Category: RBI | Page 10

1 April, 2015

Why banks still haven’t cut interest rates

Vivek Kaul

Today is the first day of the new financial year. And banks still haven’t cut interest rates. This despite the Reserve Bank of India(RBI) of cutting the repo rate twice by 50 basis points (one basis point is one hundredth of a percentage) between January and March 2015. Repo rate is the rate at which RBI lends to banks and acts as a sort of a benchmark to the interest rates that banks pay for their deposits and in turn charge on their loans.
Other than the RBI cutting the repo rate, the finance minister has also been very vocal about the entire issue. On March 22, 2015, he remarked: “We do not put pressure on them (i.e. public sector banks) We only expect and our expectations come true.”
A few days later on March 25 2015, Jaitley said: “I mentioned a few days ago in the presence of the (RBI) Governor (Raghuram Rajan) that we do not pressurise the banks to cut rates. But we do expect the banks after assessing the situation to act in a prudent manner. Our banks have been by and large responsible. And I am quite certain we will see more cuts in future.”
Despite this overt pressure, the banks haven’t gone around cutting the interest rates on their loans. A recent Bloomberg newsreport pointed out that 43 out of the 47 scheduled commercial banks haven’t cut their base rates or the minimum interest rate a bank charges its customers.
Unless, banks cut their base rate there is no point in the RBI cutting the repo rate simply because the borrowers as well as the prospective borrowers do not benefit from lower interest rates. Having said that, just because the RBI has cut the repo rate or the fact that the finance minister thinks interest rates should be lower, doesn’t mean that banks should lower interest rates. One thing that they need to look at is their deposit growth vis a vis their loan growth. Latest data from the RBI suggests that deposit growth over the last one year was at 11.6%. In comparison, the loan growth of banks was at 10.2%. Also, the deposit growth was on a higher base. Hence, it is safe to say that deposits of banks have grown much faster than their loans.
This conclusion can also be made by calculating the incremental credit deposit ratio. The incremental credit deposit ratio over the last one year stands at 67.3%. This means that for every Rs 100 raised as deposit, banks have given out loans worth Rs 67.3. Ideally, banks should be lending around Rs 74.5 for every Rs 100 they raise as a deposit. This, after adjusting for the Rs 25.5 of Rs 100 that they need to maintain as cash reserve ratio and statutory liquidity ratio.
Around this time last year, the incremental credit deposit ratio had stood at 73.7%. Hence, what this clearly tells us is that lending by banks is growing at a significantly slower pace in comparison to the increase in deposits. Given this, banks should be in a position to cut their base rate, but they still haven’t.
Why? While banks are quick to raise interest rates when the RBI raises the repo rate, they are slow to cut interest rates when the RBI cuts the repo rate. Also, if banks lower their base rate, the interest they earn on the money that they have lent comes down immediately. But the interest that they pay on their deposits does not change. While loans rate are floating, deposit rates are not. Hence, banks continue to hold on to interest rates on their loans.
As a March 11 report by the International Monetary Fund on India points out: “Pass-through to deposit and lending rates is relatively slow and the deposit rate adjusts more quickly to monetary policy changes than does the lending rate.” What this means is that after the RBI cuts the repo rate, banks tend to cut their deposit rates more quickly in comparison to their lending rates. Further, it takes around 9.5 months for deposit rates to change and 18.8 months for the lending rates to change,after the RBI has cut the repo rate, the IMF stated. Given this, it will be a while by the time banks start to cut their lending rates. And this assuming that the RBI does not change its direction on repo rate cuts.
What has not helped is the fact that banks continue to accumulate bad loans. As the IMF report on India points out: “Evidence of corporate India’s worsening financial performance is found in the rising share of stressed loans in banks’ portfolios—both non-performing assets (NPAs) and restructured loans have continued to increase, and are at their highest levels since 2003…Corporates in the manufacturing and construction sectors, plus the infrastructure sector, contributed notably to banks’ non performing assets. Between 2002/03 and 2013/14 corporate debt increased by 428 percent for a sample of 762 firms.”
With such high levels of borrowing the pressure on the balance sheets of banks (in particular public sector banks) is likely to continue in the days to come. As the IMF reports points out: “Some corporates are likely already credit constrained due to high leverage, which in turn continues to put pressure on the health of the financial system, in particular on the balance sheets of public sector banks (PSBs). This will further affect bank risk taking as well as the ability of the banking system to finance economic recovery.”
The bad loans will also limit the ability of banks to cut their lending rates. As Crisil Research pointed out in a recent report: “High non performing assets curb the pace at which benefits of lower policy rate are passed on to borrowers. Data shows periods of high NPAs – such as between 2002 and 2004 (when NPAs were at 8.8% of gross advances) – are accompanied by weaker transmission of policy rate cuts. This time around, NPA levels are not as high as witnessed back then, but still remain in the zone of discomfort.”
Given this, the finance minister Jaitley may keep asking banks to cut their lending rates, but the banks are not likely to oblige him any time soon.

