<a href="https://www.wionews.com/business-&amp;-economy/gold-prices-rise-to-one-week-high-as-softer-us-dollar-supports-buying-148880">Gold prices</a> held steady on Wednesday as investors waited on the outcome of the Federal Reserve`s meeting later in the day when policymakers are expected to cut interest rates for the first time since the financial crisis.

Spot gold was flat at $1,430.69 per ounce as of 0723 GMT.

US gold futures edged 0.1 per cent higher to $1,443.60 an ounce. "Most of the people are staying on the sidelines due to the Fed meeting. If the Fed does reduce rates, gold may come down a little as a 25 basis point cut is already priced-in," said Brian Lan, managing director at dealer GoldSilver Central in Singapore.

"We are also looking at whether there will be further rate cuts. Over the longer term, we are still bullish on gold but in the short-term, we might see a bit of correction before it continues to move higher," Lan added.

Fed funds rate futures are now fully pricing in a 25 basis point rate cut on Wednesday and another 25 basis point reduction by September.

Markets will be watching out for guidance on whether the Federal Open Market Committee`s expected move is a one-time cut or the beginning of a rate-cutting cycle.

Cementing expectations of Fed rate cuts, US consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation.

<a href="https://www.wionews.com/world/donald-trump-tears-into-china-on-twitter-as-trade-talks-resume-239492">US President Donald Trump</a>, meanwhile, reiterated his call for the Fed to make a large interest rate cut, saying he was disappointed in the US&nbsp;

The central bank and that it had put him at a disadvantage by not acting sooner.

"Gold will look for direction in the tone of the Fed Chief`s rhetoric. More dovish could lead to a weaker dollar and a higher price for gold," <a href="https://www.wionews.com/business-economy/crude-oil-prices-fall-1-on-fears-for-global-economy-233148">Alfonso Esparza</a>, a senior market analyst at OANDA, said in a note.

The dollar index was relatively unchanged against a basket of major currencies on Wednesday after hitting a two-month high in the previous session.

In financial markets, fresh trade concerns following threats by Trump to Beijing sent Asian shares to a six-week trough on Wednesday.&nbsp;

Trump warned China against waiting out his presidency before finalising a trade deal, saying if he wins re-election in November 2020, the outcome could be no agreement or a harsher one.

On the technical front, Reuters technical analyst Wang Tao said a bullish target at $1,452 per ounce has been established for spot gold, as it has pierced above resistance at $1,427.

Among other precious metals, silver slipped 0.7 per cent to $16.46 per ounce.

Platinum jumped 1.2 per cent to $876.11 an ounce and palladium rose 1 per cent to $1,529.20.

Gold prices held steady on Wednesday as investors waited on the outcome of the Federal Reserve`s meeting later in the day when policymakers are expected to cut interest rates for the first time since the financial crisis.

Gold prices held steady on Wednesday as investors waited on the outcome of the Federal Reserve`s meeting later in the day when policymakers are expected to cut interest rates for the first time since the financial crisis. Spot gold was flat at $1,430.69 per ounce as of 0723 GMT. US gold futures edged 0.1 per cent higher to $1,443.60 an ounce. "Most of the people are staying on the sidelines due to the Fed meeting. If the Fed does reduce rates, gold may come down a little as a 25 basis point cut is already priced-in," said Brian Lan, managing director at dealer GoldSilver Central in Singapore. "We are also looking at whether there will be further rate cuts. Over the longer term, we are still bullish on gold but in the short-term, we might see a bit of correction before it continues to move higher," Lan added. Fed funds rate futures are now fully pricing in a 25 basis point rate cut on Wednesday and another 25 basis point reduction by September. Markets will be watching out for guidance on whether the Federal Open Market Committee`s expected move is a one-time cut or the beginning of a rate-cutting cycle. Cementing expectations of Fed rate cuts, US consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation. US President Donald Trump, meanwhile, reiterated his call for the Fed to make a large interest rate cut, saying he was disappointed in the US The central bank and that it had put him at a disadvantage by not acting sooner. "Gold will look for direction in the tone of the Fed Chief`s rhetoric. More dovish could lead to a weaker dollar and a higher price for gold," Alfonso Esparza, a senior market analyst at OANDA, said in a note. The dollar index was relatively unchanged against a basket of major currencies on Wednesday after hitting a two-month high in the previous session. In financial markets, fresh trade concerns following threats by Trump to Beijing sent Asian shares to a six-week trough on Wednesday. Trump warned China against waiting out his presidency before finalising a trade deal, saying if he wins re-election in November 2020, the outcome could be no agreement or a harsher one. On the technical front, Reuters technical analyst Wang Tao said a bullish target at $1,452 per ounce has been established for spot gold, as it has pierced above resistance at $1,427. Among other precious metals, silver slipped 0.7 per cent to $16.46 per ounce. Platinum jumped 1.2 per cent to $876.11 an ounce and palladium rose 1 per cent to $1,529.20.

Gold prices hold steady ahead of Fed verdict

The <a href="https://www.wionews.com/business-economy/governments-outstanding-loans-from-rbi-at-78943-billion-rupees-in-july-12-week-237181">Reserve Bank of India</a> is set to cut interest rates in August for the fourth meeting in a row, according to a Reuters poll of economists, a majority of whom said risks to their already-modest growth forecasts were skewed more to the downside.

If the RBI does cut rates next month, it will be the most aggressive amongst dovish central banks in Asia. The last time the RBI delivered so many back-to-back cuts was after the global financial crisis over a decade ago when most major central banks went on a cutting spree to revive economic growth.

