Inflation targeting under imperfect policy credibility

“The time is appropriate to go for a further increase in the policy rate to effectively deal with inflation and inflation expectations,” RBI governor Shakitkanta Das, who heads the six-member panel, said. "As our policy in recent months has been unambiguously focussed on withdrawal of accommodation, both in terms of liquidity and rates, the change in the wording of stance should be seen as a continuation and fine-tuning of our recent approach," Das added. "The withdrawal of accommodation, as I see it, would be non-disruptive to the process of recovery and would strengthen our ongoing efforts to combat inflation and anchor inflation expectations." The MPC raised the repo rate by 50 basis points on June 8 , almost a month after it had gone for 40 basis point hike in an off-cycle policy meeting to combat rising price pressure. One basis point is one-hundredth of a percentage point. Retail inflation came in at 7.04 percent in May , easing from a near-eight-year high of 7.79 … [Read more...] about RBI committed to bringing inflation within target, MPC meeting minutes show

RBI Governor Shaktikanta Das (File image) The Reserve Bank of India (RBI) is “well on track” to bringing down inflation and inflation expectations in the economy against the backdrop of supply side disruptions, the governor said. “Until December, CPI (Consumer Price Index) inflation is expected to remain higher than the upper tolerance level; thereafter it is expected to go below 6 percent as per our current projections,” Shaktikanta Das said in an interview to The Times of India. "There will be inflationary pressures, and only in the fourth quarter, we have projected it to go below 6 percent.” The governor acknowledged that high inflation hurts people the most, especially the lower segment of society which is hit the hardest. Hence, it is desirable that the country has a framework for inflation and that monetary policy operates within that, Das said. The RBI’s analysis shows that when consumer inflation exceeds 6 percent, it is negative for growth, he said, adding … [Read more...] about RBI well on track to bringing down inflation, says Governor Shaktikanta Das

Share to Twitter Share to Linkedin The drumbeats of economic blame have been pounding away. Inflation. Inflation. Inflation. Some, like Lawrence Summers, have been saying this for many years. Too much money in the system that would in theory boost activity and eventually drive prices up. Or, as an economist, who will remain anonymous, once said jokingly about a big name in his field and predictions of recessions, “Paul Krugman made a career of saying, ‘We're going to have a recession this year” for 15 years. When one finally happened, he said, ‘See? I told you.’ And he got the Nobel Prize.” Oh, Nobel Committee, Summers is waiting for that telephone call. Ironically, as someone who’s frequently been wrong and loath to admit it , as Michael Hirsch wrote about Summers some time back in The Atlantic, there’s a strong argument that he helped propel the reckless global capital flows and fight off regulation that would result in the Great Recession, the … [Read more...] about Inflation Blame Game Targets Consumers And Workers

Share to Twitter Share to Linkedin Topline Despite increased concerns over a looming recession, a growing number of experts believe that upcoming discounts and easing supply chain disruptions may help cool the rate of inflation more quickly than expected, potentially offering a much-needed respite to cash-strapped Americans and investors wary over the implications of rapidly tightening monetary policy. Key Facts Though spiking gas prices may push overall inflation higher this year, core inflation, which excludes volatile food and energy prices, has peaked “and will fall faster than markets and the Federal Reserve expect,” economists at Pantheon Macro wrote in a Wednesday note. With a stronger dollar starting to make imports cheaper and rising inventories starting to quell supply shortages, the economists project inflation, which unexpectedly hit a 41-year high of 8.6% in May, will fall to 4.9% by the beginning of next year as core inflation … [Read more...] about Why A Strong Dollar And Retail Inventory Blunders Could Help Push Inflation Down By Next Year

- A + A NEW YORK/WASHINGTON (June 23): The European Central Bank’s Isabel Schnabel started it. In February, she flashed a chart showing how much the euro had weakened against the US dollar. Two months later, the Bank of Canada’s Tiff Macklem bemoaned the decline of the Canadian dollar. Swiss National Bank President Thomas Jordan suggested he’d like to see a stronger franc. The US dollar had been soaring — now up 7% for the year — as the Federal Reserve prepared to aggressively combat inflation. And so one by one, central bankers elsewhere, just as desperate to tame the relentless march of inflation in their own backyards, began sending not-so-subtle signals that they would for once welcome a stronger currency — which helps reduce the cost of imports by boosting buying power abroad. It’s a form of intervention so rare that their jawboning alone moved markets. On June 16, two of them upped the ante: Switzerland surprised traders with the first rate increase since … [Read more...] about Currency war breaks out in a world short on fixes for inflation