The column was originally published on The Daily Reckoning on April 1, 2015

31 March, 2015

Why Rajan should not jump into bed with Jaitley

There have been a spate of media articles recently about how all is not well between the finance ministry (i.e. Arun Jaitley) and the Reserve Bank of India(i.e. Raghuram Rajan). In fact, so loud has been the noise around the “supposed differences,” that the finance minister Arun Jaitley had to recently clarify that: “There has always been and shall continue to be regular and continuous interaction between the central bank and the government. We have completely free and frank discussions and therefore there is no issue of a disconnect [the emphasis is mine]. I have routinely clarified that.”
It is important to note that Jaitley used the word disconnect. He did not say that there were no differences between the RBI and the finance ministry. Jaitley was talking in the specific context of the setting up of the monetary policy committee.
One of the things that he had announced in the budget speech was: “To ensure that our victory over inflation is institutionalized and hence continues, we have concluded a Monetary Policy Framework Agreement with the RBI…This Framework clearly states the objective of keeping inflation below 6%. We will move to amend the RBI Act this year, to provide for a Monetary Policy Committee.”
World over the monetary policy of a central bank is essentially decided by its monetary policy committee. In India setting the interest rate is the personal responsibility of the RBI governor. A report in The Hindu points out that the finance ministry wants the monetary policy committee to have eight members with a government nominee who wouldn’t have any voting rights.
The RBI on the other hand wants a five member committee where the majority would determine monetary policy decisions (for example whether or not to increase the repo rate). The governor would act only as a tiebreaker if a member is not present during the course of a meeting. The RBI also wants two outside experts in the committee which it would pick. And there is no space for a government nominee in RBI plans.
Jaitley was essentially referring to this issue when he said: “there is no disconnect”. Interestingly, Rajan clarified that: “overtime, as the Finance Minister said, we will figure out the details of the committee.”
Nevertheless, there is a much larger point that comes out of this. As I said earlier Jaitley (who is a lawyer and chooses his words very carefully) used the word “disconnect” and not “differences”. If he had said that there are no differences between the finance ministry and the RBI, that would have had me worried.
There has to be some friction in the relationship between a regulator and the government for the regulator to be effective. Alan Greenspan, the former chairman of the Federal Reserve of the United States, recounts in his book The Map and the Territory that in his more than 18 years as the Chairman of the Federal Reserve of the United States, he did not receive a single request from the US Congress urging the Fed to tighten money supply, increase interest rates and thus not run an easy money policy.
In simple English, what Greenspan means is that the American politicians always wanted low interest rates. India is no different on that front. Arun Jaitley has made enough noises since taking over as the finance minister asking the RBI to cut the repo rate. Repo rate is the interest at which RBI lends to banks and acts as a benchmark to the loans that banks make.
If there would have been no differences between the RBI and the finance ministry, the central bank would have cut interest rates every time Jaitley asked it to. And given the number of times Jaitley has asked for lower interest rates, the repo rate would have been close to 0% by now. But would that have led to lower interest rates in general? And would that have been the best for the Indian economy? The obvious answer to both the questions is no.
At times when politicians ask for low interest rates they are essentially batting for industrialists. As Rajan had said in a speech in February 2014: “what about industrialists who tell us to cut rates? I have yet to meet an industrialist who does not want lower rates, whatever the level of rates.”
He further went on to elaborate that: “Will a lower policy interest rate today give him more incentive to invest? We at the RBI think not. First, we don’t believe the primary factor holding back investment today is high interest rates. Second, even if we cut rates, we don’t believe banks, which are paying higher deposit rates, will cut their lending rates.”
Rajan was making a very important point here. The politicians and the industrialists just think about one side of the interest rate i.e. the borrowing side. At lower interest rates, borrowers are likely to borrow and spend more (at least theoretically, though I don’t buy this theory in totality). This would mean better prospects for business and faster economic growth.
At lower interest rates businesses also will end up paying lower interest on the debt that they have managed to accumulate, leading to higher profits, if everything else stays the same.
But what about the people who invest their hard earned money in fixed deposits? The politicians and the industrialists are not bothered about them. These people also need to be paid a certain rate of interest on their bank fixed deposits. Between 2008 and 2013, the fixed deposit interest rate was lower than the prevailing rate of inflation.
This led to a lot of money going into gold and land, where people thought the returns would be better. Many of them were also lured into investing into Ponzi schemes.
Long story short—the RBI has to look at all sides of the equation while making a decision to change the interest rates. That is not the case with politicians and industrialists. Given this, it is vital that there are some differences between the RBI governor and the finance minister. Hence, it is important that the RBI governor should not jump into bed with the finance minister.