Almost 80 per cent of 66 economists in the July 17-24 poll expected the RBI to cut its benchmark repo rate by 25 basis points to 5.50 per cent at the Aug. 7 meeting. Three respondents predicted 50 basis points cut and the remaining 10 forecast policy on hold.

"It is baked in the cake. They are going to cut rates in August and again later, mainly due to low growth and weak inflation," said Gareth Leather, senior Asia economist at Capital Economics.

India's inflation has remained below the central bank's medium-term target of 4 per cent for almost a year and is not expected to rise significantly above that until at least 2021.&nbsp;

The poll's findings support <a href="https://www.wionews.com/business-economy/economic-activity-clearly-losing-traction-rbi-governor-shaktikanta-das-at-mpc-meet-229011">RBI Governor Shaktikanta Das</a>' recent comments about the central bank's accommodative stance and suggest further easing.

Indeed, following next month's expected move, the next rate cut is seen in early 2020, after which the RBI is forecast to keep rates on hold at 5.25 per cent through to end-2020.

Yet despite three interest rate cuts, this year and expectations for more, India's growth outlook was downgraded in the latest poll compared to the previous quarterly economic survey in April.

Asia's third-largest economy expanded at 5.8 per cent year-on-year in the January-March quarter, its slowest pace in five years and losing its title to China as the fastest-growing economy. India is now forecast to grow in the range of 6.3 per cent to 7.2 per cent each quarter through to end-March 2021.

The risks to the more modest growth forecasts for this fiscal year were skewed more to the downside, said a majority of economists who answered an additional question.

Annual growth forecasts were lowered to 6.8 per cent for this fiscal year from 7.2 per cent in the previous poll. That is a tad slower than the International Monetary Fund's latest growth projection of 7.0 per cent for this year.

"India's economy continues to show weak growth momentum. We believe that while recovery is nascent, maturity is still a far way off," said Rini Sen, India economist at ANZ.

"The impact of easy liquidity and dovish monetary policy is gradually flowing through. In the absence of a substantial fiscal push, however, more is needed on the monetary side."

When asked whether the RBI should consider core inflation instead of retail inflation as the main measure for its monetary policy framework, a majority of economists said no, although nearly 30 per cent of respondents said it should be.

"Core inflation is a better measure for underlying price pressures than the headline rate is. So, it should give a better indication of where the economy is in terms of the economic cycle," said Shilan Shah, senior India economist at Capital Economics.

"Food and fuel prices are very volatile and they don't say much about the demand on the ground."

The Reserve Bank of India is set to cut interest rates in August for the fourth meeting in a row, according to a Reuters poll of economists, a majority of whom said risks to their already-modest growth forecasts were skewed more to the downside.

The Reserve Bank of India is set to cut interest rates in August for the fourth meeting in a row, according to a Reuters poll of economists, a majority of whom said risks to their already-modest growth forecasts were skewed more to the downside. If the RBI does cut rates next month, it will be the most aggressive amongst dovish central banks in Asia. The last time the RBI delivered so many back-to-back cuts was after the global financial crisis over a decade ago when most major central banks went on a cutting spree to revive economic growth. Almost 80 per cent of 66 economists in the July 17-24 poll expected the RBI to cut its benchmark repo rate by 25 basis points to 5.50 per cent at the Aug. 7 meeting. Three respondents predicted 50 basis points cut and the remaining 10 forecast policy on hold. "It is baked in the cake. They are going to cut rates in August and again later, mainly due to low growth and weak inflation," said Gareth Leather, senior Asia economist at Capital Economics. India's inflation has remained below the central bank's medium-term target of 4 per cent for almost a year and is not expected to rise significantly above that until at least 2021. The poll's findings support RBI Governor Shaktikanta Das' recent comments about the central bank's accommodative stance and suggest further easing. Indeed, following next month's expected move, the next rate cut is seen in early 2020, after which the RBI is forecast to keep rates on hold at 5.25 per cent through to end-2020. Yet despite three interest rate cuts, this year and expectations for more, India's growth outlook was downgraded in the latest poll compared to the previous quarterly economic survey in April. Asia's third-largest economy expanded at 5.8 per cent year-on-year in the January-March quarter, its slowest pace in five years and losing its title to China as the fastest-growing economy. India is now forecast to grow in the range of 6.3 per cent to 7.2 per cent each quarter through to end-March 2021. The risks to the more modest growth forecasts for this fiscal year were skewed more to the downside, said a majority of economists who answered an additional question. Annual growth forecasts were lowered to 6.8 per cent for this fiscal year from 7.2 per cent in the previous poll. That is a tad slower than the International Monetary Fund's latest growth projection of 7.0 per cent for this year. "India's economy continues to show weak growth momentum. We believe that while recovery is nascent, maturity is still a far way off," said Rini Sen, India economist at ANZ. "The impact of easy liquidity and dovish monetary policy is gradually flowing through. In the absence of a substantial fiscal push, however, more is needed on the monetary side." When asked whether the RBI should consider core inflation instead of retail inflation as the main measure for its monetary policy framework, a majority of economists said no, although nearly 30 per cent of respondents said it should be. "Core inflation is a better measure for underlying price pressures than the headline rate is. So, it should give a better indication of where the economy is in terms of the economic cycle," said Shilan Shah, senior India economist at Capital Economics. "Food and fuel prices are very volatile and they don't say much about the demand on the ground."

