Monetary Policy

Ostrich-like in Peacock Nation
01 October, 2018, C.P. Chandrasekhar
In the midst of a crisis reflected in a collapsing rupee, India’s BJP government is acting ostrich-like, burying its head in the ground. Nothing illustrates this better than its much-delayed response to the collapse of the rupee with a set of measures that are the opposite of what is needed.
The Indian Economy in a Tailspin
24 September, 2018, Prabhat Patnaik
A combination of direct import controls on inessential items, reduction of petro-product prices, measures for reducing the consumption of such products, and direct taxation, especially on wealth, is the obvious way of getting out of the tailspin in which the Indian economy is currently caught. There is no alternative to these measures if we are to avoid the fate of countries that eventually run to the IMF and get caught in the vice-like grip of “austerity”.
National income in India: What’s really growing?
28 February, 2018, C.P. Chandrasekhar & Jayati Ghosh
Recent income growth in India has been dominated by sectors that do not reflect real physical output increases – such as finance, insurance and real estate and public administration and defence.
Foreign Investor Appetite
14 September, 2017, C.P. Chandrasekhar & Jayati Ghosh
A brief decline in portfolio inflows into equity markets has raised the question whether foreign investment flows into India have peaked. The evidence of investments in debt markets suggest otherwise. That, however, need not be all good news.
NPAs: All talk and no action
04 August, 2017, C.P. Chandrasekhar
The problem of large NPAs of nationalised banks can be traced to the neoliberal reforms in the financial sector and outside, which prevent large government investments in infrastructure and capital-intensive industries that are imperative for development but too difficult a responsibility for the private sector to shoulder.
Interest Rates and the Use of Cash
08 March, 2017, Prabhat Patnaik
It is ironic that under the most advanced form of capitalism today demands are being made which would push us back into the age of gold-money from where mankind had begun its journey into the realm of money.
Wicked Loans and Bad Banks
08 March, 2017, C.P. Chandrasekhar
A trail of defaults is ensuring that the NPA ratio is not stabilising, as the RBI expected it would, once assets misclassified as restructured and standard are recognised as non-performing.
Bond Market Reversal
14 February, 2017, C.P. Chandrasekhar & Jayati Ghosh
Post-Trump expectations of a shift back from an easy monetary policy with low interest rates to reliance on a fiscal stimulus for growth are reversing trends in global bond markets.
Age of Uncertainty
23 December, 2016, C.P. Chandrasekhar & Jayati Ghosh
With the US Federal Reserve deciding to exit the era of low interest rates even when growth in the rest of the world economy falters or remains sluggish, economic uncertainty intensifies.
The Budget after Demonetisation
21 December, 2016, C.P. Chandrasekhar
If the government adheres to its deficit targets, this could imply a substantial cut in capital expenditures or social expenditures or both which would worsen the contraction set off by demonetisation.
Supreme Court should Frame an Eleventh Question on Demonetisation
15 December, 2016, Prasenjit Bose and Zico Dasgupta
Whether the demonetisation scheme declared through the November 8 notification qualifies as a fiscal or economic policy is a vital question that merits the attention of the Supreme Court.
Rajan's Exit
15 September, 2016, Prabhat Patnaik
The reason for the governments dithering over an extension of Raghuram Rajans term, which led to his decision not to ask for one, cannot be attributed to his stance on interest rates.
An Overburdened Instrument
06 September, 2016, C.P. Chandrasekhar
The interest rate that is seen as being the principal instrument for macroeconomic management is proving to be a blunt tool when combatting inflation or promoting growth.
Unexpected Inflation
02 September, 2016, C.P. Chandrasekhar & Jayati Ghosh
The return of inflation, even if moderate, at a time when India is experiencing a normal monsoon and after a long period of inflation-targeted monetary policy is surprising.
The Business of Wilful Default
03 August, 2016, C.P. Chandrasekhar
Adventurous lending followed by wilful default that has become more common in recent years, is linked to the change in banking practices and the pursuit of quick profits after liberalization.
The Return to Retail Lending
02 August, 2016, C.P. Chandrasekhar & Jayati Ghosh
After having retreated from retail lending in the years since 2005-06, banks burdened by NPAs in areas like infrastructure seem to be returning to the retail market. How far can this go?
