Highlights       Second Quarter         Review of       Monetary Policy           2011-1229 October 2011   H Y Review 2011...
Evolution        Busy Season & Slack Season               Credit Policies       Annual Policy and Mid-Term Review       Qu...
Outline      Part A                  1.State of the Economy                  2.Outlook and Projections                  3....
Part B       Developmental & Regulatory Policies      1. Interest Rate Policy      2. Financial Markets      3. Financial ...
State of the Global Economy    Economic Activity in Advanced Economies    weakening: Growth @1.5% & 1.3% in Q2 & Q3    Inc...
State of the Global Economy    High prices of crude oil and other commodities    High unemployment; consumer confidence   ...
Domestic Economy     Growth is decelerating: 7.7% in Q 1     Good Monsoon; record agricultural                   productio...
Domestic Economy    WPI inflation has remained stubbornly    high averaging 9.6% in the current year    Inflation driven b...
Domestic Economy   M3 growth of 16.2% (17.2) and credit   growth of 19.3% (22.6%) were slightly   higher than indicative p...
Domestic Economy    Deceleration in tax revenues and increase    in expenditure mainly towards subsidies    Increase in bu...
Outlook and Projections       Global Advanced economies are vulnerable with the possibility of a prolonged slowdown Conseq...
Outlook and Projections Domestic GDP growth projections for 2011-12 revised downwards to 7.6% from 8%  Inflation path depe...
Outlook and Projections  DomesticInflation to ease from Dec 2011 andprojected at 7% by March 2012Monetary policy to condit...
Outlook and Projections      Risks to projections of Growth and Inflation                          Global macroeconomic   ...
Policy Stance  The Story so far:Exit from the crisis                          CRR has been          Policy rate raised    ...
Policy Stance         Any Change in Policy Stance              can be premature      Growth concerns can be addressed     ...
Monetary Measures Policy Repo rate raised by 25 bp to 8.5% Reverse Repo auto adjusts to 7.5% and Marginal Standing Facilit...
29 October 2011   H Y Review 2011-12
I. Interest Rate Policy              Deregulation of Savings Bank                     Deposit Rate Each bank will have to...
II. Financial Markets                         The                                                       Steps taken  Guide...
III. Financial Stability                    Financial Stability and Developmental                    Council (FSDC) and it...
IV. Credit Delivery & Financial InclusionRelaxation in Branch Authorization: No prior approvalneeded to open branches in t...
IV. Credit Delivery & Financial Inclusion Every village with a population of over 2000 to be provided with banking service...
29 October 2011   H Y Review 2011-12
Measures for Commercial BanksDraft Guidelines for implementing the Basel IIIframework to be issued by December 2011.Phase-...
Measures for Commercial BanksTo bring about transparency in pricing: risk to be pricedadequately and interest charged in f...
Measures for Commercial BanksLicensing of new banks in the Private Sector:Final Guidelines will be issued after theamendme...
VI. Institutional DevelopmentsA new category of NBFCs called NBFC-MFIsto be introduced: the regulatory frameworkwill be br...
VI. Institutional DevelopmentsNEFT: acceptability, reach and volumes are phenomenal;Next Generation RTGS is underwayAutoma...
