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

Money Markets

Money Markets
In these times of infl ation and the receding prospect of growth, and in the presence of fi scal laxity and higher government borrowing requirements, Indian banks are fi nding it diffi cult to expand...
The Reserve Bank of India's monetary policy for 2012-13 has had to be framed at a time when the economy is facing multiple risks - infl ation at an elevated level, a deterioration in the external...
The postponement of fi scal consolidation, as is evident from the Union Budget, 2012-13, is likely to add pressure to the external sector balance and enhance the risk of managing the trade-off...
An attempt is made here to reclassify the commodities covered by the Wholesale Price Index series, first, into two groups, namely, the consumer and non-consumer items, and then further split them...
This review analyses the trends in certain crucial parameters pertaining to the market borrowings of the centre and the states. It argues that the latter have made efforts to contain their borrowing...
Before the global financial crisis, central bankers depended mainly on interest rates in policymaking and operations; in the post-crisis period when liquidity became a binding constraint, liquidity...
Deregulation of the interest rate on savings bank deposits will allow more room for non-price competition for improving the quality and diversification of customer service rather than result in a...
Is the mid-year monetary review by the Reserve Bank of India going to see a pause in the rate hike, implying that policy rates have now peaked? This note tracks the past experience with policy rate...
A review of fiscal developments during the current financial year, an assessment of the possibility of failure to achieve the fiscal deficit target, and, in case of a slippage, an examination of its...
The downgrade of US debt is the second shock to hit the Indian financial markets after the 50 bps hike in repo rates by the RBI on 26 July 2011. While concerns have been raised about the resulting...
Despite the series of policy rate hikes and the corresponding hike in lending rates, the demand for bank credit seems to be robust. The banking system should be allowed to meet this demand in a non-...
The expansion in the life insurance sector in the post-deregulation period has seen a disproportionate growth of unit-linked insurance plans. However, ULIPs have little value in promoting long-term...
The policies for directed credit that were introduced in the 1970s accorded significant priority to agriculture, exports and micro, small and medium enterprises. However, the present framework for...
The corporate bond market activity has picked up in recent years both in the primary and secondary market segments. However, this market is yet to acquire depth, vibrancy and integration comparable...
Monetary policy is effected through changes in the repo rate, reverse repo rate and the cash reserve ratio. The response to changes in policy rates since 2001 in three different respects - the...
Two explanations are usually offered for the empirical relationship between yield spread and economic activity. One, yield spread may reflect the monetary policy stance, and two, it mirrors market...
Given the lack of consensus within the government on the factors behind the current surge in inflation and the relevant tools to deal with it, an analysis of the trends in the food and non-food...
There has been an extreme tightening of liquidity in the money market since June, the result of both structural (a rapid growth in credit and a slower growth in deposits) and frictional (higher than...
The earlier than expected recovery of the Indian economy from the effects of the global crisis has led to predictions of a return to the 9% growth rate witnessed in the 2003-08 period. But some...
Given the widespread public and government concerns about inflation, now is an appropriate time to address some issues pertaining to its measurement, inflationary expectations, outcomes and the...
Since the late 1990s, India's exchange rate policy has been one of minimising the volatility and at the same time maintaining a healthy level of foreign exchange reserves to guard against risks. The...
While it will take some time for the new base rate system to have its full impact on the pricing of loans, certain patterns are already discernible. The BR of all banks is considerably lower than the...
The Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010 is an avoidable intrusion into the otherwise satisfactory institutional arrangement existing on matters relevant to it...
In order to ensure greater transparency in setting lending rates, banks are expected to replace from 1 July the existing benchmark prime lending rate system with the new one of a base rate. Yet, the...
Key issues of financial stability are touched upon over here. First, the difficulties of defining financial stability as an operational and workable proposition are addressed. Second, the enhanced...
One of the issues that the Committee on Financial Sector Assessment addressed on the infrastructure for the financial sector was regulation. This is of great relevance since one of the reasons for...
There is an implicit tax in the application of the cash reserve ratio and when applied on a uniform basis between banks it is also regressive and discriminatory. The imposition of the CRR results in...