The Global "New Normal" Is Not New- But it is still a real concern
21 June, 2016, C.P. Chandrasekhar & Jayati Ghosh
Global growth rates of the last five years are similar to those in the past, but now they are accompanied by unprecedented monetary expansion that seems to have little impact.
Bad Loans, Lending Behaviour and Growth
07 June, 2016, C.P. Chandrasekhar & Jayati Ghosh
As interested observers focus on the bad loans, accumulating in the books of Indias commercial banks, the implications it has for lending behaviour and growth are less explored.
No Clue to the Future
27 April, 2016, C.P. Chandrasekhar
The failure of the G20 countries to agree to an action plan not just to ensure recovery but prevent a second slump, may lead to countries adopting beggar-thy-neighbour policies.
The Phenomenon of Negative Interest Rates
21 April, 2016, Prabhat Patnaik
Even the unconventional measure of charging negative interest rates, as the author says, is unlikely to end the recession because capitalism today is in a deep structural crisis.
Interesting Turn Around
14 October, 2015, C.P. Chandrasekhar
The recent rate cut by the RBI reflects a shift in its policy stance and signals that it has accepted that the biggest threat in India today is not inflation, but deflation.
No Case for Complacence
05 October, 2015, C.P. Chandrasekhar
The yuan depreciation can trigger a chain of events that would convert the creeping world recession into another full-fledged crisis and India cannot be immune from contagion.
The Spectre of the Thirties
07 July, 2015, Prabhat Patnaik
The world economy today is reminiscent of the 1930s where competitive easing of monetary policy is not boosting aggregate demand and fiscal policy is barred by finance capital.
Government and RBI: No real stand-off over macro policy
08 May, 2015, C.P. Chandrasekhar
The current stand-off is more of a government effort to regain influence over macroeconomic management, as the government is accountable to the people whereas the RBI is not.
The RBI Governor's Unwarranted Remarks
02 January, 2015, Prabhat Patnaik
Dr. Rajan's criticism of the debt-waiver scheme for farmers underscores the fact that "social banking" gets progressively eliminated in the era of neo-liberalism.
Asian Banks in Trouble
02 January, 2015, C.P. Chandrasekhar
Emerging market economies in Asia are confronted with signs of bank fragility owing to overexposure to the private sector, whose mounting external debt compounds the problem.
Bad News in the Good Days
16 December, 2014, C.P. Chandrasekhar
While the collapse in oil prices and moderation in food price inflation are good news for the Modi government, there is a real danger of it turning complacent as a result.
On High Interest Rates
13 October, 2014, C.P. Chandrasekhar
The RBI's decision to follow a restrictive monetary policy seems to have been influenced by the inflow of foreign finance, even if that is at the expense of growth.
The Herd Instinct at Work?
26 September, 2014, C.P. Chandrasekhar
The SENSEX is driven by herd instinct of FII inflow coming with assumptions which are at best speculative; the trend may get reversed in case of a rise in the interest rate.
Passing the Buck
19 September, 2014, C.P. Chandrasekhar
Instead of looking at developed countries' monetary easing, the RBI should explore policy alternatives to restrict capital inflow and reduce India's external vulnerability.
Money, Debt, and Deficit
30 July, 2014, Arnab Kumar Chowdhury
As debt is necessary to sustain the monetary system, hypothetical repayment of all debts can make the monetary system collapse and has the capacity to stall the real economy.
The Rupee's Climb
23 May, 2014, C.P. Chandrasekhar
A surge of capital inflow appreciated the rupee while the RBI is not keen to intervene due to inflation implications. Rupee may stabilise or start depreciating again later.
Rajan's Target: Inflation or the poor?
18 March, 2014, Rohit
The RBI Governors call for inflation targets to be set by the parliament is not a demand for providing relief to the poor, but a gesture to assure global finance capital.
Off-target on Monetary Policy
25 February, 2014, C.P. Chandrasekhar
The Urjit Patel recommendations for RBI to pursue the single objective of inflation targeting via interest rate control follows textbook Neo Keynesian model that belie recent experiences.
No Method in this Confusion
21 February, 2014, C.P. Chandrasekhar
The new RBI Governor struggles to maintain stability in the face of the threat of a US tapering even as other countries face turmoil in the absence of control on capital flows.
A New Growth Consensus?