- A + A (June 23): The Philippine central bank increased its key interest rate for a second straight meeting and raised its inflation forecast, continuing a gradual pace of normalisation while it faces a slumping currency. Bangko Sentral ng Pilipinas raised the benchmark rate by 25 basis points to 2.5%, it said in a statement on Thursday (June 23), as forecast by 17 of 25 economists in a Bloomberg survey. The rest saw a half-point increase. The peso was 0.1% lower at 54.5 per dollar as of 3.06pm local time, holding near its weakest level since 2005. The benchmark stock gauge closed down 1.7% before the decision. BSP’s rate-hike cycle is picking up momentum as inflation accelerates at its quickest in more than three years. Many policymakers in Southeast Asia have been relatively slower than other global central banks, particularly the US Federal Reserve, in normalising rates as they focus on solidifying their economic recoveries from the pandemic. The … [Read more...] about Philippines raises key rate on inflation risks, peso slump

- A + A (June 23): Indonesia’s central bank held its policy rate at a record low again, opting to look through price shocks and currency weakness to continue supporting the economy. Bank Indonesia (BI) left the seven-day reverse repurchase rate unchanged at 3.5% on Thursday (June 23) as predicted by 24 of 33 economists surveyed by Bloomberg . The rest expected policymakers to kick off the monetary tightening cycle with a 25-basis-point hike. The move sets Indonesia apart from most of the region’s central banks, which have begun raising borrowing costs to counter surging inflation. While domestic price gains are set to breach BI’s 2%-4% target this year, the central bank has maintained that there’s no rush to tighten as state subsidies and higher reserve requirements are helping manage price pressures. Governor Perry Warjiyo on Thursday said inflation will continue to rise, but said it remains manageable. The monetary authority sees consumer prices returning to … [Read more...] about Bank Indonesia holds key rate as inflation seen manageable

An external member of the Reserve Bank of India’s Monetary Policy Committee (MPC) has said the time is “ripe” for the rate-setting panel to provide projections for the future path of the policy rate. “This would help stabilise long-term bond markets and also anchor inflation expectations,” external member Jayanth Varma said in the minutes of the MPC’s June 6-8 meeting that were released on June 22. According to Varma, the MPC has enough experience to provide a forward-looking view for interest rates, with the RBI having evolved into a “mature” inflation targeting" central bank. While Varma did not elaborate, he seemed to be suggesting that the six-member MPC provide a forecast for the repo rate similar to that of the US Federal Open Market Committee’s famous ‘dot plot’ for the mid-point of the federal funds rate target range. The dot plot shows US monetary policymakers–both voting and non-voting members–where the US interest rate is expected to be at the end of the … [Read more...] about Time ripe for MPC to provide interest rate projections, says Jayanth Varma

Any assessment of a government's performance invariably ends up at the economic door. At the start of Narendra Modi's ninth year as prime minister (PM), it is then pertinent to ask: how has the Indian economy fared so far? Making any straight comparisons between now and May 2014 would be unfair given the impact of the coronavirus pandemic. And even before the pandemic's end, Russia’s invasion of Ukraine upended all calculations again. "No one country today can plan for its recovery...because of these kinds of disturbances. Our recovery, not just of India, but for countries everywhere, will be severely hampered," Finance Minister Nirmala Sitharaman had noted in late February a day after Russia attacked Ukraine. But it must not be forgotten that India has attempted to kick-start its economic recovery multiple times in the last eight years. The first of these was soon after Modi took charge as PM in May 2014. Working in tandem with Raghuram Rajan at the Reserve Bank of … [Read more...] about Modi govt @ 8 | Pandemic hides economy’s past troubles as restart button hit again

UOB: Room for Bank Negara to hike OPR by another 50bps before end-September - A + A KUALA LUMPUR (June 22): There is growing pressure on Bank Negara Malaysia to hike rates faster in the face of an aggressive US Federal Reserve, while there is widening consensus that global food and energy prices will continue to stay elevated for longer, with any potential supply shocks seen capable of driving prices and inflation even higher. In a note on Wednesday, UOB Global Economics and Market Research cautioned that the key takeaway is that "doing nothing or acting too slow" could sow seeds of more persistent and elevated inflation in the future, with more negative effects on demand and the economy. "Rate hikes would then also need to be sharper and more abrupt in that scenario. There may also be a need to act faster now in order to have sufficient policy buffers in preparation for the next recession (when it happens). A lagged policy response by BNM relative to peers … [Read more...] about Growing pressure on Bank Negara to hike rates faster