MUMBAI: Denny Jose, a small-town caterer in the southern Indian
state of Kerala, was closely watching the Indian central bank meeting last
week.
Newspapers and markets were forecasting the Reserve Bank of
India would cut its key rate by a quarter of a percentage point.
But the RBI held rates and moved to a "neutral" policy
stance, signaling an end to India´s longest monetary easing cycle since the
2008-09 global financial crisis.
The move surprised Jose and crimped his expansion plans.
"We were planning to buy two commercial vehicles to transport food and
were expecting a rate cut. Now, we´re forced to defer that plan." He was
not the only one wrong-footed.
Under governor Urjit Patel, the RBI has significantly reduced
communication with markets after he took over in September, an analysis of his
public comments shows.
Some critics say that a lack of clarity is pushing bond yields
higher, and that in turn could send interest rates higher and restrain economic
growth.
A government source familiar with the RBI´s thinking said that
with modifications to the laws governing the bank and the introduction of a
monetary policy committee, the governor was no longer sole arbiter of policy as
prior RBI governors had been.
His views would not be reflective of the entire MPC, added the source,
who declined to be named. In an interview televised on Friday, Patel told
CNBC-TV18 that the RBI was open to "valid" criticism.
"It´s important that one grows thick-skinned fast in this
business and I think we have done that," Patel said.
"We have gone about our work.
We had undertaken major challenges during these past few months
and valid criticism is something that we are open for and we take it in the
spirit in which it is given and try to improve ourselves.
"Central bankers around the world keep moves in benchmark
interest rates a closely held secret before they are announced, but governors
and other senior policy makers tend to guide markets, helping to avoid
surprises that may cause volatility.
In his first five months in office, during which Prime Minister
Narendra Modi abruptly abolished high-value currency notes and roiled economic
activity, Patel gave nine public speeches or press conferences, according to
Reuters analysis.
That was well below the level of his two predecessors in comparable
periods of their tenures. Moreover, Patel has presided over three rate
decisions so far, and a majority of economists polled by Reuters before the
decisions got it wrong each time.
Under both his predecessors, most economists accurately called the
rate direction in the large majority of cases.
"The government´s trying to boost growth that´s been hit by
demonetisation, but central bank communication is working in the opposite
direction," said a senior Mumbai-based treasury banker, who asked not be
named.
Some market watchers say it is early in Patel´s tenure and that
he should be given more time. "He is dealing with the most radical
executive decision in modern India´s monetary history.
In all fairness many are being too harsh on him," said
Nishant Berlia, management board member at Apeejay Stya investment group.
In December, benchmark 10-year bond yields rose at their fastest pace since the
2013 rupee crisis.
And last week´s surprise move to a "neutral" stance
sent yields up by 30 basis points.
Some traders said insufficient information about the RBI´s
thinking was one of the main reasons for the rise.
"Uncertainty in markets breeds defensiveness," said
the treasury banker.
The sharp increase in yields has meant a lost opportunity for
state-backed transmission company Power Grid Corp, which had decided to wait
for a rate cut before issuing bonds to finance capital expenditure, said Ajay
Manglunia, head of fixed income markets at Edelweiss, one of the underwriters.
The company was likely to issue bonds worth 20-25 billion rupees
($300-375 million), Manglunia added.
An official with direct knowledge of the matter said Power Grid
had deferred the issuance and was looking for alternative funding
sources. Power Grid did not respond to a request for comment.
"The volatility in the market has gone to such a level that
credible investment is taking time to re-surface and issuers may be better off
deferring the transactions," said Jayen Shah, head of debt capital markets
at IDFC Bank. The government source said the market had
"misread" the role of the MPC within the confines of amendments to
legislation, and noted that the changes made "inflation a much bigger
focus for the committee with growth being secondary.
"Defending the abrupt change in policy stance, Patel told
CNBC-TV18 the RBI needed to look beyond muted headline inflation as it aims to
achieve 4 percent consumer inflation.
Patel, a deputy governor since 2013, had been known within the
RBI as reserved, insiders have said.
He is widely regarded as having the professional and academic
credentials to succeed, but the governor´s role also involves communicating,
some bankers say.
In public so far, he has done that significantly less than his
two predecessors.
Duvvuri Subbarao, who started a five-year tenure in 2008 at the
start of the global financial crisis, spoke 16 times in his first five months
as governor, including speeches, interviews and policy meetings.
Raghuram Rajan, who took over in 2013 amid the rupee crisis,
spoke 20 times in a similar period.
"It´s important that the RBI clarifies interpretation of
economic events and the likely direction of economic policies at times of
uncertainty so that the market worries about the right things and doesn´t get
into a tizzy about the wrong ones," Rajan said in 2013.
Unlike under Patel´s two predecessors, the RBI now steers its
decisions through the six-member MPC, but other than Patel, board members have
not yet spoken publicly.
No comments:
Post a Comment