Reserve Bank of India to cut rates again in August as doves prevail: Report

<a href="https://www.wionews.com/world/tayyip-erdogan-says-car-explosion-in-turkey-kills-three-may-be-terrorism-related-233323">Turkey on Saturday</a> fired its central bank governor and replaced him with the bank's deputy governor, a presidential decree published on the official gazette showed.

Murat Cetinkaya, who had been serving as the governor since April 2016, was removed from the role and was replaced by his deputy Murat Uysal, the order showed.

No official reason was given for the sacking, but markets have speculated over recent weeks that Cetinkaya may be pushed out by the government because of his reluctance to cut rates.

The central bank has faced pressure in the past from President Tayyip Erdogan to lower interest rates to boost economic growth.

Two government sources told Reuters that differences between the government and the governor over the conduct of monetary policy have deepened in the past few months.

"The difference of opinions between the governor and the ministers in charge of the economy has deepened in the recent period," said one of the sources.

"The President and the finance minister demanded his resignation, but Cetinkaya reminded of the bank's independence and declined to resign," the other source said.

In a statement on Saturday, the central bank said it will continue to operate independently and that the new governor will focus on maintaining price stability as its key goal.

Data earlier in the week showed Turkey's consumer inflation slowed to its lowest level in a year in June, mainly due to a high base effect from the prior year and a drop in food prices, potentially paving the way for the country's first interest rate cut since last year's currency crisis.

Analysts expect the central bank could ease monetary policy at a July 25 meeting if the lira is not hit this month by threatened US sanctions over Turkey's purchase of a Russian missile defence system.

Turkey on Saturday fired its central bank governor and replaced him with the bank's deputy governor, a presidential decree published on the official gazette showed.

Turkey on Saturday fired its central bank governor and replaced him with the bank's deputy governor, a presidential decree published on the official gazette showed. Murat Cetinkaya, who had been serving as the governor since April 2016, was removed from the role and was replaced by his deputy Murat Uysal, the order showed. No official reason was given for the sacking, but markets have speculated over recent weeks that Cetinkaya may be pushed out by the government because of his reluctance to cut rates. The central bank has faced pressure in the past from President Tayyip Erdogan to lower interest rates to boost economic growth. Two government sources told Reuters that differences between the government and the governor over the conduct of monetary policy have deepened in the past few months. "The difference of opinions between the governor and the ministers in charge of the economy has deepened in the recent period," said one of the sources. "The President and the finance minister demanded his resignation, but Cetinkaya reminded of the bank's independence and declined to resign," the other source said. In a statement on Saturday, the central bank said it will continue to operate independently and that the new governor will focus on maintaining price stability as its key goal. Data earlier in the week showed Turkey's consumer inflation slowed to its lowest level in a year in June, mainly due to a high base effect from the prior year and a drop in food prices, potentially paving the way for the country's first interest rate cut since last year's currency crisis. Analysts expect the central bank could ease monetary policy at a July 25 meeting if the lira is not hit this month by threatened US sanctions over Turkey's purchase of a Russian missile defence system.

Turkey fires central bank governor as policy differences deepen

Central banks grappling with fast-changing financial technology and companies like <a href="https://www.wionews.com/world/facebook-inc-chief-executive-mark-zuckerberg-says-delay-in-flagging-fake-pelosi-video-was-execution-mistake-230784">Facebook</a> moving into finance will aim to work together more closely through an innovation hub approved on Sunday by the Bank for International Settlements.

The BIS said the intention of the hub, which will be based in Basel, Hong Kong and Singapore, is to improve the functioning of the global financial system and it will identify and develop insights into trends in technology affecting central banking.

Facebook`s plan to expand into payments and launch its own Libra cryptocurrency was not mentioned in the BIS statement, but the social media giant`s move has helped crystallise opinion among central bankers on the urgency of coordinating regulatory responses to financial technology trends.

"The IT revolution knows no borders and therefore has repercussions in multiple locations simultaneously," BIS Chairman Jens Weidmann said in a statement following the decision to create the hub at a BIS board meeting.&nbsp;

The hub will focus on helping central banks to "identify relevant trends in technology, supporting these developments where this is consistent with their mandate, and keeping abreast of regulatory requirements with the objective of safeguarding financial stability," he added.

Basel-based BIS, a central bank umbrella group, has already called on politicians to closely scrutinise Big Tech`s incursion into finance, a move that raises questions about data privacy, competition, markets and banking.

Details about the hub were limited, and the BIS said it was not able to provide details on investment or staffing levels.

The <a href="https://www.wionews.com/india-news/money-in-swiss-banks-india-slips-to-74th-place-uk-remains-on-top-231751">Swiss National Bank</a> (SNB), the Hong Kong Monetary Authority and the Monetary Authority of Singapore have all signed up to support the initiative.

SNB Chairman Thomas Jordan said the central bank would step up its efforts in scrutinizing new financial technology.

"The SNB is already keeping very close track of technological innovations in the financial area, and works actively within the central banking community in identifying and assessing relevant developments at an early stage," Jordan said.

Central banks grappling with fast-changing financial technology and companies like Facebook moving into finance will aim to work together more closely through an innovation hub approved on Sunday by the Bank for International Settlements.