frjoseph@rbi.org.in29 October 2011        H Y Review 2011-12
Upcoming SlideShare
Loading in …5
×

Second Quarter Review of Monetary Policy

514 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
514
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
11
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Second Quarter Review of Monetary Policy

  1. 1. Highlights Second Quarter Review of Monetary Policy 2011-1229 October 2011 H Y Review 2011-12
  2. 2. Evolution Busy Season & Slack Season Credit Policies Annual Policy and Mid-Term Review Quarterly Reviews : Q1 & Q3 Mid-Quarter Review29 October 2011 H Y Review 2011-12
  3. 3. Outline Part A 1.State of the Economy 2.Outlook and Projections 3.The Policy Stance 4.Monetary Measures29 October 2011 H Y Review 2011-12
  4. 4. Part B Developmental & Regulatory Policies 1. Interest Rate Policy 2. Financial Markets 3. Financial Stability 4. Credit Delivery and Financial Inclusion 5. Regulatory & Supervisory Measures for Banks 6. Institutional Developments29 October 2011 H Y Review 2011-12
  5. 5. State of the Global Economy Economic Activity in Advanced Economies weakening: Growth @1.5% & 1.3% in Q2 & Q3 Increasing concerns over sovereign debt sustainability in euro area countries Weak sovereign balance sheets and lack of political will to find a solution Large exposures of banks to sovereign debt29 October 2011 H Y Review 2011-12
  6. 6. State of the Global Economy High prices of crude oil and other commodities High unemployment; consumer confidence and private consumption impaired Inflation above comfort zones in both advanced economies and EMEs Fiscal tightening hampering the growth momentum in AEs and EMEs29 October 2011 H Y Review 2011-12
  7. 7. Domestic Economy Growth is decelerating: 7.7% in Q 1 Good Monsoon; record agricultural production expected All-round slowdown in industrial growth The growth in service sector was holding up29 October 2011 H Y Review 2011-12
  8. 8. Domestic Economy WPI inflation has remained stubbornly high averaging 9.6% in the current year Inflation driven by all three major groups: primary articles, fuel & power and manufactured products CPI still in the range of 9.3% De-seasonalized sequential quarterly WPI suggest moderation of inflation momentum!29 October 2011 H Y Review 2011-12
  9. 9. Domestic Economy M3 growth of 16.2% (17.2) and credit growth of 19.3% (22.6%) were slightly higher than indicative projections Liquidity remained in deficit: But within the comfort zone of RBI Govt deficit indicators deteriorating Fiscal deficit touched 66% of target by August29 October 2011 H Y Review 2011-12
  10. 10. Domestic Economy Deceleration in tax revenues and increase in expenditure mainly towards subsidies Increase in budgeted borrowing by Rs 53000 crore 10 year benchmark coupon at 8.8% Equity and forex markets came under pressure: Reflected in equity prices, exchange rate & CAD29 October 2011 H Y Review 2011-12
  11. 11. Outlook and Projections Global Advanced economies are vulnerable with the possibility of a prolonged slowdown Consequent weakening of growth prospects in EMEs World GDP Growth: IMF Projections at 4% for 2011 and 2012 Inflation projected at 2.6% in advanced economies and at 7.5% in EMEs29 October 2011 H Y Review 2011-12
  12. 12. Outlook and Projections Domestic GDP growth projections for 2011-12 revised downwards to 7.6% from 8% Inflation path depends on: Behavior of crude prices Movement of exchange rate Supply response to food inflation and protein items Extent of pass-through of global commodity prices29 October 2011 H Y Review 2011-12
  13. 13. Outlook and Projections DomesticInflation to ease from Dec 2011 andprojected at 7% by March 2012Monetary policy to condition and containperception of inflation at 4% - 4.5%M3 and non-food credit growth for 2011-12projected at 15.5% and 18%29 October 2011 H Y Review 2011-12
  14. 14. Outlook and Projections Risks to projections of Growth and Inflation Global macroeconomic environment to impact domestic growth through Weak Shortage of protein- trade & finance channels growth may rich items and soften crude pulses can keep the prices food inflation high Increased market Impact of borrowing by Govt Monetary Policy can be diluted by can crowd out productive private fiscal investment expansion29 October 2011 H Y Review 2011-12
  15. 15. Policy Stance The Story so far:Exit from the crisis CRR has been Policy rate raised driven raised by 100 basis 12 times by 350 expansionary points basis pointspolicy in Oct 2009 Persistent anti- Helped to contain Effective inflationary stance inflation andtightening by 500 for the last two anchoring inflation basis points years expectations 29 October 2011 H Y Review 2011-12
  16. 16. Policy Stance Any Change in Policy Stance can be premature Growth concerns can be addressed after inflation begins to decline29 October 2011 H Y Review 2011-12
