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Expect continuation of monetary policy special effects to counter the down turn during the coming mo |
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Written by Tojo Jose
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Tuesday, 24 February 2009 |
The RBI is all set to make a post budget monetary policy change within a few days. It is widely expected that the central bank is going to cut key policy rates in the wake of the worsening economic environment.
Two factors are giving special effects to the next monetary policy intervention. The first is that the inflation rate has come down to below four percent mark. Secondly, the industrial production index has registered a decline for the first time in the last fifteen years.
The lower inflation rate clearly demands a stronger interest rate reduction commitment from the RBI. A few months back, the inflation rate was a staggering 13%. The banks at that time have a lending rate of around 12-14%; implying a real interest rate of just around one percent. Now, the banks have reduced their lending rates slightly to 11- 13% mark. But with the steeply came down inflation figures, the effective real interest rate now stands high at around 9%. Definitely, this high real interest rate is a disincentive for both consumption and investment demands. Hence, the RBI has to bring back the real interest rate to the sustainable levels. |
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The nature of RBI’s next monetary policy intervention |
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Written by Administrator
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Tuesday, 24 February 2009 |
The RBI’s expected monetary policy inducement is critical in many respects. The more than softened inflation rate, slowing down economy and rigid interest rate by banks despite earlier softening measures by the RBI- all adds to the burden of the central bank’s next intervention. Another factor which may compel the RBI to reframe its traditional measures is the high level planned borrowing programme by the government represented by the high fiscal deficit.
The demarcating point about the current nature of the monetary policy instruments is that most of the rates and ratios are at already low levels. The CRR is five percent, while repo and reverse repo rates are 5.5 % and 4 % respectively. |
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Budget 2009 A BRIEF EVALUATION OF THE INTERIM BUDGET |
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Written by Administrator
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Thursday, 19 February 2009 |
Given the revenue constraints and expenditure pressures created by a slowing down domestic economy and deteriorating global economy, the budget tried to minimize the inescapable adverse fiscal effects by avoiding populist measures and postponing further fiscal stimulus measures.
The interim budget 2009 was presented in the background of global economic recession, domestic economic slowdown and the upcoming general election. Many analysts were expecting further fiscal stimulus packages and populist measures in the budget. But the revenue constraint has blocked the government to carryout such measures.
The global economic crisis has severely affected the fiscal health budget. Firstly, in the aftermath of the crisis, the government has carried out fiscal stimulus package during in the previous months comprising of tax cuts and expenditure augmentation measures. Secondly, the budget was affected declining tax revenues.
The budget 2009; perhaps being an interim one, was not baked by tax changes and fresh policy initiatives. The budget speech mainly reflected the achievements of previous years and mainly seemed an explanation of the revised estimates of the current year. |
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