The column originally appeared on The Daily Reckoning on Mar 26, 2015

11 February, 2015

Numb and number: new GDP data can be knotty, nutty and naughty

The ministry of statistics and programme implementation released a new set of gross domestic product(GDP) numbers for this financial year on February 9, 2015. A new method has been used to calculate the GDP and as per this method, the GDP growth in the current financial year (2014-2015) will come in at 7.4%. This is significantly higher than the 5.5% growth that had been forecast by RBI earlier.
It needs to be stated upfront that revising the method of calculating GDP is par for the course as government gets access to better information and at the same time needs to take into account the changing structure of the economy.
This revision of the GDP number and in the process GDP growth has got everybody excited. Nevertheless, the new GDP number needs to be looked at very carefully. Take a look at the following table which has the nominal GDP as per the new method compared with the nominal GDP as per the old method.

Year	Nominal GDP
	Old Method	New Method
2011-12	Rs 90.52 lakh crore	Rs 88.30 lakh crore
2012-13	Rs 100.03 lakh crore	Rs 99.90 lakh crore
2013-14	Rs 114.03 lakh crore	Rs 113.50 lakh crore
2014-15	Rs 129.55 lakh crore	Rs 126.54 lakh crore

Source: Press information bureau and budget documents

The nominal GDP is calculated using current prices in a given year and hence, is not adjusted for inflation. As per the old method, the nominal GDP has jumped by 43.1% between 2011-2012 and 2014-2015. As per the new method, the nominal GDP has jumped by 43.3% between 2011-2012 and 2014-2015. Hence, as far as growth in nominal GDP is concerned, it is more or less the same over the last four years, using both the methods.
Let’s get a little more specific now and look at the jump in nominal GDP between 2013-2014 and 2014-2015. As per the old method the nominal GDP was expected to go up by 13.6%. As per the new method, the nominal GDP is expected to go up by 11.5%. This is slower than the growth expected through the old method. In absolute terms the difference in nominal GDP between the old method and the new method is more than Rs 3 lakh crore.
Nevertheless, the growth in real GDP in the current financial year is expected to come in at 7.4% as per the new method. As mentioned earlier RBI had forecast that the real GDP growth in the current financial year would be at 5.5%. Real GDP growth essentially takes inflation into account.
So, what explains this disconnect? The nominal GDP growth is faster as per the old method but the real GDP growth is faster as per the new method. The explanation may very well lie in what sort of GDP deflator was used to convert nominal GDP numbers into real GDP.
Investopedia.com defines the GDP deflator as: “An economic metric that accounts for inflation by converting output measured at current prices into constant-dollar GDP.” Deutsche Bank economists Taimur Baig and Kaushik Das write in a research note that: “The…nominal [GDP] growth of (11.5% year on year) and real GDP growth (7.4% year on year) estimates for FY14/15[financial year 2014-2015] imply that the GDP deflator is likely to be 4.1% for the current fiscal year.”