  17. 17. Monetary Measures Policy Repo rate raised by 25 bp to 8.5% Reverse Repo auto adjusts to 7.5% and Marginal Standing Facility to 9.5%“Notwithstanding current rates of inflation persisting, the likelihood of rate action in December Review is relatively low” Inflation risks arise from structural imbalances in agriculture, infrastructure bottlenecks, distorted administered prices and the pace of fiscal consolidation29 October 2011 H Y Review 2011-12
  18. 18. 29 October 2011 H Y Review 2011-12
  19. 19. I. Interest Rate Policy Deregulation of Savings Bank Deposit Rate Each bank will have to offer a uniform interest rate on savings bank deposits up to Rs.1 lakh For savings bank deposits over Rs.1 lakh, a bank may provide differential rates of interest 29 October 2011 H Y Review 2011-12
  20. 20. II. Financial Markets The Steps taken Guidelines Guidelines To extend to broadenfor exchange on Credit DvP III and deepen traded 5- Default facility to the market year and 2- Swaps for transactions for Govtyear Interest corporate by the Gilt securitiesRate Futures bonds to Account and interest to be issued come into Holders rate in Dec 2011 effect in Nov derivatives 2011 29 October 2011 H Y Review 2011-12
  21. 21. III. Financial Stability Financial Stability and Developmental Council (FSDC) and its Sub- committee Chaired by Governor, RBI Two Technical Groups set up: one on Financial Inclusion & Financial Literacy and an Inter-Regulatory Technical Group The Financial Stability Report for June 2011 included contributions from SEBI and IRDA The banking sector is resilient, strong and stable as per the latest FSR29 October 2011 H Y Review 2011-12
  22. 22. IV. Credit Delivery & Financial InclusionRelaxation in Branch Authorization: No prior approvalneeded to open branches in tier II centersCommittee set up to suggest revised Guidelineswith regard to Priority Sector lendingCredit flow to MSE sector to be closelymonitored by RBI Quarterly instead of Half-yearlyLicensing of state and central co-operativebanks and revival of short term RuralCo-operative credit structure is on 29 October 2011 H Y Review 2011-12
  23. 23. IV. Credit Delivery & Financial Inclusion Every village with a population of over 2000 to be provided with banking services by 2012 (by branch, BC, ATM, mobile van, etc) Progress made by banks in implementation of Financial Inclusion Plans is monitored through monthly and quarterly reports Decided to implement the Recommendations of the Committee on Customer Service29 October 2011 H Y Review 2011-12
  24. 24. 29 October 2011 H Y Review 2011-12
  25. 25. Measures for Commercial BanksDraft Guidelines for implementing the Basel IIIframework to be issued by December 2011.Phase-in period begins in Jan 2013Guidelines for implementation of advancedapproaches under Basel II frameworkfor market, credit and operationalrisks are issued / being issuedBCBS to introduce countercyclical andprovisioning buffers. PCR an interim measure;more realistic framework being prepared29 October 2011 H Y Review 2011-12
  26. 26. Measures for Commercial BanksTo bring about transparency in pricing: risk to be pricedadequately and interest charged in fair andnon-discriminatory manner; Working Group set upThe prudential guidelines on „Restructuring ofadvances‟ to be reviewed for suitable revisionBanks to rigorously evaluate risks arising out ofunhedged foreign currency exposures of theircorporates and price them in the credit risk premiumIntroduction of holding company structurefor banks and FIs is under consideration29 October 2011 H Y Review 2011-12
  27. 27. Measures for Commercial BanksLicensing of new banks in the Private Sector:Final Guidelines will be issued after theamendments to the B R Act are approved by Govt of IndiaGuidelines on the mode of presence offoreign banks in India are being finalizedGuidelines on compensation practices arebeing finalized in line with principlesrecommended by FSB and BCBS Guidelines29 October 2011 H Y Review 2011-12
  28. 28. VI. Institutional DevelopmentsA new category of NBFCs called NBFC-MFIsto be introduced: the regulatory frameworkwill be broadly based on the recommendationsof the Malegam CommitteeThe existing regulatory framework forNBFCs is being comprehensively reviewedIntroduction of chip-based and PIN-basedcards and additional security safeguards at PoSto be implemented by card issuers & banks29 October 2011 H Y Review 2011-12
  29. 29. VI. Institutional DevelopmentsNEFT: acceptability, reach and volumes are phenomenal;Next Generation RTGS is underwayAutomated data flow (a straight through process)from the CBS of banks to the RBI being ushered inTo ensure that all cases of detection of forged notesin banks are promptly reported to RBI & Police, filingof FIR is done away with for detection up to fourpieces in a single transaction save monthly reporting 29 October 2011 H Y Review 2011-12
  30. 30. frjoseph@rbi.org.in29 October 2011 H Y Review 2011-12

×