Raghuram Rajan surprised everyone again with another aggressive measure, cut repo rates by 50 bps.. On Tuesday, 29th September 2015 in a press conference he called to announce the fourth bi-monthly monetary policy. Rajan is the man responsible for taking the right policy decisions so that the Indian economy remains on the right course.
What Does it Mean to Markets:
The RBI’s decision to surprise markets and cut the benchmark repo rate by a sharp 50 basis points to 6.75 per cent — the lowest level in more than four years — is the most emphatic signal that it stands ready to help boost domestic demand and investment.
This news also brought cheers to the Auto sector as automobile manufacturers said it was a festival gift for them.The rate cut will help the Auto sector to meet 15-20% sales growth during the upcoming festive season.
Bumper Bonazza in festivals:
The reduction in interest rates will reduce cost of ownership and help the automakers get more customers. Automakers generally expect higher sales during the months of October and November when Durga Puja, Diwali and other festivals are celebrated.
Fund managers say, going forward, key risks would be increase in crude prices and the US Fed policy. “Though long-term products are attractive at this point of time, risk-averse investors should continue to invest in short-term debt funds,” said a debt fund manager.
Big Boost For Manufacturing Firms:
That growth appears to have for the moment taken pre-eminence and been placed front and centre in the RBI’s reasoning for its policy decision is, however, cause for some concern. As central bankers down the ages have reiterated, there are two key elements that form the bedrock of any communication emanating from the monetary policy authority — consistency and credibility
While manufacturers have welcomed the rate cut, they say much more needs to be done - making it easier to buy land, a more simple tax structure and flexible labour laws, are needed to speed up corporate investments.
Clearly, the U.S. Federal Reserve’s decision earlier this month to continue to maintain the funds rate near zero in the backdrop of heightened uncertainties in the global economy, including in China and the emerging markets, has fed into Dr. Rajan’s calculations. So has the fragility evidenced in the financial markets following the devaluation of the yuan.
How does it is Mixing With Bhartiya Jantha Party:
Reserve Bank Governor Raghuram Rajan on Wednesday said that the government was doing a good job in managing the economy and praised Prime Minister Narendra Modi.
The ruling Bharatiya Janata Party (BJP) has proposed legislation on land acquisition and tax and labour reform, seen as critical to revive an economy that grew 7 percent in the April-June quarter, well below the government's target of 8 to 8.5 percent for the year ending in March 2016.
And to the great frustration of government officials, the central banker had cut interest rates only slowly this year despite a steep fall in inflation, with 3 rate cuts totalling 75 basis points. That had made him unpopular among some quarters in New Delhi.
Raghuram Rajan 5 Amazing Quotes:
1."I don't know what you want to call me- Santa Claus or Hawk... My name is Raghuram Rajan and I do what I do." Period.
2.Today's 0.5 per cent rate cut based on progress on the ground; It's not any Diwali bonus."
What Does it Mean to Markets:
The RBI’s decision to surprise markets and cut the benchmark repo rate by a sharp 50 basis points to 6.75 per cent — the lowest level in more than four years — is the most emphatic signal that it stands ready to help boost domestic demand and investment.
This news also brought cheers to the Auto sector as automobile manufacturers said it was a festival gift for them.The rate cut will help the Auto sector to meet 15-20% sales growth during the upcoming festive season.
Bumper Bonazza in festivals:
The reduction in interest rates will reduce cost of ownership and help the automakers get more customers. Automakers generally expect higher sales during the months of October and November when Durga Puja, Diwali and other festivals are celebrated.
Fund managers say, going forward, key risks would be increase in crude prices and the US Fed policy. “Though long-term products are attractive at this point of time, risk-averse investors should continue to invest in short-term debt funds,” said a debt fund manager.
Big Boost For Manufacturing Firms:
That growth appears to have for the moment taken pre-eminence and been placed front and centre in the RBI’s reasoning for its policy decision is, however, cause for some concern. As central bankers down the ages have reiterated, there are two key elements that form the bedrock of any communication emanating from the monetary policy authority — consistency and credibility
While manufacturers have welcomed the rate cut, they say much more needs to be done - making it easier to buy land, a more simple tax structure and flexible labour laws, are needed to speed up corporate investments.
Clearly, the U.S. Federal Reserve’s decision earlier this month to continue to maintain the funds rate near zero in the backdrop of heightened uncertainties in the global economy, including in China and the emerging markets, has fed into Dr. Rajan’s calculations. So has the fragility evidenced in the financial markets following the devaluation of the yuan.
How does it is Mixing With Bhartiya Jantha Party:
Reserve Bank Governor Raghuram Rajan on Wednesday said that the government was doing a good job in managing the economy and praised Prime Minister Narendra Modi.
The ruling Bharatiya Janata Party (BJP) has proposed legislation on land acquisition and tax and labour reform, seen as critical to revive an economy that grew 7 percent in the April-June quarter, well below the government's target of 8 to 8.5 percent for the year ending in March 2016.
And to the great frustration of government officials, the central banker had cut interest rates only slowly this year despite a steep fall in inflation, with 3 rate cuts totalling 75 basis points. That had made him unpopular among some quarters in New Delhi.
Raghuram Rajan 5 Amazing Quotes:
1."I don't know what you want to call me- Santa Claus or Hawk... My name is Raghuram Rajan and I do what I do." Period.
2.Today's 0.5 per cent rate cut based on progress on the ground; It's not any Diwali bonus."
3. "The economy has legacy problems and there are no silver bullets."
4. "Govt has a right and there is a clause in the RBI act where they can give directions to the RBI. But that has never been invoked. That shows that we have de facto independence." Now, there cannot be a more polite way to tell the Government not to interfere.
5."There has been a healthy respect between the govt and the central bank. Central Bank ultimately decides the course of monetary policy." Subtle reminder to the Government that RBI knows what they are doing
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