Central banks grappling with fast-changing financial technology and companies like Facebook moving into finance will aim to work together more closely through an innovation hub approved on Sunday by the Bank for International Settlements. The BIS said the intention of the hub, which will be based in Basel, Hong Kong and Singapore, is to improve the functioning of the global financial system and it will identify and develop insights into trends in technology affecting central banking. Facebook`s plan to expand into payments and launch its own Libra cryptocurrency was not mentioned in the BIS statement, but the social media giant`s move has helped crystallise opinion among central bankers on the urgency of coordinating regulatory responses to financial technology trends. "The IT revolution knows no borders and therefore has repercussions in multiple locations simultaneously," BIS Chairman Jens Weidmann said in a statement following the decision to create the hub at a BIS board meeting. The hub will focus on helping central banks to "identify relevant trends in technology, supporting these developments where this is consistent with their mandate, and keeping abreast of regulatory requirements with the objective of safeguarding financial stability," he added. Basel-based BIS, a central bank umbrella group, has already called on politicians to closely scrutinise Big Tech`s incursion into finance, a move that raises questions about data privacy, competition, markets and banking. Details about the hub were limited, and the BIS said it was not able to provide details on investment or staffing levels. The Swiss National Bank (SNB), the Hong Kong Monetary Authority and the Monetary Authority of Singapore have all signed up to support the initiative. SNB Chairman Thomas Jordan said the central bank would step up its efforts in scrutinizing new financial technology. "The SNB is already keeping very close track of technological innovations in the financial area, and works actively within the central banking community in identifying and assessing relevant developments at an early stage," Jordan said.

World's central banks tackle technology with innovation hub

The BSE benchmark <a href="https://www.wionews.com/business-economy/sensex-tanks-over-500-points-after-rbi-policy-outcome-financial-stocks-drag-224917">Sensex</a> plunged 554 points Thursday, dragged down by losses in banking, energy and capital goods stocks even as the RBI cut the policy rate to shore up growth.

Slashing benchmark lending rate for the third time this year, the central bank cut the repo rate by 0.25 per cent and changed its monetary policy stance from 'neutral' to 'accommodative'.

The RBI, however, lowered the economic growth forecast for the current fiscal to 7 per cent due to slow down in domestic activities and escalation in a global trade war. Following the announcement, the 30-share index cracked 553.82 points, or 1.38 per cent, to settle at 39,529.72. The bourse hit an intra-day low of 39,481.15 and a high of 40,159.26.

In similar movement, the NSE Nifty plunged 177.90 points, or 1.48 per cent, to end at 11,843.75. During the day, it hit a low of 11,830.25 and high of 12,039.80. Top losers in the Sensex pack included IndusInd Bank, Yes Bank, SBI, L&amp;T, Tata Steel, M&amp;M, Bajaj Finance, Vedanta, Tata Motors and RIL, tumbling up to 6.97 per cent.

Bucking the negative market trend, Coal India, PowerGrid, NTPC, HUL, Hero MotoCorp, Asian Paints and Infosys gained up to 1.92 per cent.

"The rate cut could not infuse positivity, and the decline steepened as focus shifted from policy rates to new emerging short-term tight liquidity situation due to issues like IL&amp;FS, DHFL and its impending impact on other financial institutions if any," said Narendra Solanki, Head-Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares &amp; Stock Brokers.

Lowered GDP forecast for the current year and failure to get any cue from RBI on the liquidity front except general assurance of addressing the situation added to the selling pressure later in the day, he added. The Indian rupee fell marginally to 69.28 against the US dollar.

Meanwhile, other Asian bourses ended on a mixed note, while Europe was trading in the green in opening deals. 
Brent crude futures, the global oil benchmark, fell 0.76 per cent to 61.09 per barrel.&nbsp;

The BSE benchmark Sensex plunged 554 points Thursday, dragged down by losses in banking, energy and capital goods stocks even as the RBI cut the policy rate to shore up growth.

The BSE benchmark Sensex plunged 554 points Thursday, dragged down by losses in banking, energy and capital goods stocks even as the RBI cut the policy rate to shore up growth. Slashing benchmark lending rate for the third time this year, the central bank cut the repo rate by 0.25 per cent and changed its monetary policy stance from 'neutral' to 'accommodative'. The RBI, however, lowered the economic growth forecast for the current fiscal to 7 per cent due to slow down in domestic activities and escalation in a global trade war. Following the announcement, the 30-share index cracked 553.82 points, or 1.38 per cent, to settle at 39,529.72. The bourse hit an intra-day low of 39,481.15 and a high of 40,159.26. In similar movement, the NSE Nifty plunged 177.90 points, or 1.48 per cent, to end at 11,843.75. During the day, it hit a low of 11,830.25 and high of 12,039.80. Top losers in the Sensex pack included IndusInd Bank, Yes Bank, SBI, L&T, Tata Steel, M&M, Bajaj Finance, Vedanta, Tata Motors and RIL, tumbling up to 6.97 per cent. Bucking the negative market trend, Coal India, PowerGrid, NTPC, HUL, Hero MotoCorp, Asian Paints and Infosys gained up to 1.92 per cent. "The rate cut could not infuse positivity, and the decline steepened as focus shifted from policy rates to new emerging short-term tight liquidity situation due to issues like IL&FS, DHFL and its impending impact on other financial institutions if any," said Narendra Solanki, Head-Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares & Stock Brokers. Lowered GDP forecast for the current year and failure to get any cue from RBI on the liquidity front except general assurance of addressing the situation added to the selling pressure later in the day, he added. The Indian rupee fell marginally to 69.28 against the US dollar. Meanwhile, other Asian bourses ended on a mixed note, while Europe was trading in the green in opening deals. Brent crude futures, the global oil benchmark, fell 0.76 per cent to 61.09 per barrel.