While a considered view needs to be taken on deregulation of all interest rates on small savings, a reform that need not wait and that is simpler to implement is freeing of interest rates on savings...
The current surge in inflation is not receiving the urgent attention that is needed from the government. Alongside a rise in wholesale price inflation, uncertainty and risk have increased. Consumer...
The Reserve Bank of India's recent Report on Trend and Progress of Banking in India, 2008-09 places considerable emphasis on bank lending in the context of the country returning to a higher growth...
The RBI's market operations in the post-reform period appear to have had a three-pronged objective: to maintain an appropriate interest rate regime, to manage the government borrowing programme, and...
The effectiveness of a regulatory architecture in the financial sector can be gauged by three parameters - (1) the framework and mechanisms in place for clearly defined regulatory jurisdictions of...
This is an attempt at uncovering the nuances of India's exchange rate policy as spelt out by the Reserve Bank of India from time to time and discerning the current challenges, based on a brief review...
The market borrowing programme of the government has been hiked to unprecedented levels since September 2008 and it is budgeted to reach gigantic proportions in 2009-10. A preliminary analysis of...
The markets are quick to raise interest rates and curtail lending during the tightening phase of monetary policy, but their reactions are lukewarm in an easing phase. This asymmetric behaviour leads...
An approach to implementing public policies that allows some distance between policy outcomes and public aspirations has prevented the Reserve Bank of India from playing an effective role in the...
The benchmark prime lending rate, far from being a competitive and transparent mechanism that determines interest rates charged by banks, has instead turned opaque. In order to ensure that the cost...
Infrastructure investment is a priority area for the Eleventh Plan, and close to half of this investment is to be financed by debt. Yet, many of the institutional channels for debt financing are not...
The fiscal constraints on providing any substantial stimulus are evident from the revised estimates of the budget for 2008-09. In such a situation and given the current economic environment,...
The massive liquidity injected into the system cannot translate into additional bank credit because of both supply- and demand-side constraints. In the gloomy economic scenario, instead of expanding...
The situation in the external sector has become an extremely challenging one for the authorities. Foreign currency assets have begun to deplete and there is considerable uncertainty on the exchange...
The financial crisis should give the Reserve Bank of India an opportunity to do some soulsearching about its delivery of credit. Over the years, the layers of money market transactions indulged in by...
The unravelling of the global financial crisis sends a clear signal that India has to make fundamental changes in its management of the banking and financial sector. The first prerequisite is a...
There is an unwarranted smugness in the Indian response to the crisis sweeping global financial markets. If Indian institutions are, as of now, unaffected by the turmoil, it is not because of the...
The debt-service ratio may appear low and satisfactory, but it is high time the official agencies conceived of a more meaningful concept of sustainability of total external liabilities in the face of...
The recent behaviour of interest rates and the yield curve is a reflection of the monetary policy stance that has succumbed to market expectations. The monetary policy actions have naturally had an...
In 2007, the rupee appreciated by as much as 12 per cent against the dollar, leading to an adverse effect on exports, investment proposals and employment - the policy was perhaps to use an...
The Reserve Bank of India currently uses indirect instruments of monetary control that operate through the market mechanism. Signals are sent by injection or contraction of liquidity, or by changing...
The huge marked-to-market losses on derivatives that are coming to light raise troubling issues about the direction of financial liberalisation and inadequate regulation. The banks are estimated to...
Rural India needs a strategy that strengthens the credit structure, increases the number of bank branches and establishes sound relationship banking. Even as banks are encouraged to increase their...
India's international investment position shows her net external liabilities in the red and on occasion these have grown. That a large proportion of capital inflows are of the "non-debt" variety is...
The Indian financial system now encompasses a vast set of payment, settlement and clearance systems. Two recent legislative changes, the enactment and notification of the Government Securities Act...
The Securities and Exchange Board of India has begun to take steps to develop the corporate bond market, which remains underdeveloped in comparison to the equity and gilt markets. The regulator has...
Missing from monetary policy is a concern for the distribution and cost of credit to the productive sectors. Instead of setting indicative targets for the growth of money supply, deposits and non-...
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