Rbi takes a sensible call on rates binary to gray code


The central bank’s action signals its persistent and justified worry on market interest rates falling too sharply and too soon in the present sluggish global context. The surplus rupee liquidity has also been creating distortions

The Reserve Bank has been sanguine in not changing the interest rates amid clamour from depositors to raise it and industry to reduce it usd price. The RBI’s monetary meet noted that there might be some drop in the GDP growth because of disruption in money supply. The central bank lowered its growth forecast for 2016-17 to 7.1 per cent from 7.6 per cent stock market futures cnn. There are indications that RBI could cut the projections further.

All eyes were set on repo (repurchase) rate usd cad exchange rate forecast. The RBI left it unchanged at 6.5 per cent. It set at rest speculation that banks could reduce consumer lending rates.

It was certainly a shock for many as the banks are full with Rs11.85 lakh crore, almost 76 per cent of the scrapped currency, deposits in the wake of demonetisation of high-value notes.

Many people thought that the flush of fund would be a great help for the banks suffering high non-performing assets of almost Rs12 lakh crore.

People forget that had those NPAs not been there, the banks would have been in a deluge stock market futures 2015. Floods have their problems, if not managed properly. The RBI finds that the banks themselves could not manage it so even before the monetary policy announcement banks were asked to maintain 100 per cent deposits accrued between September 16 and November 11 as incremental cash reserve ratio (CRR).

This is a measure to safeguard the deposits on which banks earn 6.25 per cent interest from the RBI. This prevents the banks from pressure of managing excess funds.

The new situation is another aspect of the demonetisation exchange rate vnd to usd. Those who believed that higher funds were equivalent to higher liquidity had not realised the risk factors.

The credit demand is low, as witnessed in October. It means that industry is either having excess funds or having sluggish activities idr to usd. The latter seems to be true as the industrial index has been indicating.

The strong action could also be aimed at signalling the RBI’s worry on market interest rates falling too sharply and too soon in the present sluggish global context. The surplus rupee liquidity and sharply falling rates were also creating distortions in the forward premia and indirectly impacting the spot rupee-dollar rates usd to aed conversion. This liquidity absorption measure could partially reverse distortions.

Since mid-November, a number of banks have reduced deposit interest rates by almost one percent. Some banks have done it a bit more binary calculator online. It leads to less yield on deposits, particularly term (fixed) deposits causing huge loss to all depositors and virtually gives a shock to senior citizens, women and other deprived people who depend on interest accruals.

The rate cut should have made loans cheaper, as per the general belief futures tradingcharts market quotes. But it is now also being said that lower interest rates lead to easy funding and even swindling of bank funds, opening these to the risk of high non-repayment or NPAs.

The RBI, though, has not stated specifically, but is now also considering that lower rates may not be in the interest of the economy and the health of the banks in the long run. There have been suggestions for minimum floor interest rates for deposits; mostly it is quoted at nine per cent. So far, the RBI has not accepted it.

The fixing of floor deposit rate is suggested as a safeguard against seekers of loans over frivolous reasons, and ultimate swindlers. A higher deposit rate is also likely to repose public faith in the banking system, which has been shaken by a number of large loan scams during 2009-2014.

The RBI stated that so far it could replenish four lakh crore rupees of new currency; 25 per cent of the total demonetised assets. The four currency note presses at Nashik (Maharashtra), Dewas (Madhya Pradesh), Salboni (West Bengal) and Mysore (Karnataka) have the capacity to print about 26.66 billion pieces of notes in two shifts (if they work 24 hours). It may take six months to replenish the stock decimal to binary. Union Minister for Finance Arun Jaitley says the crisis would be over soon.

The problem has also been accentuated as the proportion of the Rs100 note in circulation by volume has come down from 20.3 per cent in 2011-12 to 17.5 per cent by the end of 2015-16. During the same period, the proportion of Rs500 note by volume increased from 14.8 per cent to 17.4 per cent. The proportion of Rs1000 note also increased from five percent in 2011-12 to seven per cent in 2015-16.

Maintaining interest rates is the immediate step. The micro and macro financial management would take some time to correct many of the logistic anomalies. Overall despite some reaction in the stock market, there is agreement that the RBI has taken the correct step to save the economy from sudden shocks.