Sensex dives 554 points despite RBI rate cut; financial stocks crack

Red-faced bank bosses in Australia admitted to an embarrassing error Thursday, revealing their state-of-the-art $50 note had a typo.

The yellow and green note, which is worth around US$35, came into circulation last October. It has multiple security features -- including microprint of a speech by Australia's first female parliamentarian, Edith Cowan.

But the technology seemingly did not include a spellchecker.

It took seven months for the public to notice "responsibility" was repeatedly misspelt in the text of Cowan's 1921 maiden speech.

"I stand here today in the unique position of being the first woman in an Australian parliament. It is a great responsibilty," the text reads, missing an "i".

The script is barely legible to the naked eye and the Reserve Bank of Australia may have got away with it, were it not for one eagle-eyed radio listener.

But there are no plans to pull the notes from circulation.

"The Reserve Bank of Australia is aware of it and the spelling will be corrected at the next print run," said a bank spokesperson.

Edith Cowan played a crucial role in winning the vote for women in Western Australia and at the age of 60 entered parliament. There she was instrumental in opening the legal and other professions to women. 
&nbsp;

Red-faced bank bosses in Australia admitted to an embarrassing error Thursday, revealing their state-of-the-art $50 note had a typo. The yellow and green note, which is worth around US$35, came into circulation last October.

Red-faced bank bosses in Australia admitted to an embarrassing error Thursday, revealing their state-of-the-art $50 note had a typo. The yellow and green note, which is worth around US$35, came into circulation last October. It has multiple security features -- including microprint of a speech by Australia's first female parliamentarian, Edith Cowan. But the technology seemingly did not include a spellchecker. It took seven months for the public to notice "responsibility" was repeatedly misspelt in the text of Cowan's 1921 maiden speech. "I stand here today in the unique position of being the first woman in an Australian parliament. It is a great responsibilty," the text reads, missing an "i". The script is barely legible to the naked eye and the Reserve Bank of Australia may have got away with it, were it not for one eagle-eyed radio listener. But there are no plans to pull the notes from circulation. "The Reserve Bank of Australia is aware of it and the spelling will be corrected at the next print run," said a bank spokesperson. Edith Cowan played a crucial role in winning the vote for women in Western Australia and at the age of 60 entered parliament. There she was instrumental in opening the legal and other professions to women.

Typo found on Australian fifty dollar note

RBI likely to go for another 25 bps cut

Pakistan has come out of the financial crisis with the help of friendly countries and the economy has been set on the right path, the governor of the cash-strapped country's central bank has claimed.&nbsp;

Governor of the State Bank of Pakistan Tariq Bajwa's remarks coincided with the announcement by Saudi Arabia that it would invest 420 billion in Pakistan under various projects.

Bawja told an audience at a private university in Lahore on Monday that uncertainty in the economy had ended, while the government was on the right path and it was capable of meeting all economic challenges, Dawn reported.

The governor spoke about the current account deficit, which had hit the economy badly during the current financial year.

The current account deficit was the real cause of concern for the new government headed by Prime Minister Imran Khan. Khan visited friendly countries like China, Saudi Arabia, the UAE, Malaysia and Turkey to seek investment and managed to get financial help to bridge the external deficit.

Bajwa said a plan had been prepared to eliminate the current account deficit. He said the deficit was the biggest hurdle for the country and the government was still negotiating with the International Monetary Fund for a package to minimise it.

Pakistan has come out of the financial crisis with the help of friendly countries and the economy has been set on the right path, the governor of the cash-strapped country's central bank has claimed.

Pakistan has come out of the financial crisis with the help of friendly countries and the economy has been set on the right path, the governor of the cash-strapped country's central bank has claimed. Governor of the State Bank of Pakistan Tariq Bajwa's remarks coincided with the announcement by Saudi Arabia that it would invest 420 billion in Pakistan under various projects. Bawja told an audience at a private university in Lahore on Monday that uncertainty in the economy had ended, while the government was on the right path and it was capable of meeting all economic challenges, Dawn reported. The governor spoke about the current account deficit, which had hit the economy badly during the current financial year. The current account deficit was the real cause of concern for the new government headed by Prime Minister Imran Khan. Khan visited friendly countries like China, Saudi Arabia, the UAE, Malaysia and Turkey to seek investment and managed to get financial help to bridge the external deficit. Bajwa said a plan had been prepared to eliminate the current account deficit. He said the deficit was the biggest hurdle for the country and the government was still negotiating with the International Monetary Fund for a package to minimise it.

Pakistan is out of financial crisis, claims central bank governor 

<a href="http://www.wionews.com/south-asia/sri-lanka-central-bank-seen-keeping-rates-steady-despite-pressure-on-rupee-report-186681">Sri Lanka's Central Bank </a>on Wednesday said that the Reserve Bank of India (RBI) has agreed to provide $ 400 million under a swap arrangement to boost the island nation's reserves.

"The RBI's very rapid and timely assistance will serve to boost investor confidence by supporting Sri Lanka to maintain an adequate level of external reserves while accommodating outflow related to imports, debt servicing and if necessary support for the currency to avoid disorderly adjustment," it said in a statement.

It said that a further request to the RBI for another SWAP arrangement of $ 1 billion is "under consideration". These are to be made available under the SAARC SWAP facility.

The RBI has agreed to provide the funds under its SAARC (South Asian Association for Regional Cooperation) Swap Facility, the Central Bank said.

Analysts said the RBI's assistance would be much appreciated by Sri Lanka given that the island is still recovering from the political and constitutional crisis in October and November which had an adverse impact on the economy with poor investor sentiment and foreign outflows of capital.

