Both the government and RBI will be happy to see the local currency bouncing back, but will the trend last? The rupee rose about 2.7% against the dollar on Friday, a day after the Reserve Bank of India (RBI) announced a series of measures to curb speculation in the foreign exchange market. Today, the Indian unit may rise even further as the central bank has also deregulated interest rates on two sets of deposits that non-resident Indians (NRIs) keep in India and banks are expected to raise rates.
Two sets of critical data will be released this week before India’s central bank announces its mid-quarter review of monetary policy on 16 December—wholesale price inflation in November and factory output in October. By Bloomberg It’s fairly certain that inflation will be down to around 9% in November from 9.73% in October.
The finance ministry wants India’s public sector banks to put in place a new human resource (HR) plan by the end of December, and submit the plan to the government, the majority owner of such banks, for “record and review”. The ministry has accepted as many as 56 recommendations of a committee that was set up in October 2009 to study HR issues at these banks, headed by former Bank of Baroda chief A.K.
The Reserve Bank of India (RBI) is under pressure from many quarters to pare banks’ cash reserve ratio (CRR) -- or the portion of deposits that commercial banks need to keep with the central bank -- to ease liquidity tightness in the financial system. Banks have been borrowing Rs1 trillion -- or even more some days -- from the RBI through its re-purchase or repo window and the cash deficit in the system will intensify in mid-December when Indian corporations will pay advance tax for the current quarter. Last raised in January 2010, the CRR is now pegged at 6%.