oppn parties RBI, Monetary Policy & Inflation

News Snippets

  • Crude prices fall sharply as Saudi Arabia assures normal production in a few weeks. Prices fall by 5.4% to $65.30 per barrel
  • Sensex tumbles 700 points over fears that rising crude prices will deal a body blow to the tottering Indian economy
  • As Rajeev Kumar fails to appear before the CBI despite several notices, the agency forms a special team to locate and apprehend him
  • S Jaishankar says Pakistan is not a normal neighbour and its behaviour is a "set of aberrations"
  • External Affairs Minister S Jaishankar says PoK in Indian territory and the country hopes to have physical jurisdiction over it one day
  • Barasat Sessions court near Kolkata rejects Rajeev Kumar anticipatory bail application citing lack of jurisdiction as the reason
  • PM Modi celebrates his birthday with Narmada aarti and later has lunch with his mother.
  • All 6 Bahujan Samaj Party MLAs merge with the Congress in Rajasthan
  • Bengal CM Mamata Banerjee to meet PM Modi on Wednesday, state issues on the agenda
  • Pakistan to open Kartarpur corridor on Nov 9
  • Rajeev Kumar, ex-police commissioner of Kolkata and wanted for questioning in the Sarada scam does not appear before the CBI despite the state administration requesting him to do so
  • Supreme Court asks the Centre to restore normalcy in J&K but keeping national interest in mind
  • As Trump accepts the invitation to attend a programme in Houston with PM Modi, India rushes to settle trade issues with US
  • After drone attack on Aramco's Suadi Arabia facility, oil prices jump 19% in intra-day trading causing worries for India
  • Imran Khan raises nuclear war bogey again, says if Pakistan loses a conventional war, it might fight till the end with its nuclear arsenal
Sunni Wakf Board and Nirvani Akhara write to the Supreme Court for a negotiated settlement to the Ayodhya dispute
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RBI, Monetary Policy & Inflation

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
In its latest policy review, the RBI expectedly maintained status quo and left key lending rates unchanged. It was expected because of two main reasons: retail inflation shot to a nine-month high in June and although the RBI has cut repo rates ( rates at which it provides short term funds to banks) by 75 basis points since January this year, the banks have passed on only 30 basis points to the end consumer. The RBI was clear in saying that further rate reduction depends on how inflation pans out and how commercial banks pass on rate reduction to consumers.

But as a belligerent government wishes to bring down interest rates despite inflationary pressure, there is little the RBI would be able to do in future if the latest revised financial code put up by the finance ministry is anything to go by. The code seeks to take away the veto power the RBI governor has in matters of setting lending rates. Even before this policy review, there were indications from the ministry that the time was ripe for another rate cut.

Although the RBI governor Raghuram Rajan has been quoted as saying that he isn’t opposed to the idea of taking away of the veto power, this clearly goes against the recommendation of the Financial Sector Legislative Reforms Commission (FSLRC), which had advised for the same “in exceptional circumstances.” It is also incongruous to have a body that is saddled with containing inflation but whose chief does not have a say in the amount of money that is to float in the economy.

Rajan pointed out that a committee formed to take monetary policy decisions would bring in different view-points, will reduce the pressure on one individual and would ensure continuity (as it would be reconstituted even if one member exits). But one is certain that the RBI has internal committees to take these decisions. The point is that if the RBI governor feels that inflation would be jacked up if rates are reduced or more money is injected in the economy at a particular point of time, he should have the right to refuse taking such a decision. If not, he should not be responsible for containing inflation.