28 October, 2013, C.P. Chandrasekhar
Recent measures by the RBI and the government emulate the path of fuelling growth by easy credit for specific sectors but that path is fraught with the risk of bank fragility.
Is there a Flight of Capital from India?
10 October, 2013, C.P. Chandrasekhar
Capital flight from India aggravated the overall position of rupee, but the countrys balance of payments position is the fundamental weakness which needs to be addressed.
'Loans First' Explaining Money Creation by Banks
30 September, 2013, Arnab Kumar Chowdhury
In fractional reserve banking, the description of banking as "accepting deposits for lending" distorts the perspective in which economics of banking is perceived and analyzed.
What Defines Headline Inflation?
30 July, 2013, C.P. Chandrasekhar
It is barely a year and a half since the government started computing headline inflation based on CPI rather than WPI, it has returned to focusing on WPI-based inflation.
Redistributing Regulatory Power
21 May, 2013, C.P. Chandrasekhar
The FSLRC's far-reaching recommendations seek a fundamental redesign of India's historically evolved financial regulatory framework in favour of a liberalised financial sector.
The Growth Model has Come Undone
12 July, 2012, Mritiunjoy Mohanty
The governments argument that Indias economic slowdown is the result of the global situation and related uncertainty is only partly true. The deeper reason is the unravelling of the underlying growth model partly due to the greatly increased import dependence of the manufacturing sector and partly because the investment subsidy that Indian companies enjoyed due to the under-pricing of assets is no longer feasible.
Markets and the Role of Law?
02 July, 2012, Bikku Kuruvila
While law is presented within the dominant policy discourse as a source of transaction costs and bureaucracy, markets simply could not exist without the rigorous enforcement of rules and contracts that allow the much-celebrated moments of ''free exchange'' to proceed with any certainty. In this light, it is very important to look at the political compromises, policy resolutions and distributional consequences created by market-oriented state intervention. To this view, India in 2012 is already largely integrated into the global economy with the growth, volatility and inequality that such integration entails.
In the Middle of a Muddle
21 April, 2012, C.P. Chandrasekhar
While the RBI is being advised to cautiously stimulate demand and growth, at the same time keeping a close watch on inflation, the Finance Ministry is being cajoled into stoking inflation by hiking a range of prices.
The Dollar Drain
16 April, 2012, C.P. Chandrasekhar
With the government announcing the new liberalised norm for remittances for Indian residents, there has been a spurt in capital outflow from the country. The rising Indian appetite to invest abroad could prove a problem if uncertainty with regard to rupee rises, as such uncertainty could trigger capital flight in a liberalised environment.
The Price of Growth
27 January, 2012, C.P. Chandrasekhar
The early signs of a reduction in the rate of inflation have been used as evidence to make a case for lower interest rates. However, there is no reason to believe that within the current policy regime, rate cuts would not aggravate inflationary trends once again.
The Lurking Debt Problem
19 December, 2011, C.P. Chandrasekhar & Jayati Ghosh
Rising interest rates in the domestic market have been encouraging large firms in the Indian corporate sector to resort to foreign borrowing to finance domestic expenditures. In particular, there has been significant rise in the shares of commercial borrowings and short-term debt in total external debt. This tendency is increasing external vulnerability.
Evading an Inflation Cure
07 September, 2011, C.P. Chandrasekhar
The changing responses of the government to persisting inflation suggest that the government has given up on the task of curbing inflation and expects that people would learn to live with the phenomenon and adjust. Thus the focus on the long-run supply constraints in agriculture as being the reason for the recent inflationary surge is to evade rather than address the problem of inflation.
Trading Growth for Inflation
27 June, 2011, C.P. Chandrasekhar
If inflation is influenced by global developments, adjusting domestic interest rates may do little to redress the problem. The RBI's latest interest rate manoeuvre may thus end up being successful in contracting demand and growth, but it is likely to fail to rein in inflation.
Revisiting Capital Flows
04 May, 2011, C.P. Chandrasekhar & Jayati Ghosh
In a recent move the IMF surprised many by revising its position on the use of capital controls and making a case for them in special circumstances. It has followed this up with an analysis of capital flows to developing countries, which also explains its partial rethink on the use of capital controls by developing countries.
