oppn parties RBI, Monetary Policy & Inflation

News Snippets

  • T20 WC: USA enter Super Eights as their last match against Ireland gets washed out. They were ahead of Pakistan in the points tally. Pakistan were eliminated
  • T20 WC: USA enter Super Eights as their last match against Ireland gets washed out. They were ahead of Pakistan in the points tally. Pakistan were eliminated
  • BJD leader and former Odisha CM Naveen Patnaik said that the criticism of his aide V K Pandian is "regrettable"
  • As more than 20 BJP ministers lost in the recent elections, the new Union cabinet will have many new faces from the party
  • Congress Working committee asks Rahul Gandhi to take up the position of Leader of Opposition in Lok Sabha. Gandhi says he will consider the request
  • RBI governor Shaktikanta Das said that gold was shifted to India as the quantum of RBI gold abroad had increased due to recent purchases
  • Delhi HC rules that submitting photographic evidence of adultery will not be enough, they will have to be proved as authentic in the age of deepfakes
  • A four-member panel will review NEET-UG results of 1563 candidates to check if they were given extra marks for exam time loss
  • Mamata Banerjee says her party will not join Modi's oath-taking ceremony. Also says INDIA bloc might stake claim to form government later
  • K C Tyagi of the JD(U) dropped a bombshell when he said that Nitish Kumar was offered the post of prime minister for switching sides. Opposition leaders rubbished the claim
  • This May was India's hottest month in 36 years says IMD
  • T20 WC: India take on Pakistan today. Telecast to begin at 8pm IST
  • T20 WC: Afghanistan stun New Zealand and Bangladesh win against Sri Lanka
  • T20 World Cup: Australia beat England by 36 runs. This spoils England's chances of making the playoffs as they have lost both their matches till now
  • Heat wave continues in the country as monsoon moves slow
G7 commits to promote India-Europe corridor
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RBI, Monetary Policy & Inflation

By Sunil Garodia
First publised on 2015-09-25 11:23:00

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
In its latest policy review, the RBI expectedly maintained status quo and left key lending rates unchanged. It was expected because of two main reasons: retail inflation shot to a nine-month high in June and although the RBI has cut repo rates ( rates at which it provides short term funds to banks) by 75 basis points since January this year, the banks have passed on only 30 basis points to the end consumer. The RBI was clear in saying that further rate reduction depends on how inflation pans out and how commercial banks pass on rate reduction to consumers.

But as a belligerent government wishes to bring down interest rates despite inflationary pressure, there is little the RBI would be able to do in future if the latest revised financial code put up by the finance ministry is anything to go by. The code seeks to take away the veto power the RBI governor has in matters of setting lending rates. Even before this policy review, there were indications from the ministry that the time was ripe for another rate cut.

Although the RBI governor Raghuram Rajan has been quoted as saying that he isn’t opposed to the idea of taking away of the veto power, this clearly goes against the recommendation of the Financial Sector Legislative Reforms Commission (FSLRC), which had advised for the same “in exceptional circumstances.” It is also incongruous to have a body that is saddled with containing inflation but whose chief does not have a say in the amount of money that is to float in the economy.

Rajan pointed out that a committee formed to take monetary policy decisions would bring in different view-points, will reduce the pressure on one individual and would ensure continuity (as it would be reconstituted even if one member exits). But one is certain that the RBI has internal committees to take these decisions. The point is that if the RBI governor feels that inflation would be jacked up if rates are reduced or more money is injected in the economy at a particular point of time, he should have the right to refuse taking such a decision. If not, he should not be responsible for containing inflation.