold restricted; customs duty raised . • July 08 - Banks to trade only on behalf of their clients in currency futures/options markets, tightening of exposure norms, and raising margins on currency derivatives to check speculative activities. • July 15-MSF rate raised to 10.25%, restricting the overall access by way of repos under the LAF to 750 billion. • July 18 - Open market sales of government securities of 25 billion. • July 22- At least one fifth of imported gold has to be exclusively made available for the purpose of exports. • July 23- Regulating access to LAF by way of repos at each individual bank level and restricting it to 0.5 per cent of the bank’s own NDTL. • July 24- CRR which banks have to maintain on a fortnightly average basis subject to a daily minimum requirement of 70 per cent, was modified to require banks to maintain a daily minimum of 99 per cent of the requirement.
  7. 7. • • • • • • Back to July Review Management of Rupee – Top Priority. Monetary policy alone? Blame it on Rio (oops!). Reservations about Sovereign Bond Issuance. Plunge of 0.2 to 5.5%. Moderating WSPI + Prospect of softening of Food Free K Movmt Inflation + Decelerating Growth = Stable ER Indep MP
  8. 8. • Blame domestic scene rather than Fed:– Largest CAD among peer group; $ 0.5b/day need to flow. – Preferred inflow of FDI – soured by –ve sentiments. – FIIs – huge outflow; now a fickle (ok, Fed did it!). – Bottom may fall out to 65 or 70. – Only 1/5th liquidity sucked out. – Backtracking from Bond auction – lack of confidence. – Political uncertainty. – Unrealistic export targets.
  9. 9. Options Ahead • External Correction:– Lower CAD – weaker Rupee + faster exports. – Minimal cost in terms of lost economic output and jobs. • Internal Correction:– Stabilise currency. – Lower CAD – slower domestic growth + slower imports. – Increased human misery. – Dependent on fiscal consolidation • Possibly a way out :– RBI may have to let currency follow its natural course. – Fiscal consolidation + Supply side reforms by govt + LT funding to bring in dollars.
  10. 10. • Flirting with 61. • PSUs and PSBs to raise $ through ECB….. CRR? • • • • Sovereign Bonds not trashed yet. Oops….$ 1tn tag in danger. T-bill yield touches 11.26%. Fiscal deficit already at half way mark; export interest subsidy (2-3)= 2000cr. • FOREX Res touched $279b
  11. 11. Hopefully ! -Fiscal Deficit. -Forex Res. -Gold Imports. -Non-essential Imports. -FDI Mxs. -NRI – LT. • But the catch lies in putting house in order and the responsibility for that lies with FM. • RBI may focus on inflation. • Rupee may then stabilise automatically.
  12. 12. Any Questions? जवाब चा हए…… तो इनसे पूछो :-

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