Available Central Bank data showed that in 2018, foreign investors had pulled out a net Rupees 22.8 billion out of stocks, and Rupees 159.8 billion from government securities. The Sri Lankan rupee ended last Thursday at an all-time low of 183 against the $. The rupee fell 19% in 2018, making it one of the worst-performing currencies in Asia.

Central Bank Governor Indrajith Coomaraswamy last week said that the nearly two-month-long political crisis had an adverse impact on the country's economy.

Due to the political crisis, the big three credit rating agencies — Fitch Ratings, Standard &amp; Poor's (S&amp;P) and Moody's — downgraded Sri Lanka's sovereign rating.

President Maithripala Sirisena's dramatic move on October 26 to sack Prime Minister Ranil Wickremesinghe and install former strongman Mahinda Rajapaksa in his place following differences over policy issues, left the country without a functioning government for nearly two months. However, a Supreme court verdict forced Sirisena to reinstate Wickremesinghe.

The Central Bank also announced that Finance Minister Mangala Samaraweera will visit Washington next week to resume negotiations on the IMF's assistance. The IMF had held back discussions on Lanka's next loan tranche due to the political impasse.

After completion of the IMF's fifth review, Lanka would expect to receive a sixth tranche of about — 250 million. The total loan was expected to have been disbursed with a seventh tranche by mid-2019. Sri Lanka is hoping to complete a 3-year programme with the IMF this year.&nbsp;

Sri Lanka's Central Bank said that a further request to the RBI for another SWAP arrangement of $ 1 billion is 'under consideration'.

Sri Lanka's Central Bank on Wednesday said that the Reserve Bank of India (RBI) has agreed to provide $ 400 million under a swap arrangement to boost the island nation's reserves. "The RBI's very rapid and timely assistance will serve to boost investor confidence by supporting Sri Lanka to maintain an adequate level of external reserves while accommodating outflow related to imports, debt servicing and if necessary support for the currency to avoid disorderly adjustment," it said in a statement. It said that a further request to the RBI for another SWAP arrangement of $ 1 billion is "under consideration". These are to be made available under the SAARC SWAP facility. The RBI has agreed to provide the funds under its SAARC (South Asian Association for Regional Cooperation) Swap Facility, the Central Bank said. Analysts said the RBI's assistance would be much appreciated by Sri Lanka given that the island is still recovering from the political and constitutional crisis in October and November which had an adverse impact on the economy with poor investor sentiment and foreign outflows of capital. Available Central Bank data showed that in 2018, foreign investors had pulled out a net Rupees 22.8 billion out of stocks, and Rupees 159.8 billion from government securities. The Sri Lankan rupee ended last Thursday at an all-time low of 183 against the $. The rupee fell 19% in 2018, making it one of the worst-performing currencies in Asia. Central Bank Governor Indrajith Coomaraswamy last week said that the nearly two-month-long political crisis had an adverse impact on the country's economy. Due to the political crisis, the big three credit rating agencies — Fitch Ratings, Standard & Poor's (S&P) and Moody's — downgraded Sri Lanka's sovereign rating. President Maithripala Sirisena's dramatic move on October 26 to sack Prime Minister Ranil Wickremesinghe and install former strongman Mahinda Rajapaksa in his place following differences over policy issues, left the country without a functioning government for nearly two months. However, a Supreme court verdict forced Sirisena to reinstate Wickremesinghe. The Central Bank also announced that Finance Minister Mangala Samaraweera will visit Washington next week to resume negotiations on the IMF's assistance. The IMF had held back discussions on Lanka's next loan tranche due to the political impasse. After completion of the IMF's fifth review, Lanka would expect to receive a sixth tranche of about — 250 million. The total loan was expected to have been disbursed with a seventh tranche by mid-2019. Sri Lanka is hoping to complete a 3-year programme with the IMF this year.

Sri Lanka's Central Bank gets $400 million swap from Reserve Bank of India

System-wide gross non-performing assets of banks rose to 11.2 per cent or at Rs 10.39 trillion in FY18 from 9.3 per cent a year ago, and the share of public sector banks stood at Rs 8.95 trillion, or at 14.6 per cent, according to the Reserve Bank data released Friday.

In FY17, system-wide gross NPAs stood at 9.3 per cent and that of state-run lenders stood at 11.7 per cent.

"During FY18, the GNPA ratio reached 14.6 per cent for state-run banks due to restructured advances slipping into NPAs and better NPA recognition," RBI said in its report on 'Trends &amp; Progress of Banking in 2017-18'.

In terms of the net NPA ratio, state-run banks saw significant deterioration at 8 per cent in FY18 from 6.9 per cent year-ago.

Private sector peers banks' GNPA ratio stood at a much lower level of 4.7 per cent as against 4.1 per cent in FY17.

"Resolute efforts on the part of private sector banks to clean up their balance sheets through higher write-offs and better recoveries also contributed to their lower GNPA ratios," the report said.

Asset quality of foreign banks improved marginally to 3.8 per cent in FY18 from 4 per cent in FY17.

In FY18, the share of doubtful advances in total gross NPAs increased sizeably to Rs 5.11 trillion or 6.7 per cent of the system, driven up by state-run banks whose ratio stood at 9 per cent.

In fiscal 2018, a share of sub-standard and loss assets in GNPAs of private banks declined to 1.1 per cent and 0.2 per cent, respectively due to aggressive write-offs.

