If I were a member of MPC?

If I were a MPC member?

RBI Monetary Policy Committee is meeting between 6th and 8th June 2023 to review the repo rate. Since its meeting in April 2023, there have been changes in the following factors, which usually play a major part in their discussions.

1. FED rate: FOMC raised the fund rate yet again (10th time) by 25 bps. in May 2023.. However, the toned down statement on tightening the rate further in future, did create an impression that a long pause is likely from now on.

2. Forex Reserves: Forex reserves now at USD 589 billion is comfortable to take care of more than 9 months import bills at present levels.

3. Crude Oil: The average price is less than USD 80  per barrel, which is the assumption used by RBI in its inflation projections for FY 2023-24.

4. CPI inflation: is less than the upper tolerance level of 6% within which RBI is mandated to keep it, for ensuring price stability. Especially the April 23 numbers at 4.7% is closer to the target level of 4%

5. Core Inflation: This was the worrying factor, even after repo rates were raised by 250 bps till Feb’ 23. It is seen moderating  and at 5.25% in April 2023 gives comfort that the MPC initiatives are bearing fruit.

6. Current Account Deficit (CAD):  moderated to USD 18.2 bn., 2.2% of GDP.

7. Pause in repo rate last time: Helped in stabilising money market rates as well as moderating the yields of dated G-Secs.

8. FPI inflows and NRI remittances: Both have turned positive, helping the exchange rate of Indian Rupee to trade around Rs.81-Rs.82 levels, apart from improving the liquidity in the banking system.

9. GDP Growth: The more than expected 6.1% growth in Q4 (Last year 4.5%) enabled India to achieve an annual growth of 7.2% under GDP for FY 2022-23.

With all the factors being positive, I am sure the MPC meeting being held now, will be upbeat that the initiatives have started yielding results towards restoring inflation to mandated levels. What will be their decision? 

If I were a member of MPC, my vote on repo rate and monetary policy will be as under:

I. Repo rate: Though RBI Governor reiterated that the last time decision was a 'one time pause' and not a 'pivot', the CPI inflation and the Core inflation numbers reflected in March and April 23,  makes it difficult for the MPC to put the repo rate on the upward path once again. At the same time attempting a reduction is not prudent due to the following:

1. The inflation dropped down to less than 5% for the first time in April 23 and is still higher than the target rate of 4%. It will be too early to attempt a cut on repo rate based on one month figures, though the month of May 23 may also witness  a similar trend.

2. In all the four quarters of 2022 and the first quarter of 2023, the inflation ruled above 6%. If the trend of the last two months continues, April-June quarter might see for the first time the average inflation level going below the targeted range levels.  It will be prudent to attempt a reduction after June quarter levels, as MPC  can demonstrate that its actions are effective.

3. The monsoon is yet to set in and any long delay might cause uncertainties on agri price lelevels.

So, I will vote for continuation of  'no change' in repo rate.

II. Stance: As the growth achieved in 2022-23 is more than the estimated levels and the inflation is still higher than the target to be achieved, accommodative stance is not warranted. At the same time, a 'neutral' stance might be intrepreted as a dilution of focus to control inflation, though it is growth/inflation neutral as per definition.

So, I will vote for continuity in the stance viz. “Remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth"*.

But I am not a member of MPC. So I will also wait for RBI Governor's staement on 8th June 2023.

Regards

V. Viswanathan

6th June 2023.

*If you ask me to intrepret the stance recommended, I will only say that I voted for continuity without getting caught in explaining what is meant by 'remaining focussed on withdrawal of accommodation'

Comments

  1. SRKannanJune 6, 2023 at 7:26 PM

    Your post script was exactly my thought, when I read your 'choice on stance'.

    ReplyDelete

Post a Comment

Popular posts from this blog

IBC resolutions and haircuts

Image
  What should be the yardstick to evaluate haircuts in IBC  Recovery versus Total Admitted claims - a fallacy: Recently, one of the largest bank employees' union in India, came out with a list of business firms, said to have been acquired by a business conglomerate through resolutions/liquidation effected under IBC (Insolvency and Bankruptcy Code), with a statement that the business group is the beneficiary at the cost of the banks concerned (average haircut 74%). While the fight against huge haircuts in the banking books (in the resolution process under IBC) by the bank employees' union is understandable, I did not subscribe to the view that was being impressed upon  (in their circular)  that the process was done in order to help one particular beneficiary. Right from the beginning, the resolutions  done through IBC witnessed haircuts ranging from 40 to 80% and the said list, at best, is only  an affirmation to the general trend since the beginning of the...
Read more

An open letter

  An open letter to DFS or RBI or to whom? Perceived, yet undefined, "conduct and behaviour" determine or detrimental to selection?:   It has been reported in the newspapers that Financial Services Institution Bureau (FSIB) is conducting interviews for the positions of MD & CEO in four public sector banks (PSBs), including that of Indian Bank (IB), where the present MD & CEO is retiring on 31st December 2024. Conduct of interviews for the position of MD & CEO of IB raised a few eyebrows in the banking circle, as the name of the ED of Bank of Maharashtra (BoM) was shortlisted by the FSIB for the said position in April 2024. The news item further reported that the decision of FSIB could not be completed to its logical conclusion, since Reserve Bank of India (RBI) appear to have taken a stance (in its communication to FSIB) that the "behaviour and conduct" of the said official "was not befitting his position and responsibilities concerning regulatory c...
Read more

என்னை பண்படுத்திய தருணங்கள்

Image
  என்னை பண்படுத்திய சில நிகழ்வுகள் ஜூலை 6, 2024 தினமலர் சிறுவர் மலர் இதழில், என்னை பள்ளியில் ஊக்குவித்த இரண்டு ஆசிரியர்களை பற்றி குறிப்பிட்டு எழுதி இருந்தேன். (பெட்டிச் செய்தியில் காண்க) .  என்னை பண்படுத்திய  மேலும் சில நிகழ்வுகள்:   1. 1973 மே மாதம் என்பது என் நினைவு SSLC (11 ஆம் வகுப்பு) தேர்வு முடிவுகள் நாளிதழில் வந்திருந்தது. தேர்ச்சி பெற்றவர்களில் என் என்ணும் இருந்தது. காலை 10 மணிக்கு நான் படித்த ராமகிருஷ்ணா உயர்நிலைப்பள்ளி T. Nagar (Main Branch) இல் தேர்வு சான்றிதழும் மதிப்பெண் பட்டியலும் பெற சென்றிருந்தேன். எனது வகுப்பாசிரியர் MKR என்று அழைக்கப்படும் M.K.ராமசாமி அவர்கள் மிகவும் கோபத்தோடு,  "உன்னிடம் நிறைய எதிர்பார்த்தேன், ஏமாற்றி விட்டாய்"என்று கூறிவிட்டு,  பதில் எதிர்பாராமல் சென்று விட்டார். குழப்பத்துடன் மதிப்பெண் சான்றிதழை பெற்றபோது,எனது மொத்த மதிப்பெண் 60  சதவிகிதத்திற்கும் குறைவாக இருந்தது. அரையாண்டு தேர்வில் நல்ல 70 சதவிகிதத்திற்கும் மேலாக பெற்றிருந்தேன். 11-Gயில் படித்த ஞானானந்த பிரசாத் பள்ளியின் முதல் மாணவனாக வருவான் என்று தெரிந்திருந்தா...
Read more