ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Exchange Rate Tremors

EPW Research Foundation Exchange Rate Tremors An important lesson to be learnt from the recent exchange rate developments is that the situation would have been much less amenable to control had the scope for speculative operations been as ample as it is in, for example, some of the south-east Asian countries. Fortunately, the regulations relating to remittance of export receipts and the limited nature of hedging instruments, combined with the controls on capital outflow, have helped to moderate the exchange rate tremors.

Government Main Gainer from High Liquidity

EPW Research Foundation While the benefits of the abundance of liquidity, which remains the dominant feature of the financial markets, have been marginal to the commercial sector, the government has taken full advantage of the situation to nearly complete its full-year borrowing programme within the first five months of the financial year.

In Pursuit of Lower Interest Rates

EPW Research Foundation In Pursuit of Lower Interest Rates The RBl's announcement, on June 25, of a one percentage point cut in the Bank Rate came as a surprise to the market. The authorities are using the lower interest rate route to induce a pick-up in commercial bank credit.

Implications of CAC Proposals

EPW Research Foundation Implications of CAC Proposals Even as the CRB fraud has exposed the inadequacies of the agencies concerned with monitoring, supervision and market intelligence the money market has remained generally unaffected indicating that the policy of retaining some segmentation of the financial markets and the limited exposure of the money market to NBFCs has stood the test of time. The recommendations of the CAC Committee to remove market segmentation should be examined in this context.

Financial Sector Reform at Cost of Real Economy

EPW Research Foundation The announcement of the monetary and credit policy for the first half of 1997-98 has come against the background of a sharp deceleration of industrial growth and a severe setback to corporate performance. The situation called for innovations in the credit delivery system. But such innovation is likely to be hindered by the Reserve Bank's decision to remove reserve requirements on inter-bank liabilities, permit repo and reverse repo transactions in all dated government securities and expand call money lending by non-bank financial companies.

Moving towards Stagflation

EPW Research Foundation Moving towards Stagflation The growing signs of depressed economic activity are distinctly visible in the overhang of liquidity in the banking system and the persistent slump in the capital market. Nothing short of a major overhaul of monetary, fiscal and financial policies can be expected to correct the situation.

Budget Likely to Keep Interest Rates High

EPW Research Foundation foremost among the many policy changes introduced by the union budget for 1997-98 is the replacement of the system of ad hoc treasury bills by ways and means advances. Given the economy's fiscal imperatives, this change is likely to push up the average interest cost for the government and also prevent any fall in the already high interest rates for commercial borrowers.

Industry s Growing Reliance on Bond Market

EPW Research Foundation Industry's Growing Reliance on Bond Market A major fall-out of financial sector reforms has been to magnify the vicissitudes of the financial markets to which the productive sectors have been exposed. Their access to traditional sources of funds, namely, equity and institutional finance, having been restricted, companies have been pushed to the expensive bond market in which private placement, short duration instruments and high coupon rates have become the order of the day.

Expanding Liquidity, High Interest Rates and Low Credit Offtake

EPW Research Foundation The complex phenomenon of expanding liquidity, high interest rates and low credit offtake is both the cause and the consequence of the slow-down of the economy, especially the industrial and service sectors.

High Cost of Financial Sector Reform

EPW Research Foundation High Cost of Financial Sector Reform The slow-down in industrial activity is now increasingly getting reflected in the portfolio behaviour of banks and financial institutions. Banks' initial reluctance to lend has been reinforced now by companies' unwillingness to borrow both because of the low level of industrial activity and the persistence of high inter erst rates. All aspects of financial sector liberalisation, however, preclude any significant lowering of interest rates by banks and financial institutions, even as company finance studies clearly show how mounting interest costs are having a severe impact on corporate results.

Credit Policy Skirts Basic Issue

EPW Research Foundation Credit Policy Skirts Basic Issue With the latest monetary policy announcement confining itself to the essentials of the stabilisation and structural adjustment programme, the mismatch between an abundance of liquidity in the system and industry craving for funds for investment has remained unaddressed. Money market developments, after the credit policy announcement particularly, have once again thrown into sharp focus the narrow groove in which the banking system has got stuck and the rigidity in the operations of banks and financial institutions encouraged by the limited perspective of financial sector reforms.

Clueless against Emerging Recession

EPW Research Foundation Clueless against Emerging Recession The RBI's conventional approach, reiterated in its latest Annual Report, of tinkering with reserve requirements and signalling monetary policy changes through open market operations may achieve the objective, to which the RBI evidently and attaches the highest importance, of establishing closer links among the money, capital, gilt foreign exchange markets, but it will certainly not help stimulate the dynamic role of credit in the development of the economy.


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