During the year under review, the fresh slippages rose for state-run lenders on account of restructured advances slipping into NPAs and a decline in standard advances.

In the previous fiscal, the GNPA ratio of public sector banks arising from larger borrower accounts (exposure of Rs 5 crore and above) increased to 23.1 per cent from 18.1 per cent in the FY17.

But this saw an improvement in FY18. "During the first half of FY18, NPAs in large borrower accounts of state-run banks and private sector banks declined to 21.6 per cent and 7 per cent, respectively," the report said.

The gems &amp; jewellery sector saw a significant increase in GNPAs during FY18 with the unearthing of frauds at PNB, which bore the brunt of the Rs 14,000 crore scam by Nirva Modi and his uncle Mehul Choksi.

"Frauds have emerged as the most serious concern in the management of operational risks, with 90 per cent of them located in the credit portfolio of banks," the report said.

Large value frauds involving Rs 50 crore and above constituted about 80 per cent of all the frauds during 2017-18. Nearly 93 per cent of the frauds worth Rs 10 lakh or more occurred in state-run lenders while private banks accounted for just 6 per cent.

"We will continue to monitor asset quality as well as resolution of stressed assets with a focus on implementation of the new resolution framework," the RBI said in the report.

The monetary authority also said it will look into implementation of Ind-As, corporate governance in banks and a revised framework for securitisation.

The central bank also intends to issue revised prudential regulations including guidelines on exposure/investment norms, risk management framework and select elements of Basel III capital framework, it said.

System-wide gross non-performing assets of banks rose to 11.2 per cent or at Rs 10.39 trillion in FY18 from 9.3 per cent a year ago, and the share of public sector banks stood at Rs 8.

System-wide gross non-performing assets of banks rose to 11.2 per cent or at Rs 10.39 trillion in FY18 from 9.3 per cent a year ago, and the share of public sector banks stood at Rs 8.95 trillion, or at 14.6 per cent, according to the Reserve Bank data released Friday. In FY17, system-wide gross NPAs stood at 9.3 per cent and that of state-run lenders stood at 11.7 per cent. "During FY18, the GNPA ratio reached 14.6 per cent for state-run banks due to restructured advances slipping into NPAs and better NPA recognition," RBI said in its report on 'Trends & Progress of Banking in 2017-18'. In terms of the net NPA ratio, state-run banks saw significant deterioration at 8 per cent in FY18 from 6.9 per cent year-ago. Private sector peers banks' GNPA ratio stood at a much lower level of 4.7 per cent as against 4.1 per cent in FY17. "Resolute efforts on the part of private sector banks to clean up their balance sheets through higher write-offs and better recoveries also contributed to their lower GNPA ratios," the report said. Asset quality of foreign banks improved marginally to 3.8 per cent in FY18 from 4 per cent in FY17. In FY18, the share of doubtful advances in total gross NPAs increased sizeably to Rs 5.11 trillion or 6.7 per cent of the system, driven up by state-run banks whose ratio stood at 9 per cent. In fiscal 2018, a share of sub-standard and loss assets in GNPAs of private banks declined to 1.1 per cent and 0.2 per cent, respectively due to aggressive write-offs. During the year under review, the fresh slippages rose for state-run lenders on account of restructured advances slipping into NPAs and a decline in standard advances. In the previous fiscal, the GNPA ratio of public sector banks arising from larger borrower accounts (exposure of Rs 5 crore and above) increased to 23.1 per cent from 18.1 per cent in the FY17. But this saw an improvement in FY18. "During the first half of FY18, NPAs in large borrower accounts of state-run banks and private sector banks declined to 21.6 per cent and 7 per cent, respectively," the report said. The gems & jewellery sector saw a significant increase in GNPAs during FY18 with the unearthing of frauds at PNB, which bore the brunt of the Rs 14,000 crore scam by Nirva Modi and his uncle Mehul Choksi. "Frauds have emerged as the most serious concern in the management of operational risks, with 90 per cent of them located in the credit portfolio of banks," the report said. Large value frauds involving Rs 50 crore and above constituted about 80 per cent of all the frauds during 2017-18. Nearly 93 per cent of the frauds worth Rs 10 lakh or more occurred in state-run lenders while private banks accounted for just 6 per cent. "We will continue to monitor asset quality as well as resolution of stressed assets with a focus on implementation of the new resolution framework," the RBI said in the report. The monetary authority also said it will look into implementation of Ind-As, corporate governance in banks and a revised framework for securitisation. The central bank also intends to issue revised prudential regulations including guidelines on exposure/investment norms, risk management framework and select elements of Basel III capital framework, it said.

Gross NPAs jump to 11.2% or Rs 10.39 trillion in FY18: RBI Report

Sri Lanka's central bank is expected to leave its key interest rates steady on Friday, a Reuters poll showed, despite heavy pressure on the rupee from a political crisis that triggered foreign outflows from stocks and government bonds.

<a href="http://www.wionews.com/south-asia/sri-lanka-president-sirisena-meets-party-organisers-hints-2019-may-be-election-year-186363">President Maithripala Sirisena</a> was forced to reinstate Ranil Wickremesinghe as prime minister 51 days after sacking him, as his preferred PM, pro-China former president Mahinda Rajapaksa, failed to secure a parliamentary majority.

An uneasy <a href="http://www.wionews.com/south-asia/2018-will-be-remembered-for-worst-political-crisis-in-lankas-history-186606">truce between Wickremesinghe and Sirisena </a>could undermine economic policies, analysts say.

