Sunday, March 26, 2023
  • Login
Euro Times
No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
Euro Times
No Result
View All Result

Massive currency market intervention may not impact monetary policy independence: Report

by Euro Times
September 27, 2022
in Business
Reading Time: 2 mins read
A A
0
Home Business
Share on FacebookShare on Twitter


Massive interventions by the Reserve Bank of India (RBI) to contain the value of the rupee may not impact the independence of monetary policy, though it can have an impact on the money supply in the system, a study by the central bank said.

Forex market interventions during surges in capital flows to contain the INR volatility lead to an increase in money supply or M3, which is found to be neither inflationary nor elicit a policy rate response by the RBI, according to the research paper published under the RBI working paper series.

“This points to RBI’s monetary policy independence not facing much constraints from its exchange rate policy and financial openness,” RBI deputy general manager Harpreet Singh Grewal and Chennai-based Shiv Nadar University Senior Professor Pushpa Trivedi said in a joint paper titled “ Monetary Policy Independence under a Flexible Exchange Rate Regime – The Indian Case”.

Intervention by the RBI, by way of purchase of dollars that increases forex reserves and reserve money, if not sterilised, can push down money market interest rates below the policy rate and lead to inflation. Consequently, an increase in the policy rate to address inflationary pressures may invite further yield-seeking capital flows. This may constrain the operation of monetary policy, it said.

“However, sterilisation is not required if the increase in reserve money aligns with the demand in the economy or an increase in reserve money is less than required,” the study further said.

Theoretically, the increase in money supply can be sterilised by the Reserve Bank through open market operations or market stabilisation scheme by selling an equivalent amount of domestic government securities.

“However, sterilisation has quasi-fiscal costs by driving down seigniorage when higher-yielding assets are replaced by lower-yielding ones. Also, the sale of domestic government securities drives interest rates upward inviting further capital flows,” the authors noted in the study.

The preliminary assessment by the authors suggests that even during times of foreign exchange market intervention by RBI, there has been low and stable inflation in the country. The study estimates the quantum and effectiveness of sterilisation and then estimates the impact of forex market interventions on the independence of monetary policy (operating target of monetary policy).

The results suggest that there is high degree of sterilisation of the increase in the money supply resulting from forex market interventions, but offsetting flows due to decline in net domestic assets and hardening of yields do not constrain monetary policy independence.

The study also finds that moderation in global risks leads to higher capital inflows into India. However, the consequent forex intervention to contain volatility of the INR and the resultant increase in M3 is neither inflationary nor elicits a policy rate response.

Currently, the central bank is facing challenges of massive intervention through dollar sales.



Source link

Tags: currencyImpactIndependenceinterventionMarketmassivemonetaryPolicyReport
Previous Post

Shell sees pre-pandemic global demand for aviation fuel returning by 2024 (NYSE:SHEL)

Next Post

2:00PM Water Cooler 9/27/2022 | naked capitalism

Related Posts

Seeking Alpha’s CashFlow Hunter predicted SIVB’s implosion. Here’s what he expects next

by Euro Times
March 26, 2023
0

Justin Sullivan Seeking Alpha contributor CashFlow Hunter correctly predicted big problems for Silicon Valley Bank parent SVB Financial Group (SIVB)...

Ukraine slams Putin plan to station Russian nuclear weapons in Belarus By Reuters

by Reuters
March 26, 2023
0

2/2 © Reuters. FILE PHOTO: Oleksiy Danilov, Secretary of Ukraine's National Security and Defence Council, speaks with Reuters during an...

Honduras forms diplomatic ties with China after Taiwan break

by Euro Times
March 26, 2023
0

Honduras formed diplomatic ties with China on Sunday after breaking off relations with Taiwan, which is increasingly isolated and now...

Richemont Stock: Hold For Now (OTCMKTS:CFRHF)

by Euro Times
March 26, 2023
0

Keith Tsuji/Getty Images Entertainment Here at the Lab, we initiated Compagnie Financière Richemont (OTCPK:CFRHF) (OTCPK:CFRUY) analyzing Bluebell Capital Partners' activism...

Defense Minister Gallant calls for halt to judicial reform

by Globes correspondent
March 25, 2023
0

This evening, Minister of Defense Yoav Gallant called for a halt to the legislation of the reform of the...

Crompton and Butterfly announce merger

by Euro Times
March 25, 2023
0

Crompton Greaves Consumer Electricals Ltd. (Crompton) and Butterfly Gandhimathi Appliances Ltd (Butterfly) announced a merger on Saturday evening. The merger is...

Next Post

2:00PM Water Cooler 9/27/2022 | naked capitalism

Axis Bank looks to buy near 10% stake in Go Digit Life Insurance

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Eyes on abstention as Cubans vote for National Assembly

March 26, 2023

Google’s Bard Predicts the seven EV stocks Lucid, Rivian, Canoo, Mullen, Tesla, Polestar, and Nikola!

March 26, 2023

Seeking Alpha’s CashFlow Hunter predicted SIVB’s implosion. Here’s what he expects next

March 26, 2023

PepsiCo: Great Long-Term Play, Short-Term Tactical Concerns (NASDAQ:PEP)

March 26, 2023

WATCH: Chaos Erupts at Temecula School Board Meeting in California Over the District Hiring Anti-Critical Race Theory Consultant

March 26, 2023

Best Indoor Garden Systems of 2023

March 26, 2023
Euro Times

Get the latest news and follow the coverage of Business & Financial News, Stock Market Updates, Analysis, and more from the trusted sources.

CATEGORIES

  • Business
  • Cryptocurrency
  • Finance
  • Health
  • Investing
  • Markets
  • Politics
  • Stock Market
  • Technology
  • Uncategorized
  • World

LATEST UPDATES

Eyes on abstention as Cubans vote for National Assembly

Google’s Bard Predicts the seven EV stocks Lucid, Rivian, Canoo, Mullen, Tesla, Polestar, and Nikola!

  • Disclaimer
  • Privacy Policy
  • DMCA
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In