Archive for July 28th, 2009

Primer on Central Bank Independence

July 28, 2009

Carl Walsh of Univ of California Santa Cruz has written a useful short primer on central bank independence. Sums up the main idea and has a literature survey on the subject as well.

First Quarter Review of Monetary Policy for FY 2009-10

July 28, 2009

RBI released its monetary policy for Q1 2009-10. The policy was seen as a test for RBI to balance quite a few tasks – Growth vs inflation, CPI Inflation vs WPI Inflation, High Govt Borrowings vs Low Interest Rates etc etc.

Anyways, the best part of the statement is it is just 26 pages of text. A highly welcome move compared to previous statements which ran into 7-80 pages.  I managed to qiock read it in abt 15 minutes which is no mean achievement.

Another development is the simplicity of language. Earlier ones were also simple but this one takes a step forward with the neat headings and precise explanations. This one is more reader friendly The Governor surely is trying to walk the talk. In his previous interview he stressed on the need to make RBI more transparent and improve communications.

CB: If there were three things that you could achieve in your first three years, what would those three be?

DS: First, I would like the RBI to acquire greater proficiency in managing monetary policy in a globalised context. India is going to become more and more integrated. And we are going to be impacted by what’s happening around the world.

Second, we have to make the RBI more transparent. We need to improve communication at both technical and non technical levels.

Here are a quick points  from the statement:

  • Monetary Transmission has improved
  • Inflation is a worry and -ve WPI inflation is just plain statistics. It has increased WPI Inflation forecast from 4% to 5% by end of 2009-10
  • Flow of financial resources are still constrained. Bank lending stood firm in 2008-09 but so far in FY 2009-10 it doesn’t look good.
  • Lending Rates remain high esp in private and foreign banks
  • It also has a nice table (Table 20) which explains what has led to rise in liquidity

Challenges for Indian economy:

  • Manage ample liquidity and inflation in future
  • Manage govt borrowing program
  • Spur Pvt Investment
  • Fiscal Consolidation
  • Improve Investment Climate & absorptive capacity


RBI also released a detailed assessment of economic conditions y’day.

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