RBI may consider easing rates in Dec on slowing inflation

Source :Reuters :Nov 5,2011





The Reserve Bank of India (RBI) may consider reversing its tight monetary stance as inflationary woes begin to ebb next month, C Rangarajan, the Prime Minister's chief economic adviser, said on Saturday. 


The RBI has raised interest rates 13 times since March 2010 in a bid to control inflation, which has topped 9% for nearly a year.


However, Rangarajan said headline inflation may remain high for next one-two months after which it is expected to slowdown to around 7% by end-March.
"It is expected that by December, January we should see decline in inflation, that may be the time when perhaps reversal of policy (monetary policy) will become possible," he told reporters on the sidelines of a banking conference.


"As the inflation rate shows definite signs of decline, the policy regime also have to change."


A cumulative rate tightening of 375 basis points is seen slowing down India's domestic consumption driven growth story. But the RBI has refused to lower its guard against inflation and remains the only central bank that continues to tighten monetary policy amid global slowdown.


Early this week, the Reserve Bank of Australia (RBA) became the latest central bank to cut rate in response to threats to the global economy from Europe's debt emergency.
India's slowing economic growth has slowed down tax revenues, squeezing central finances and putting a question mark on the government's ability to restrict the fiscal gap for the 2011/12 financial year at the budgeted level of 4.6% of gross domestic product.


Any slippage on the fiscal gap target has the potential of worsening India's inflationary problem and choking private investment.


RBI, which last week signalled a pause in its tightening cycle, has warned of inflationary risks if the government's deficit for the current fiscal year ending in March exceeds the budget target.


Rangarajan, a former RBI chief, said the government should make all possible efforts to keep the fiscal deficit at the budgeted level and consider deregulate petroleum prices once inflation starts slowing down.


The government is under fire for allowing a hike in petrol prices on Friday and is expected to delay a planned diesel price hike for fear the move could cause further damage ahead of key state elections beginning early next year.


He also flagged risks to the asset quality of banks from a slowing economy and rising interest rates.

RBI mulls deregulation of interest rate on savings

Source :PTI : Sep 08 2010 , Mumbai

The Reserve Bank today it will soon set up a working group to examine the
possibility of deregulation of interest rates on savings account.



"Deregulation of interest rate is on our radar. A working group will soon be set up to examine the possibility of deregulating of interest rates," RBI Deputy Governor Usha Thorat said while addressing a banking conference organised by FICCI and IBA here.

"We have to examine whether the de-regulation can help bring more people into the formal banking system," Thorat said.

At 3.5 per cent per annum, interest on savings accounts is the only regulated rate in the banking system currently and a highly contentious one given its impact on the common man.


For achieving the goal of financial inclusion, there is a need for a higher number of tie-ups between banks and the non-bank finance companies (NBFCs) to have better delivery systems to ensure better last mile connectivity, Thorat said.


Thorat also said that the apex bank is in the process of "tweaking" regulations on securitisation to ensure the growth of the securitised market in an orderly manner.



Banks should also ensure that there is no excessive borrowing, as such borrowings can lead to the formation of bubbles which can deter stability, she said.



Looking at the high growth in credit in recent years, Thorat advised banks to do more "forward looking provisions" to cover their non-performing assets (NPAs) whose increase is "inevitable" in the future.



In her address, Thorat laid a greater stress on rating agencies and asked them to provide "holistic approach" while rating as it has a direct link to the bank's assets.



She also highlighted the need for development finance institutions to launch more risk mitigant like the the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) which offers collateral-free loans for the benefit of small farmers, landless agricultural labourers, those engaged in allied activities related to agriculture and ones affected by natural calamities.