Technoglitch
Core Member
1) Inflation: All eyes were on how the central bank would react to rising inflation. The policy states retail inflationmeasured by the consumer price index (CPI) rose more sharply than expected due to a more-than-seasonal jump in food prices and stickiness of inflation excluding food and fuel. Interpreting the data RBI said the surprise in April reading makes the future trajectory of inflation somewhat more uncertain. Expectations of a normal monsoon along with various supply management measures should moderate unanticipated flares of food inflation. In addition, capacity utilisation indicators suggest that the available headroom in industry could keep output prices subdued even as demand picks up.
2) Liquidity: Tight liquidity was an issue that was also hampering growth. RBI had addressed this issue in the previous policy by relaxing liquidity for banks who on account of their asset quality and tight liquidity were refraining from lending in the market. RBI’s policy states that stronger-than-usual currency demand during the first two months of the financial year and build-up of cash balances by the government from the second week of May tightened liquidity conditions from mid-May.
3) FCNR (B) issue: A matter that is bugging the markets is the expected outflow of money on account of maturity of FCNR (B) (Foreign currency non-resident (Bank)) deposits which were encouraged in 2013 by Rajan in order to handle the falling currency during that time. Commenting on the issue, Rajan said that there may be some rupee-dollar volatility around the time of outflows but RBI is well prepared for it. Rajan said that he expects outflow of about $20 billion but pointed out that RBI has covered these in forward markets. However, there is some amount of anxiety after Rajan pointed out that some counter-parties with which the central bank had entered into forward contracts back in 2013 may not be able to deliver dollars on time.
4) Growth: Avoiding the controversial GDP numbers, the policy talks of the Gross Value Added (GVA) numbers which have grown by 7.2 per cent but saw a deceleration in services. For the current year, RBI says that there has been a seasonal pick-up in sectors like electricity. However, manufacturing remains weak on account of subdued investment demand and weak rural consumption. The policy statement is bullish on growth prospects highlighting that the latest rounds of forward looking surveys indicate an improvement in the overall business situation, driven by a pick-up in capacity utilisation and in order books – both domestic and external.
5) On asset quality of banks: Commenting on the distressing numbers shown by banks in recent quarters after RBI asked these banks to disclose their true status of non-performing assets; Deputy Governor SS Mundra said that banks will have to further increase their provisioning coverage ratios (PCR) going forward. Without commenting on the fact if the worst is over, Rajan pointed out that in order to facilitate loan coverage norms, RBI will look to either reduce SLR (statutory liquidity ratio) or LCR (liquidity coverage ratio) for banks. This to some extent explains the rally in banks post the policy interaction.
RBI keeps rates unchanged: 5 key takeaways | Business Standard News
2) Liquidity: Tight liquidity was an issue that was also hampering growth. RBI had addressed this issue in the previous policy by relaxing liquidity for banks who on account of their asset quality and tight liquidity were refraining from lending in the market. RBI’s policy states that stronger-than-usual currency demand during the first two months of the financial year and build-up of cash balances by the government from the second week of May tightened liquidity conditions from mid-May.
3) FCNR (B) issue: A matter that is bugging the markets is the expected outflow of money on account of maturity of FCNR (B) (Foreign currency non-resident (Bank)) deposits which were encouraged in 2013 by Rajan in order to handle the falling currency during that time. Commenting on the issue, Rajan said that there may be some rupee-dollar volatility around the time of outflows but RBI is well prepared for it. Rajan said that he expects outflow of about $20 billion but pointed out that RBI has covered these in forward markets. However, there is some amount of anxiety after Rajan pointed out that some counter-parties with which the central bank had entered into forward contracts back in 2013 may not be able to deliver dollars on time.
4) Growth: Avoiding the controversial GDP numbers, the policy talks of the Gross Value Added (GVA) numbers which have grown by 7.2 per cent but saw a deceleration in services. For the current year, RBI says that there has been a seasonal pick-up in sectors like electricity. However, manufacturing remains weak on account of subdued investment demand and weak rural consumption. The policy statement is bullish on growth prospects highlighting that the latest rounds of forward looking surveys indicate an improvement in the overall business situation, driven by a pick-up in capacity utilisation and in order books – both domestic and external.
5) On asset quality of banks: Commenting on the distressing numbers shown by banks in recent quarters after RBI asked these banks to disclose their true status of non-performing assets; Deputy Governor SS Mundra said that banks will have to further increase their provisioning coverage ratios (PCR) going forward. Without commenting on the fact if the worst is over, Rajan pointed out that in order to facilitate loan coverage norms, RBI will look to either reduce SLR (statutory liquidity ratio) or LCR (liquidity coverage ratio) for banks. This to some extent explains the rally in banks post the policy interaction.
RBI keeps rates unchanged: 5 key takeaways | Business Standard News