 "Why SBI chief is worried about RBI's move on rupee")
The Reserve Bank of India’s strongest monetary policy action in 17 years has helped the rupee gainonly 60 paise, but it has not gone down well with many bankers and mutual fund investors as it has raised the short-term interest rates sharply.
In forefront to flay the RBI’s moves is none other than State Bank of India’s (SBI) Chairman Pratip Chaudhuri, who has earlier taken cudgels with RBI Governor Subbarao use of banks’ cash reserve ratio. This time round, Chaudhuri hasquestioned the RBI’s wisdom in choking inter-bank liquidity to stem the rupee’s fall. He is of the opinion that raising policy rate could have communicated its intentions better, unlike the present moves which have created confusion in the market.
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SBI chief criticises RBI, says governor should have raised rates instead of squeezing inter-bank liquidity. Reuters[/caption]
“My advice would be if you have to press this button do it without any cover, do it in a frank, fair and transparent manner. If it (money supply) has to be tightened, please increase interest rate, but do not choke liquidity,” Chaudhuri said.
The SBI chairman said that while the repo rate on paper is 7.25 percent, the real rate is much more. He said the repo rate should not be camouflaged and the RBI’s move should be more transparent.
Last year, Chaudhuri had raised a stir by demanding elimination of the cash reserve ratio (CRR). He also pointed out that theCRR stands reduced from 6 percent to 4 percentsince then.
On Tuesday, the RBI imposed new restrictions on the commercial banks’ access to cash. Banks will now be permitted to borrow under the liquidity adjustment facility (LAF) only up to 0.5 per cent (compared to one per cent earlier) of their net demand and time liabilities (NDTL) at the benchmark interest rate of 7.25 per cent.
Earlier, RBI had increased the bank rate by 200 basis points and the marginal standing facility (MSF) to 10.25 per cent from 8.25 per cent.
But Chaudhuri has reasons to be concerned. With SBI’s first quarter results expected next week, the RBI’s moves to fight rupee depreciation will negatively impact the money the banks can set aside for loss provisioning. And it seems, Governor D Subbarao has not considered these damages in the quest to make the rupee recover.
Chaudhuri hoped that the RBI’s measures are rolled back soon.
The rupee had its lifetime low of 61.22 against the US dollar on 8 July, which prompted the RBI to take these steps. Yesterday, it bounced back sharply by 63 paise from the previous close to end at a one-month high of 59.13 against the dollar on back of the RBI’s steps. Today, the rupee is at 59.35 against the dollar.