Category Archives: Updates

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Mid Quarter Monetary Policy Review 2013-14: Hike and Cut

Today’s monetary policy review by the new Governor, RBI has surprised market watchers by raising the repo rate by 25 basis point (bps) to 7.5% while cutting the MSF rate by 75 bps to 9.5%.Raghuram Rajan

The measures are to fight inflationary pressures and is a reaction to US Fed actions yesterday of not announcing the tapering off of quantitative easing. As Rajan says, “Let’s put our house in order before it (tapering) comes back.”

Most economists surveyed before RBI policy said-no hike in Repo Rate. Suddenly all believe there will be more hikes. This is the way of most market experts!

However, Arvind Virmani had predicted on September 5, 2013 that Governor Rajan will follow a two pronged approach to Monetary and Financial policy

(1) He will adopt a modern, neo-conventional monetary policy, and The epitome of ‘conventional monetary policy’ was “inflation targeting” based on the assumption that in the long run this is also the best policy for full employment/maximum Output (growth). The “Neo” refers to the lessons learned by the Global financial-monetary czars about systemic risks and macro-prudential regulation, after the Global financial crisis (which he was the first to warn about).

(2) He will forcefully pursue liberalization of financial markets, including foreign exchange markets and banking, institutional reform of the RBI & other financial institutions, and universalization of modern payment systems, banking & financial instruments (inclusion). He has already announced a number of specific liberalization on banking and foreign exchange.

So we have a Governor at RBI who is ready to flex his muscles even if it is against the Government’s interest in fueling growth.

As Arvind Virmani explains, “With the reforms log jam persisting in Delhi, he is implicitly saying that he will follow a relatively conventional monetary policy and it is up to the government to do its part on the fiscal and structural policy side to promote growth.”

Raghuram Rajan’s speech on taking over as Governor

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Useful Links on Money Matters

Useful Links on Tax, PPF, Inflation, Investment and the Economy

Useful Links on Money MattersHaving argued (tongue in cheek, of course!) against the information overload and why you shouldn’t listen to experts, here’s a list of articles and links that convey good information and wisdom on money matters that may interest you.

1.  Sandip Sabharwal on Rupee and Gold

Sandip would like to remind investors that the actual risk of investing in an asset class is normally the lowest when the perception of risk is the highest!

2.  Subramoney on Inflation indexed bonds

Subra explains, “Let us say the bonds are issued for Rs. 1000 each and carry 5% interest rates. In the first year you will be paid Rs. 50 as interest. Let us say the inflation in the first year of your holding the bond is 10%…then the PRINCIPAL VALUE of the bond becomes 1100.
Again the interest rate remains fixed at 5% – and that will be paid on the ADJUSTED PRINCIPAL VALUE …Rs. 1100. This means you will get Rs. 55 as interest.

3.  Ebook on Income tax for freelancers

The ebook has been prepared after extensive research by a freelancer herself (Deepa) and has been edited by an expert (Karan Batra, CA)

4.  Details on PPF for minors and self

The extensive post on BeMoneyAware answers the question of how much can one invest in Public Provident Fund (PPF) of self and minor, what does the PPF act says and how can it be interpreted.

5.  Investments by NRIs in the USA by Manshu

The post lists out the popular investment choices for people living in the US and his recommendations.

Thanks for reading. Please check out our financial planning workshops and You can send us email for details about the workshops and book.