Indian central banker RBI: Current and Future Monetary Policy Trends

Ptrikha By Ptrikha, 3rd Dec 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/2o3qqjlm/
Posted in Wikinut>Money>Economics

The Indian central banker- Reserve Bank of India(RBI) keeps a close tab on macro and micro economic indicators like Inflation, growth, flow of money and then decides the course of action. A take on its current stance and likely future policies..

Reserve Bank of India(RBI): Monetary Policies in recent times

As is the case with many developed and even developing countries, the central banker of India- Reserve Bank of India(RBI) is the watchdog which keeps a close tab on the trends in the economy and is the key authority on Monetary Policy rates like

  • Cash Reserve Ratio(CRR)- The minimum amount that banks must park with RBI as cash. This is a tool for controlling money supply in the economy.
  • Statutory liquidity ratio (SLR)- The amount that the banks have to keep in liquid assets in the form of gold, cash, approved securities- this impacts how much amount the banks can use to advance loans, grants etc.

In view of the high prevailing inflation rates- Food and otherwise, RBI has kept a relatively higher CRR and SLR ratios in the recent years. There have been some minor downward adjustments over last one year, but they have not been much significant. The main aim of RBI seems to save economy from high inflationary pressures as compared to the clamor for reducing rates to augment growth.

Hence, when the recent data came showing Consumer price Index (CPI) inflation down to Multi-year lows, RBI did not make any rate cuts.

This has surprised many, but there have been some strong reasons for doing so:

  • Shortfall in this year's monsoon has not shown its full impact, but prices of cereals, Oilseeds and pulses could increase thus raising the inflation.
  • RBI could be keeping a close watch on money flows from countries like US, Japan, and whether these flows could be dramatically altered in short terms impacting the Indian economy growth trends.
  • Some sudden global political changes could lead to sudden spurt in Oil prices, and the RBI might want to create a further cushion before initiating a more liberal monetary policy.

RBI: Likely future policy trends

While some of the economic analysts and what we call as "Thinktanks" might be terming the RBI stance as too cautious and even "hawkish", we cannot blame RBI entirely. As per the RBI Governor Raghuram Rajan, who has also served at IMF, while RBI does keeps a close watch on factors aiding or hindering overall Economic growth and investments in the country, they also have to balance the inflationary and money supply factors.

Hence, one can guess that if the current trends in the Indian Economy i.e lower inflation, increase in Manufacturing Output, as well as drop in Global crude prices and continuing favorable US monetary policy continues, RBI may cut some of the key rates in a few months, and it will be helpful in aiding higher economic growth in India.

Yet, if things go bad, it could keep the rates as it is or even raise them.

A related video:

Image Source: Pixabay

Tags

India Policy Trends, Macro Economics, Monetary Policy, Raghuram Rajan, Rbi, Rbi India

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author avatar Ptrikha
Ptrikha is an IT professional, with a great appetite for writing on a variety of topics ranging from Business, Economics, Politics, Sports, Technology, and much more. He has written over 100 Articles

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Comments

author avatar snerfu
3rd Dec 2014 (#)

Let us hope this will mean more money in our bank accounts...ha ha. Nice article Ptrikha.

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author avatar Ptrikha
4th Dec 2014 (#)

Yes that is something I also have a keen interest in :)

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author avatar Fern Mc Costigan
3rd Dec 2014 (#)

Interesting post my friend, still the Rupee is a bit high in comparison to the dollar!

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author avatar Ptrikha
4th Dec 2014 (#)

Thanks a lot Fern

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author avatar M G Singh
4th Dec 2014 (#)

Well written and nice

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author avatar Ptrikha
4th Dec 2014 (#)

Thanks Madan

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author avatar viewgreen
4th Dec 2014 (#)

Informative article. Thank you!

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author avatar Ptrikha
4th Dec 2014 (#)

Thanks viewgreen

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author avatar Sivaramakrishnan A
6th Dec 2014 (#)

Central Bank in every country should have independence in crucial policy matters than become a political tool of the ruling party. Good that India has in Rajan an outstanding and capable person at the helm. Thanks for this share. Ptrikha; maybe you could have embedded an English video than the Telugu one - siva

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author avatar Ptrikha
8th Dec 2014 (#)

Thanks for sharing your comments. I would change- I did not check the actual audio

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author avatar Randhir Bechoo
7th Dec 2014 (#)

Informative.Thanks for the share.

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author avatar Ptrikha
8th Dec 2014 (#)

Thanks Randhir

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