Policy Paralysis and Inflation
03 February, 2011, C.P. Chandrasekhar
The price trends over the last one-and-a-half years suggest that inflation is being driven by factors which are structurally embedded in the economic environment generated by the government's neoliberal reform agenda adopted for two decades now. Further, neoliberal thinking is leading not only to policy paralysis and absurd reasoning, but also to policy responses that are contrary to what is needed.
Disarray in the Global Economy
20 October, 2010, C.P. Chandrasekhar
The slanging match over currency and monetary policies at the annual Fund-Bank meetings, held over the second weekend of October, points to the disarray in global economic governance. While the US sought to mobilise IMF support for an effort to realign exchange rates and ensure an appreciation of the renminbi in the wake of China's reserve accumulation
Ignoring Asset Price Inflation
22 September, 2010, C.P. Chandrasekhar & Jayati Ghosh
The recent action taken by the Reserve Bank of India to hike repo and reverse repo rates has been interpreted as a shift in focus to inflation control resulting from a combination of comfortable growth figures and disconcerting increases in the prices of goods, especially food articles.
The Oil Price Hike
28 June, 2010, Jayati Ghosh
What on earth are they thinking? In the midst of an almost unprecedented and continuous increase in the price of necessities, which is increasingly translating into generalised inflation, the UPA government has chosen to ''free'' the price of petroleum products, to bring them in line with international prices.
The Monetary Lever
04 November, 2009, C.P. Chandrasekhar
The responses to the RBIs most recent quarterly review suggest that India too has seen post-reform changes that give monetary policy and its consequences an important role in economic management. In fact, there is reason to believe that the role of monetary policy would increase substantially in the immediate future.
Central Banking in an Uncertain Age
07 October, 2009, Jayati Ghosh
The recent book written by the previous Governor of the RBI Dr. Y. V. Reddy describes the challenges of central banking in these complicated times. It provides a reasoned critique of policies of unnecessary deregulation and highlights the need for balance and for recognising the requirements of the development project. The validity of these arguments has been effectively underlined by the overall resilience of Indian banking during the global financial crisis of the past year.
The Threat of Drought-driven Inflation
24 August, 2009, C.P. Chandrasekhar & Jayati Ghosh
With just a few weeks to go before the Southwest monsoon retreats, it seems almost certain that the deficiency in rainfall would be such as to constitute a drought.
Too Much of a Good Thing
17 December, 2007, Jayati Ghosh
The massive surge in net capital inflows has put substantial pressure on the rupee. Faced with an unwanted surge of capital that is not being used for productive investment but is associated with a rising exchange rate, the need to put some limits and constraints on the capital inflows, in the form of direct marketing activity in lieu of a capital gains tax, cannot be denied.
A Reticent RBI Succumbs
11 August, 2007, C.P. Chandrasekhar
Though still remote and unintelligible to the ordinary citizen, the annual statement on and quarterly reviews of monetary policy by the Reserve Bank of India (RBI) receive much attention from the Finance Ministry, the financial sector and the media. This is not surprising given the increased importance of the financial sector and the crucial role of credit in the current process of growth of the Indian economy.
The Message from the Meltdown
11 April, 2007, C.P. Chandrasekhar
Financial year 2007 began with one more strong "correction" of the bull-run that has dominated Indian stock markets in recent months. The first trading day of the year, April 2, witnessed the second sharpest single-day decline ever in the benchmark Sensex. The close to 617 points decline was received as usual with alarmist statements that suggested that a bull run that keeps stock indices rising should be the norm in a healthy economy. "A World of Gloom In Your Cup" declared one newspaper with a fondness for bizarre banner headlines. It was another matter that the day following the "crash" the market recovered and the Sensex rose by 169 points, indicating that the previous decline was partly the result of market panic.
Why Inflation Still Matters
13 December, 2006, Jayati Ghosh
Perhaps more than any other purely economic issue, inflation has always been a pressing socio-political concern in India. That is because the vast majority of our working people receive incomes that are not indexed to prices, and are therefore directly and adversely affected especially by the rise in prices of necessities. Since money wages and the incomes of small businesses of the self-employed adjust to rising prices only with a lag, this means that their real incomes get eroded over time. So inflation has direct income distribution consequences.
RBI: Managing the Forex Surge
02 May, 2005, C.P. Chandrasekhar
Symbolism is a crucial adjunct of central banking. Huge buildings of solid stone, high ceilings, steel vaults and managers in suits are the images that come to mind when one thinks of the institution that is presumed to have final financial authority and serves as the lender of last resort.
