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Evolving Monetary Policy in India

Vol. 37, Issue No. 11, 16 Mar, 2002
A Vasudevan

This paper reviews the process of monetary policy formulation, with some stylised facts monetary policy currently pursued. Issues concerning the objectives and conduct with reference to targets and the indicators are discussed. Some possible areas where future research on monetary policy could be focused are also suggested.

Modest Ambitions

Vol. 36, Issue No. 43, 27 Oct, 2001

The mid-term review of the monetary and credit policy for the current year springs no major surprises. It has, in the main, lowered the Bank rate by 50 basis points to 6.5 per cent and proposes to bring down, over the next two months, the cash reserve ratio to 5.5 per cent from the current effective rate (taking into account various exemptions and variable reserve ratios for particular segments of liabilities) of 6.3 per cent for the banking system as a whole. It has made further refinements of the various processes of strengthening prudential regulation of the banking system. More pertinently, it serves to highlight the constraints within which monetary policy operates in India, even going to the extent of drawing explicit reference to some of the structural impediments arising from government policy.

Realistic Interest Rates Structure

Vol. 36, Issue No. 38, 22 Sep, 2001
EPW Research Foundation

Considering the need for stimulating domestic savings through a strengthened system of banks and other financial institutions, the present structure of bank deposit and lending rates is generally realistic. The average cost of capital cannot be reduced further without hurting the development process.

Bank Supervisory Arrangements

Vol. 36, Issue No. 37, 15 Sep, 2001
Aditya Narain, Saibal Ghosh

The purpose of this paper is to examine the choice of location of prudential supervision of banks. Should central banks assume this role or should there be a unified regulator covering all financial institutions? With the growing concern among central banks about the need to maintain financial stability, can such problems be effectively tackled if regulation/ supervision is vested with the central banks? The evidence.

Sir (Abraham) Jeremy Raisman, Finance Member, Government of India (1939-45)

Vol. 36, Issue No. 28, 14 Jul, 2001
Anand Chandavarkar

Sir Jeremy Raisman wore several hats in one lifetime - a successful civil servant followed by an equally distinguished corporate career, yet his towering achievements as a statesman for India's cause during the war years of 1939-45 remain unsung. His contributions that dwarfed, by any criterion, those of his predecessors in office are, however, conspicuously ignored by Indian and British historians of the Raj. But it is for his intuitive understanding of India and its economic and political fundamentals, that Sir Jeremy will remain the ideal last Viceroy India never had.

In Small Doses

Vol. 36, Issue No. 17, 28 Apr, 2001

The Reserve Bank of India’s monetary policy announcement for the first half of this fiscal year is very much on the expected lines. There are no dramatic pronouncements on the macroeconomic front – the governor had earlier already ruled out any reduction in the Bank rate or the cash reserve ratio – no big bang reforms, no new announcements on the recent stock market/banking fraud. Nothing to unnerve the markets or unsettle the economy. Instead the policy carries forward the overall reform agenda – albeit in fits and starts – even as it tries to plug the loopholes in the system that have come to light in the context of the latest scam. However, market observers looking to find some admission of regulatory lapse on the part of the RBI are likely to be disappointed. Apart from a brief mention that the policy is being “presented at a time when serious lacunae have emerged in the functioning of certain segments of the financial system”, there is no elaboration of whether the central bank’s own supervisory lapses – of the clearing house or of urban cooperative banks/ commercial banks – contributed to the market operators’ shenanigans.

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