Category: Money, inflation & interest rate

Balance price stability with growth

On June 6, 2025, the Reserve Bank of India (RBI) Governor Sanjay Malhotra announced the decisions taken by the six-member Monetary Policy Committee (MPC) in its second bi-monthly meeting of the current financial year (FY). It has reduced the policy rate or the repo rate (the interest rate at which the RBI lends to banks) by 0.5 percent to 5.5 percent. Coming on top of 0.25 percent cut announced in February 2025 and another 0.25 percent cut in April 2025, the RBI has thus reduced the rate by a full percentage point. The downward trajectory in the repo rate is seen after a gap of five years (the last time, the central bank affected the cut was in May 2020)....
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Record RBI dividends: A boon for the Govt, but at what cost?

The RBI is recalibrating its provisioning norms to sustain high payouts, raising concerns about its long-term financial prudence and independence. Is the central bank slowly turning into a fiscal backstop for the Government? For the financial year (FY) 2023-24, the Reserve Bank of India (RBI) Board approved a record dividend transfer of Rs 210,000 crore to the central Government. This was reflected in the accounts of the latter for the FY 2024-25. This amount was 2.4 times the dividend transfer of about Rs 87,400 crore made by the RBI for FY 2022-23 and available for use by the Centre during FY 2023-24. Even when compared to the provision of about Rs 80,000 crore made by Sitharaman in the interim budget...
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RBI should go for an ‘accommodative’ stance

While inflation has been steadily declining, the RBI opted to retain its ‘neutral’ stance, signaling a measured approach rather than give push to boost liquidity and demand On February 7, 2025, the Reserve Bank of India (RBI) Governor Sanjay Malhotra announced the decisions taken by the six-member Monetary Policy Committee (MPC) in its sixth bi-monthly meeting of the current financial year (FY). It has reduced the policy rate or the repo rate (the interest rate at which the RBI lends to banks) by 25 basis points to 6.25 per cent. This marks the first repo rate cut in nearly five years. Moreover, it has continued with a neutral stance which it shifted in its fourth bi-monthly review/announcement on October 10,...
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Overstating food inflation

The CPI uptick is traced to food inflation which has a 40% weightage in the index On October 9, the Reserve Bank of India (RBI) Governor Shaktikanta Das announced the decisions taken by the six-member Monetary Policy Committee (MPC) in its fourth bi-monthly meeting of the current financial year (FY). It kept the policy rate (the interest rate at which the RBI lends to banks) unchanged at 6.5%. However, it altered its policy stance from “withdrawal of accommodation” to a neutral stance. The RBI fixes the policy rate in such a manner as to maintain the Consumer Price Index or CPI (it corresponds to a basket including food, fuel, manufactured goods and select services) within the target range of 4% (+/-...
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Why RBI should not look at food inflation

Concerns over persistent food price volatility and the need for economic growth support have prompted the Reserve Bank of India to keep its options open On October 9, 2024, the Reserve Bank of India (RBI) Governor Shaktikanta Das announced the decisions taken by the six-member Monetary Policy Committee (MPC) in its fourth bi-monthly meeting of the current financial year (FY). It has kept the policy rate (the interest rate at which the RBI lends to banks) unchanged at 6.5 per cent. However, it has altered its policy stance from “withdrawal of accommodation” to a neutral stance. In 2016, the Union Government put in place an institutionalised framework to enable the MPC to formulate monetary policy and determine the key interest...
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Making IBC work better

According to a report by CRISIL, resolutions of non-performing assets (NPAs) of banks under India’s Insolvency and Bankruptcy Code (IBC) was the highest in FY 2023-24, with 269 cases receiving approval of the National Company Law Tribunal (NCLT) which were 42 percent higher compared to FY 2022-23 when 189 cases were resolved. NPA is a fancy nomenclature for a loan that has gone bad. A loan account becomes an NPA when interest and/or installment of principal remain overdue for a period of more than 90 days. Resolution is the process of recovering value from the NPAs. To enable banks to pursue resolution of NPAs on the fast track, in 2016, Modi – government had enacted the IBC superseding multiple subsisting laws....
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RBI dividend aids Government finances

The RBI’s dividend transfer provides a substantial fiscal cushion to the cash-strapped Government, but it must be prudent in fiscal management and resource allocation In the amendment to the Fiscal Responsibility and Budget Management (FRBM) Act through the Finance Bill 2018-19 (the amendment was based on the recommendations of Dr N K Singh’s committee mandated to review the FRBM Act (2003)), the Modi – the Government had pledged to achieve fiscal deficit or FD (excess of total expenditure over total receipts) of 3 per cent of gross domestic product (GDP) by the FY 2020-21. Following the Corona pandemic that played havoc with the economy leading to plunging revenue and ballooning expenditure during 2020-21 and the resultant zooming of FD to...
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RBI maintains status quo despite inflation optimism

RBI’s commitment to ‘last-mile disinflation’ has prompted a continued tight monetary policy stance, raising questions about its impact on economic growth On April 5, 2024, announcing the decisions taken by the six-member Monetary Policy Committee (MPC) in its first bi-monthly meeting of the current financial year (FY), Governor Shaktikanta Das observed “The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis,” Das was using the elephant analogy to characterise the trajectory of retail inflation as represented by the Consumer Price Index (CPI). Having scaled to a high of 7.8 per cent in April 2022, CPI has...
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RBI should loosen the monetary lever

RBI’s decision to keep the policy rate unchanged could pose a serious risk to growth due to a rise in lending rates and higher-cost of loans to industries The Reserve Bank of India (RBI) six-member Monetary Policy Committee (MPC) on December 8, 2023, decided to keep the policy rate (the interest rate at which the RBI lends to banks) unchanged at 6.5 per cent. The MPC has also said that the actions of the RBI will remain “actively disinflationary”. The decision is a continuation of a trend wherein the RBI has been overly obsessed with the management of inflation and aggressively used the two prime monetary policy instruments in its armoury namely the policy rate and liquidity (a jargon for...
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NPAs: Setting the record straight

The Modi Government has made unstinted efforts to make the defaulters pay up and also ensured that no new NPAs are created As per the information shared by the Reserve Bank of India (RBI) in reply to the RTI question, scheduled commercial banks (SCBs) had written off non-performing assets (NPAs) – an acronym for loans that have gone bad – worth over Rs 10,57,000 crore in the last five years. This amount is often cited by the opposition in particular, the grand old party (GOP) to lambast Modi – government for having given what they term as ‘loan waiver’ to big industrialists and businessmen. Has Modi granted favours to the big-wigs? To address this, we need to answer two fundamental...
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