Articles by Partha Ray

 Statements like “money, finance and banking are at the crossroads at this juncture” have become a much-used cliché, but tend to be true for most of the recent past. This year, too, is no exception. At home we have seen that credit growth both from banks and non-banks continue to suffer.

The Jalan Committee’s recommendations for the Reserve Bank of India to pay dividend to the government out of its current year’s surplus only after meeting the contingency risk buffer is a smart move towards the proverbial act of fine-balancing.This should put all speculations to rest about further transfers out of the central bank’s past reserves.

In the Indian context, a key question is addressed: What has been the influence of monetary policy on different segments of the financial markets? Constructing a structural vector autoregressive model with the monetary policy rate, the pattern of monetary transmission to financial markets is examined over three distinct periods of regime changes in the Indian monetary policy and liquidity management framework. The empirical evidence indicates that there is sufficient period-specific transmission of monetary policy across the different segments of the financial markets. While the transmission of monetary policy to the money and bond markets is found to be fast and efficient, the impact of the policy rates on the forex and stock markets is limited.

Assessing the trends in India’s balance of payments, it is argued that a combination of substantial trade deficit and a significant current account deficit financed predominantly by fickle portfolio investments could have made the rupee vulnerable to the moods of the global capital market. India’s huge dependence on oil imports along with high gold and electronic imports could also have played their roles in making the exchange rate volatile.

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