It needs a well-defined objective and policy instrument.
In his maiden monetary policy announcement, RBI Governor Raghuram Rajan unveiled a mix of easing and tightening measures. He raised the repo rate and lowered the bank rate. In July, the RBI had suddenly raised rates to defend the rupee. Since then, the bank rate, or the MSF rate, has become the operational policy rate, the rate at which commercial banks borrow from the RBI. It is too high for the economy today and needs to be reduced even further.
The decision to cut the MSF rate was obvious. That was the easy part. Rajan also raised the repo rate, which used to be the policy rate before the RBI’s actions to defend the rupee in July. This was supposed to indicate the RBI’s intent to target inflation by lowering inflationary expectations. Bringing such expectations down is a difficult task for any central bank. For the RBI, the problem is even more difficult since it must balance multiple objectives, has numerous instruments and is not independent.
Rajan will have to work hard to build the RBI’s credibility as an inflation targeter. He will need to get rid of its multiple objectives and many instruments. He will have to focus on defining the objective of monetary policy and its instrument clearly, building credibility, being consistent and communicating his policy stance to the public. The success of his term will be measured by how well he is able to anchor inflationary expectations and bring down consumer price inflation. The growth slowdown and high food inflation will make inflation forecasting and targeting difficult. So far, the RBI has not managed to communicate clearly because it has too many instruments and unclear objectives. Read More
In the constant battle for success in trading, there are many qualities needed to overcome the many hurdles put up by both the market and ourselves. People may possess these qualities in varying measures and differing degrees, however there is one quality which all people need to possess: ‘Self belief’. – Without this, you are almost certainly beaten already, and when you lose this, the perils are many.
‘Self-Belief’ is a quality shared by winners across all fields, from sports, to business, to trading. There is a wonderful poem, written about 100 years ago, which nicely captures and summaries this point. – I advise many of my trading clients to print this poem off and keep it close to hand:
The Reserve Bank of India today appealed to members of public not to use banknotes for making garlands, decorating pandals and places of worship or for showering on personalities in social events, etc. Such actions deface the banknotes and shorten their life, the Reserve Bank stated and added that banknotes should be respected as they are a symbol of the Sovereign and public should not misuse them and help in increasing the life of banknotes. The Reserve Bank has also stated that it has been taking all measures to supply clean banknotes across the country and has urged the members of public to contribute their mite to its efforts in pursuing a ‘clean note policy’ for the country.
The Reserve Bank of India (RBI) had sold a massive $ 5.9 billion in the spot segment of the foreign exchange market in July to stem the fall in the rupee. This was the highest intervention by the central bank since January 2012 when it sold $7.3 billion in the foreign exchange market, latest data released by the central bank showed on Tuesday. In June, RBI had sold $2.2 billion.
RBI’s intervention had yielded the desired results as the rupee weakened only about 1.65 per cent in that month. Till about two weeks back, the rupee lost about 23 per cent against the dollar this financial year as it touched an all time closing low of 68.83 on August 28. In the forward market, RBI sold $4.7 billion in July.
RBI has taken a cautious policy regarding selling its foreign exchange reserves, as those could only cover about six months of import. According to analysts, an import cover of eight-10 months is seen as providing comfort to a currency’s strength.
The country’s foreign exchange (forex) reserves fell to a 39-month low as on August 30. Read More
An entry point for some of the groundwater flooding the crippled Fukushima No. 1 plant has been found at reactor 1, according to Tokyo Electric Power Co.
Tepco will consider measures to halt or divert the water by conducting more surveys to determine exactly where it is entering. Cracks in the basement are considered a possibility.
An estimated 400 tons of toxic groundwater are flowing into the four damaged reactor units each day, compounding the volume of highly radioactive water being produced by the makeshift cooling apparatus set up after the triple core meltdowns of March 2011. The fuel inside must be submerged at all times to prevent it from igniting.
The groundwater is believed to be the primary source of the radioactive material entering the sea and potentially poses great danger to the environment.
The entry point is near a basement wall of unit 1?s turbine building, which is connected to and on the east side of the reactor building. Tepco workers found the entry point by drilling a hole into the ceiling of the basement and inserting a video camera, which captured images of water trickling from a point above the wall.
The water used to cool the fuel eventually flows into the turbine building, where it is believed to mingle with water intruding from outside.
The turbine building is also connected to an underground trench that runs toward the coast. Highly radioactive water from the trench is believed to be mixing with separate groundwater flows before entering the sea.
Reactors 1, 2, 3 and 4 and their turbine buildings have similar layouts. Stopping the invasion of the groundwater is thus considered vital to reducing the overall volume of contaminated water.
Tepco has been constructing hundreds of storage tanks to contain, filter and recycle the tainted water, but some have sprung large leaks.
Indonesia has just lifted its benchmak interest rate by 50 basis points to 7 per cent as its efforts to ease the battering meted out on the rupiah by retreating emerging markets investors intensifies.
Bank Indonesia was not scheduled to hold a monetary policy meeting until September 12, having left the cost of borrowing on hold in August. But it brought forward the meeting as the fall in the rupiah intensified, taking its year-to-date loss against the US dollar to 12 per cent – a four-year low.
The prospect of the beginning of the end of stimulus measures in the US has hit emerging market currencies in nations with significant current account deficits. Emerging markets had been in vogue during the cheap money era as investors chased the higher yields on offer.
BNP Paribas sharply cut India’s GDP forecast to 3.7 per cent for fiscal 2014 from 5.2 per cent previously. The new forecast, if met, would mark India’s lowest growth since fiscal 1992.
RBI’s cash draining measures have increased risks to economic growth at a time when the economy was already slowing sharply over the summer, BNP says.
Recent data has been little short of “disastrous”, BNP adds, noting falls in industrial output and PMI indicators.
However, the economy could recover to 5.3 per cent by fiscal 2015, BNP argues, as the weaker rupee should allow a recovery in industrial production and export growth while RBI should be able to reverse quantitative easing and eventually resume monetary easing.
The Reserve Bank on Thursday said it has adequate foreign exchange reserves to deal with the declining value of rupee and the widening current account deficit (CAD).
“I believe our forex reserves are adequate to manage current situation,” RBI Governor D Subbarao said in a response to whether RBI has enough firepower to defend the rupee, which plunged to an all-time low of 65.56 on Thursday. The country’s foreign exchange reserves were up at $278.602 billion as of August 9 compared with $277.17 billion a week earlier.
After breaching the 65 mark, the rupee made some recovery to settle at a fresh closing level of 64.55, still down by 44 paise today against the US currency on persistent dollar demand from banks and importers and sustained capital outflows. Subbarao also said the recent measures taken to curb volatility of rupee would continue till stability is restored. Read More
India will ban the duty-free import of flat-screen televisions from 26 August, the government said in a statement on Monday, adding to a package of measures designed to prop up the rupee by stemming the flow of foreign currency out of the country.
Government officials estimated that more than 1 million television sets were brought into the country last year — many from Dubai, Thailand and Singapore — under a scheme that allowed airline passengers to bring in screens worth up to 35,000 rupees as part of their baggage allowance.
Under the new rules, passengers will have to pay a 35 percent duty and other charges, the officials said.