This is where things get interesting. Inflation as measured by the consumer price index has been falling this year, but it still hasn’t fallen to a level of 4.1%. For the month of December 2014 (the latest number available) it stood at 5%. The average inflation for the period April to December 2014 was at 6.8% (a simple average of monthly inflation numbers). As Crisil Research points out in a research note: “The new GDP series accounts for much lower inflation than recorded by CPI-2010 base[the method currently used to calculated inflation based on the consumer price index].”
So, the question is if the inflation has been at 6.8% for the first nine months of the financial year, how can the GDP deflator be at 4.1%? (It needs to be mentioned here that inflation as measured by the GDP deflator can be different from the inflation as measured by the consumer price index given that the coverage and weights of different items differ.) But the difference between that the two numbers is fairly significant.
If we consider the deflator to be at 6.8% then the real GDP growth for this year falls to 4.7% (11.5% minus 6.8%). This number is much more closer to the 5.5% real economic growth that has been forecast by RBI. It is also in line with a lot of high frequency data that has been coming out.
In fact, for the period October to December 2014, things get even more interesting. The nominal GDP growth during this period as per the new method was at 9%. The real GDP growth was at 7.5%. This implies a deflator of 1.5%. The inflation measured by the consumer price index, during this period was around 5%. Hence, how did the deflator turn out to be 1.5%?
Given this, there are too many points in the new way of calcuating GDP that do not make sense. As Baig and Das point out: “Overall, we are unsure about how to reconcile this new data with indicators that show companies struggling with earnings and investment, banks seeing rising bad loans, credit growth slowing, and exporters reporting negative growth.” Other than this car sales have been muted, tax collections have been slow and the total number of stalled projects continues to be huge. Businesses also remained cautious about making fresh investments. As Crisil Research points out: “India Inc remained cautious on fresh investments. While there was some pick-up in investments from -0.3% in fiscal 2013 to 3% in fiscal 2014, a large part of the rise in consumer demand was also met by utilising existing inventory.”
Numbers highlighted in the last paragraph(from slow growth in bank lending to companies struggling with earnings) are real numbers unlike the GDP which is a theoretical construct. And these numbers do not reflect in any way a GDP growth of 7.4%, given the inflation level of 6.8% during the course of this financial year.
So what possibly explains this jump in growth? A possible explanation, as highlighted earlier, is that the inflation that has been considered to arrive at real GDP numbers is much lower than the prevailing inflation as measured by the consumer price index.
Further, on February 12, the ministry of statistics and programme implementation is going to release a new method of calculating inflation based on the consumer price index. If the new inflation number turns out to be considerably lower than the numbers that have been released during the course of this year, then we will have a possible explanation for this jump in GDP growth. If it does not we will have to look somewhere else.
To conclude it is worth remembering what the American professor Aaron Levenstein once said: “Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital.” (And no Navjot Singh Sidhu did not say this).

(The column originally appeared on www.equitymaster.com as a part of The Daily Reckoning as on Feb 11, 2015)