Foreign Capital: Too Much for Comfort
18 March, 2005, C.P. Chandrasekhar
It is official now. The recently released Report on Currency and Finance 2003-04 of the Reserve Bank of India recognises that, if not managed appropriately managed, the surge in capital inflows into India could trigger a future financial crisis.
Whatever is Happening to Indian Banking?
15 March, 2005, C.P. Chandrasekhar
Currently, banks seem to be the prime targets of the government's reforming zeal. Having encouraged foreign acquisition, consolidation and universalization in the banking system, the Finance Ministry's current thrust seems to be to find a host of new areas of activity for these institutions.
The Changing Colours of Money
13 January, 2005, Jayati Ghosh
There are several myths about economics that have proved to be very hard to dislodge, despite theoretical proof and empirical evidence that directly contradict them. One such myth is that governments can control money supply.
The Dollar vs. the Chinese Yuan
25 December, 2004, C.P. Chandrasekhar & Jayati Ghosh
The dollar is on the decline, with its value having fallen by around 30 per cent relative to other major currencies since 2002 and by close to 20 per cent in trade-weighted terms. Yet, the US government feigns being unconcerned with the problem.
Privileging FDI in Banking
25 December, 2004, C.P. Chandrasekhar & Jayati Ghosh
The roadmap for take over of Indian private banks by foreign investors will be laid out by end-December says Finance Minister P. Chidambaram. Speaking recently at the India Economic Summit 2004, organised by the World Economic Forum, a global business lobby, Mr Chidambaram said: ''The Government stands by the March 5, 2004 notification.
The Dollar Conundrum
04 December, 2004, C.P. Chandrasekhar
In international markets, all eyes are on the dollar, since uncertainty prevails about the depths to which it would decline. The currency, which appeared to have stabilised relative to the euro in early 2003, after declining from as far back as early 2002, has been sliding sharply since early September.
Economic Reform and Inflation
21 September, 2004, C.P. Chandrasekhar & Jayati Ghosh
Inflation is clearly a cause for concern for the UPA government. Among the few economic policy initiatives it has taken in its less-than-four months in office, efforts to rein in inflation dominate. The reason: As on August 28, the point-to-point annual rate of inflation as measured by the Wholesale Price Index (WPI) stood at 8.33 per cent. The climb to that figure has been consistent, starting from 4.2 per cent on an annualised basis on May 1.
What the Rising Rupee Signals
22 April, 2004, C.P. Chandrasekhar
The Indian rupee is on the rise. While its appreciation vis--vis the dollar began in June 2002, when it had touched a low of more than Rs. 49 to the dollar, it has been rising vis--vis the Euro as well over the last four months. During these periods of ascent, it has appreciated by close to 12 per cent vis--vis the dollar in 22 months and by a significant 9 per cent vis--vis the Euro in a short period of 4 months.
Bank Reform and the Rural Sector
20 January, 2004,
In the period before the nationalisation of banks, key sectors of the economy including agriculture remained thoroughly neglected in terms of availability of institutional credit.
Monetary Policy: Desperate Measures
30 October, 2001, C.P. Chandrasekhar
In an uncharacteristic move, India's conservative central bank has sought to introduce significant changes in its monetary policy in its mid-year review released on the 22nd of October. It has decided to slash the cash reserve ratio from 7.5 to 5.5 per cent in two quick stages to allow for the release of additional liquidity into the system. It has reduced the Bank Rate, or the central banks' reference rate for interest by half a percentage point.
Small Savings and Interest Rates : The Real Story
19 June, 2001,
One of the favourite predictions of the proponents of financial liberalisation measures in the 1990s was that the eventual result of such reforms would be reductions in real interest rates. It was argued that there would be an initial rise in such rates to redress the excessively low interest rates created by policies of "financial repression". In fact this was argued to be both necessary and welcome because it was supposed to lead to higher rates of domestic saving as well.
Monetary Policy : Post - Reform
05 September, 2000,
In recent weeks, economic attention has been focused on the rupee, which has registered a sharp fall in its value relative to the dollar. On one occasion the rupee's value in intra-day trading even fell below the psychological benchmark of Rs. 46 to the dollar. In the event, the RBI, which till recently had been lauded for it efficient management of India's balance of payments, appears to have suffered a loss in popularity.

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