A member of the Monetary Policy Committee (MPC), JR Varma said Friday that it was not yet clear whether the Bank of India’s stepped-up support to curb user growth was successful, and the pace of tightening would depend on the situation. Said it depends.
With strong economic growth, he wants the decline (inflation) to accelerate to 4%. But if the economy is in dire straits, it may be worth slowing down the pace of adaptation.
The central bank raised central bank reserves by 50 basis points from August to 5.40%, pushing the overall increase in May to 140 basis points. The next policy he decides on Sept. 30 is expected to rise by less than 50 basis points.
By increasing liquidity, the central bank lowers the so-called interbank interest rate in bands, defined as the number of loans or loans made to banks.
Impact of a rate hike in India still unclear: MPC members
When liquidity increases, central banks fix interbank lending rates within ranges called bands. A band is defined as the interest rate at which a bank borrows or borrows from a bank.
A member of the Monetary Policy Committee (MPC), JR Varma said Friday that it was not yet clear whether the Bank of India’s stepped-up support to curb user growth was successful, and the pace of tightening would depend on the situation. Said it depends.
“If we have strong economic growth, we want the rate of decline to go up to 4%,” Varma told Reuters’ India Trade Forum.
The central bank increased central bank reserves by 50 basis points in August, bringing him to 5.40%, bringing the total since May to 140 basis points. The next policy he decides on Sept. 30 is expected to rise by less than 50 basis points.
By increasing liquidity, the central bank lowers the so-called interbank interest rate in bands, defined as the number of loans or loans made to banks.
Real interest rates are expected to increase because shifting the trade rate from the bottom to the top of the corridor is a contraction in itself. He 205, not He 140 BPD,” Velma said.
He also said there was no consensus in the Indian press on the central bank’s definition of economic growth as a stable potential and close to inflation (inflation-adjusted) real interest rates. However, according to calculations, it ranges from 0.5% to 1.5%.
“Right now, with high inflation and a weak economy, real interest rates could be lower than the neutral rate,” he said. He added that inflation expectations for the third and fourth quarters should be calculated in real terms. It is not currently based on inflation.
Based on these forecasts, Varma believes there is more room for rate hikes by the Central Bank of India. “But there aren’t many of them. At the following meeting, it was considered, he continued.
Impact of a rate hike remains unclear: RBI MPC Varma Fellow
Mumbai: The success of the Bank of India bailout rate hike to curb inflation remains uncertain and the extent of the rate adjustment will depend on economic conditions, said a member of the Monetary Policy Committee (MPC). Barma Friday.
“We want to accelerate the decline by 4% if the economy is robust, but we can change it to slow it down if the economy is struggling,” Varma told Reuters.
The central bank raised the base rate by 50 basis points in August to 5.40%, and the total interest rate since May to 140 basis points. The next decision is on September 30th and is expected to drop below 50bps.
While reducing liquidity, the central bank has also raised interbank rates, within what are called bands determined by the interest rates on bank lending.
According to Verma, “moving the market from the low to the high is the same type of correction,” hence the actual increase will likely be 205 bps rather than 140 bps.
He also said there was no consensus in India on a neutral real interest rate, which the central bank defines as the real (inflation-adjusted) interest rate where economic growth is near potential and inflation is stable. However, he points out that the estimate is between 0.5% and 1.5%.
He said real rates could be slightly higher than average because we are currently in high inflation and weak economic conditions, and that real rates are based on projected inflation projections for the third or fourth quarters. Calculate. Current inflation standards
Based on these forecasts, Varma sees room for rate hikes by the central bank of India. It might be a little, but we’re talking about it for future guidance, he said.
It is currently unclear why the RBI hiked interest rates.
Rajeshwari Sengupta wrote that RBI’s unexpected decision raised doubts about the scheme. Its function is not to identify the stone but to control its swelling.
The Reserve Bank of India usually follows a fixed schedule. However, the unexpected tightening on May 14 raised interest rates and reduced bank liquidity. The market was shocked when the 10-year Treasury yield rose 25 basis points to 7.38%. Why RBI? The President’s detailed explanation is also unclear.
The answer is obvious on one level. Inflationary pressure is increasing. Core consumer price index (CPI) inflation has fallen to 7% from 6.1% since the MPC meeting on April 8, and growth is expected to decelerate further in the future. RBI will have to face it. As a result, the rate of return increases to 40 units per second policy. Raised to 4.4% and liquidity ratio of 50bps. Up to 4.5%.
However, this disclosure does not seem to be at all correct, as no significant change has taken place since the last decision of the General Assembly. At the time, the Consumer Price Index (CPI) was already in the double digits and it was clear that inflationary pressures were building as US-European inflation and the war between Russia and Ukraine pushed up commodity prices. Supply chain restrictions as China tightens strict quarantine measures to prevent a repeat of the Covid-19 pandemic. However, the RBI does not believe that austerity policies are under pressure.