4 February, 2015

Why banks are not cutting interest rates

The Reserve Bank of India (RBI) presented its last monetary policy statement for this financial year, yesterday. It decided not to cut the repo rate which continues to be at 7.75%. The repo rate is the interest rate at which the RBI lends to banks and is expected to act as a sort of a benchmark to the interest rates at which banks carry out their business.
The RBI deciding not to cut the repo rate was largely around expected lines. I had said so clearly in my column dated January 16, 2015. The RBI had cut the repo rate by 25 basis points (one basis point is one hundredth of a percentage) a day earlier, on January 15, 2015.
There was a straightforward reason for this—the RBI had said in the statement released on January 15, that: “Key to further easing are data that confirm continuing disinflationary pressures.” Between January 15 and February 3 no new inflation data has come out. Hence, there was no way that the RBI could figure out whether the fall in inflation (or what it calls disinflation) has continued. Given this, there was no way it could cut the repo rate, unless it chose to go against its own guidance.
The more important issue here is that despite the RBI cutting the repo rate on January 15, 2015, very few banks have acted on it and passed on the rate cut to their consumers. Reuters reports that only three out of India’s 45 commecial banks have cut their base lending rates since the RBI cut the repo rate last month. The base rate is the minimum interest rate a bank is allowed to charge to its customers.
This has happened in an environment where growth in bank loans has slowed down substantially. Every week the RBI puts out data regarding the total amount of loans given out by banks. As on January 9, 2015 (the latest such data available), the total lending by scheduled commercial banks had grown by 10.7% over a one year period. For the one year period ending January 10, 2014, the total lending by banks had grown by 14.8%. This clearly shows that the bank lending has slowed down considerably over the last one year.
In this scenario theoretically it would make sense for banks to cut their interest rate so that more people borrow. As Rajan put it while addressing a press conference yesterday: “To get that lending they will have to be more competitive, which means they will have to cut base rate. I am hopeful it is a matter of time before banks judge that they should pass it on.”
But as I have often explained in the past cutting interest rates does not always lead to more people borrowing because the fall in EMIs is almost negligible in most cases.
As John Kenneth Galbraith writes in The Affluent Society: “Consumer credit is ordinarily repaid in instalments, and one of the mathematical tricks of this type of repayment is that a very large increase in interest brings a very small increase in monthly payment.” And vice versa—a large cut in interest rate decreases the monthly payment by a very small amount. So interest rate cuts do not always lead to people borrowing more.
Hence, the banks run the risk of cutting the base rate and charging their existing customers a lower rate of interest and at the same time not gaining new customers. This will be a loss-making proposition for banks and given that only 3 out of the 45 scheduled commercial banks have cut their base rates since January 15, 2015.
Banks increase their lending rates very fast when the RBI raises the repo rate. But they take time to cut their lending rates particularly in a situation where the RBI has reversed its monetary policy stance and cut the repo rate after a long time.
As Crisil Research points out in a research note released yesterday: “Lending rates show upward flexibility during monetary tightening but downward rigidity during easing. Between 2002 and 2004, while the policy rate declined by 200 basis points, lending rates dropped by just 90-100 basis points. Conversely, in 2011-12, when the policy rate rose by 170 basis points, lending rates surged 150 basis points.”
So when the RBI is increasing the repo rate, banks typically tend to match that increase, but the vice versa is not true. “Lending and deposit rates also move in tandem in times of policy rate hikes, while the gap between them widens when rates fall. Base rates of banks have been steady around 10-10.25% over the last 18 months, while deposit rates started coming down in October 2014 by about 20- 25 basis points because of ample liquidity.,” points out Crisil Research.
This is something that Rajan also talked about yesterday, when he said: “Many [banks] have been relatively quick to cut their deposit rates, but not so quick to cut their lending rates, I presume some are hoping they can get the spread for a little more time to repair banks’ balance sheets.”
When a bank cuts the interest rate it pays on its fixed deposits and at the same time does not cut its lending rate, it earns what bankers call a greater spread. This essentially means more profit for the bank.
Rajan in his statement also talks about banks repairing their balance sheets. This is particularly in r reference to the bad loans of public sector banks. As the latest financial stability report released by the RBI in December 2014 points out: “PSBs[public sector banks] continued to record the highest level of stressed advances at 12.9 per cent of their total advances in September 2014 followed by private sector banks at 4.4 per cent.” The situation hasn’t really changed since then, if the latest quarterly results of public sector banks for the period October to December 2014 are anything to go by.
The stressed asset ratio is the sum of gross non performing assets plus restructured loans divided by the total assets held by the Indian banking system. The borrower has either stopped to repay this loan or the loan has been restructured, where the borrower has been allowed easier terms to repay the loan (which also entails some loss for the bank) by increasing the tenure of the loan or lowering the interest rate.
What this means in simple English is that for every Rs 100 given by Indian banks as a loan(a loan is an asset for a bank) nearly Rs 10.7 is in shaky territory. For public sector banks this number is even higher at Rs 12.9.
The public sector banks are hoping to recover some of these losses by cutting their deposit rates but staying put on their lending rates. And this leads to a situation where even though the RBI has cut the repo rate once, it hasn’t had much impact on the lending rates of banks. “High non performing assets curb the pace at which benefits of lower policy rate are passed on to borrowers. Data shows periods of high NPAs – such as between 2002 and 2004 (when NPAs were at 8.8% of gross advances) – are accompanied by weaker transmission of policy rate cuts. This time around, NPA levels are not as high as witnessed back then, but still remain in the zone of discomfort,” Crisil Research points out.
In this situation, banks will cut lending rates at a much slower pace than the pace at which the RBI cuts the repo rate.

(The column originally appeared on www.equitymaster.com as a part of The Daily Reckoning, on Feb 4, 2015)

4 February, 2015

Raghuram Rajan is not an item number; there can’t be something new every 15 days

If you are the kind who watches Hindi film trailers regularly, you would know that item numbers hit television screens regularly; once in about every two weeks is my guess. Such songs, normally do not have any link with the overall story of the movie and are typically included just to get the audience to the theatres, once the movie releases.
Given this, they have a very small shelf life. Of course there are songs like choli ke peeche kya hai which fall into this category and have survived the test of time. But they are exceptions that prove the rule.
The mainstream media also needs its shares of item numbers to keep the audience interested. And given the state of our country, there is no dearth of such events. It could mean non-stop coverage of a child who has fallen into a bore-well or a sting operation that merely states the obvious.
One part of the media which does not get enough item numbers is the business media. And typically they look forward to the days on which the Reserve Bank of India (RBI) presents the monetary policy. Today was one such day and business media was waiting for it with bated breath.
But the item number turned out to be a bhajan when the RBI governor Raghuram Rajan decided not cut the repo rate in the Sixth Bi-Monthly Monetary Policy Statement, for 2014-2015. Repo rate is the rate at which the RBI lends to banks and is currently at 7.75%.
Rajan had cut the repo rate on January 15, 2015, by 25 basis points. This was an inter-meeting cut with no monetary policy announcement being scheduled on that day. This cut had left the media gasping for more cuts.
Rajan in a press conference after the policy was announced today rubbed salt into media’s wounds(i.e. their disappointment at the repo rate not being cut) by saying that “monetary policy is a long term process. Don’t hold me for something new every 15 days.”
A rate cut would made the day easier for the business media. The stock market would have rallied. The experts would have explained why the stock market has rallied. Still other experts would have told us which are the stocks to buy now. The economists could be got in to explain, why the RBI cut the repo rate. They could also speculate about whether the RBI would cut the repo rate by 25 basis points or 50 basis points on April 7, 2015, the day, the next monetary policy statement is scheduled to be announced. And the television anchors could have brought out their million dollar smiles. All in all everyone would have had a good time.
But in the words of Sahir Ludhianvi made famous by Amitabh Bachchan “magar ye hona saka”.
Nevertheless, if people had chosen to read the last monetary policy statement carefully enough, they would have known that the chances of the RBI cutting the repo rate again on February 3, were next to nothing.
The statement had clearly said: “Key to further easing are data that confirm continuing disinflationary pressures.” This means that if inflation keeps falling or remains stable, the RBI will cut the repo rate more in the days to come. The trouble was that between January 15 and today no new inflation data was released. That will happen only next week.
In the same statement the RBI had further said that “also critical would be sustained high quality fiscal consolidation.” This financial year is more or less over. The only way the RBI can figure out how the government is planning to manage its fiscal deficit for the next financial year is by studying the annual budget once it is out on February 28, later this month. The fiscal deficit is the difference between what a government earns and what it spends.
Given this, any further rate cuts would mean waiting for new inflation data to come out as well as waiting for the government to present its budget.
As the RBI said in the monetary policy statement released today: “The Reserve Bank also indicated that “key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation…”. Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest rate stance.”
Over and above this the RBI also needs to take a look at a few other data points that are scheduled to be released. Sometime late last week, the ministry of statistics and programme implementation released a new method of calculating the GDP. This changed the base year for calculating the GDP from 2004-2005 to 2011-2012. The structure of the economy keeps changing. Hence, the GDP calculations also need to keep pace with this change. Over and above that the data that the government has access to keeps improving over the years, and this also needs to be incorporated in the way the GDP is calculated.
This new GDP data essentially suggests that the Indian economy grew by 4.9% during 2012-13, and 6.6% during 2013-14. The earlier calculations had suggested that the Indian economy grew by 4.5% in 2012-2013 and 4.7% in 2013-2014.
On February 9, later this month the government will release the expected GDP growth for 2014-2015, using the new method unveiled late last week. The RBI will have to take this into account while deciding what to do with the repo rate in the days to come.
Along with the new GDP, the RBI also will have to monitor the revision in the way the consumer price index is calculated. As the central bank said in its statement: “As regards the path of inflation in 2015-16, the Reserve Bank will keenly monitor the revision in the CPI, which will rebase the index to 2012 and incorporate a more representative consumption basket along with methodological improvements.”
Given these reasons, the next action from the RBI on the repo rate front, will happen only after the government has presented its annual budget irrespective of the business media continuing to make a song and dance about it.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

This column originally appeared on www.firstpost.com on February 3, 2015