All analysts expect the Central Bank of Sri Lanka (CBSL) to leave key rates steady as Wickremesinghe's government aims to focus on economic growth, which has been sluggish due to tight policies, ahead of a presidential poll next year and general election in 2020.

All 10 economists surveyed, expected the central bank to keep both its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) to be left at 8.00 per cent and 9.00 per cent respectively.

The central bank raised SDFR by 75 bps and SLFR by 50 bps last month, while reduced the statutory reserve ratio (SRR) by 150 bps to 6.00 per cent.

All 10 analysts saw the SRR remaining steady.

Sirisena's abrupt change of prime minister and his decision to dissolve parliament, which was later ruled unconstitutional, created panic and uncertainty among investors.

The Sri Lankan rupee hit a fresh low of 181.85 per dollar on Wednesday while the island nation's dollar bonds have also plummeted as foreign investors sell their holdings. The rupee has fallen nearly 5 per cent since the political crisis started on October 26. It has dropped 18.4 per cent so far this year.

"Political pressure would be against increasing the rates," said Danushka Samarasinghe, the CEO at Softlogic Capital Markets.

"However, if rates are increased, it will be better for safeguarding foreign investments in the bond market and also might be favourable from a fiscal point of view."

Foreign investors have sold a net 13.7 billion rupees worth of stocks since the political crisis began and about 56.7 billion rupees worth of bonds between October 25 and December 19, bourse and central bank data showed.

Sri Lanka has seen net outflows of 149 billion rupees ($821 million) from government bonds so far this year, central bank data showed.

Sri Lanka's central bank is expected to leave its key interest rates steady on Friday, a Reuters poll showed, despite heavy pressure on the rupee from a political crisis that triggered foreign outflows from stocks and government bonds.

Sri Lanka's central bank is expected to leave its key interest rates steady on Friday, a Reuters poll showed, despite heavy pressure on the rupee from a political crisis that triggered foreign outflows from stocks and government bonds. President Maithripala Sirisena was forced to reinstate Ranil Wickremesinghe as prime minister 51 days after sacking him, as his preferred PM, pro-China former president Mahinda Rajapaksa, failed to secure a parliamentary majority. An uneasy truce between Wickremesinghe and Sirisena could undermine economic policies, analysts say. All analysts expect the Central Bank of Sri Lanka (CBSL) to leave key rates steady as Wickremesinghe's government aims to focus on economic growth, which has been sluggish due to tight policies, ahead of a presidential poll next year and general election in 2020. All 10 economists surveyed, expected the central bank to keep both its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) to be left at 8.00 per cent and 9.00 per cent respectively. The central bank raised SDFR by 75 bps and SLFR by 50 bps last month, while reduced the statutory reserve ratio (SRR) by 150 bps to 6.00 per cent. All 10 analysts saw the SRR remaining steady. Sirisena's abrupt change of prime minister and his decision to dissolve parliament, which was later ruled unconstitutional, created panic and uncertainty among investors. The Sri Lankan rupee hit a fresh low of 181.85 per dollar on Wednesday while the island nation's dollar bonds have also plummeted as foreign investors sell their holdings. The rupee has fallen nearly 5 per cent since the political crisis started on October 26. It has dropped 18.4 per cent so far this year. "Political pressure would be against increasing the rates," said Danushka Samarasinghe, the CEO at Softlogic Capital Markets. "However, if rates are increased, it will be better for safeguarding foreign investments in the bond market and also might be favourable from a fiscal point of view." Foreign investors have sold a net 13.7 billion rupees worth of stocks since the political crisis began and about 56.7 billion rupees worth of bonds between October 25 and December 19, bourse and central bank data showed. Sri Lanka has seen net outflows of 149 billion rupees ($821 million) from government bonds so far this year, central bank data showed.

Sri Lanka central bank seen keeping rates steady despite pressure on rupee: Report

The current tussle between the Central Government and the Reserve Bank of India (RBI) has brought into focus the issue of autonomy of the central bank in operationalising its monetary policy. While the RBI wants to bring in more discipline into banks’ lending operations, the Centre wants a greater share of the RBI’s surplus and has also criticised the central bank for being too conservative on lending restrictions, thereby tightening liquidity especially for Non-Banking Finance Companies (NBFCs).

Central banks were initially opened as bankers to the government. They held the government’s tax revenues, non-tax revenues and loans. Over time, these banks were nationalised and brought fully under government control. In later years, it became evident that the central bank, being a banker to the government, had an information advantage over other banks. It could use that information advantage to regulate the activities of other banks to reduce possibilities of moral hazard and adverse selection – the two most important market failures in the financial sector. Even later, it evolved into a banker to the banks and a lender of last resort. By standing as a guarantee to other banks, the central bank brought trust into the banking system and reduced bank runs.

The RBI came into existence in 1935 based on the recommendations of the Hilton-Young Commission. It is governed by the Reserve Bank of India Act, 1934. Although it was initially owned by private shareholders, it was nationalised in 1949 after India’s Independence. Prior to the 1991 reforms, the RBI enjoyed very little autonomy vis-a-vis the government. It was primarily responsible for monetising the government budget deficit. At the same time, it was accused of keeping interest rates deliberately low to reduce the government’s interest payments. This period was therefore called the period of fiscal dominance.

Post the reforms of 1991, the RBI gained considerable autonomy. The automatic monetisation of the fiscal deficit was phased out between 1993 and 1997. The FRBM Act further gave statutory backing to this restricted application of monetization of debt. There was also a move towards market-determined tools like interest rates and open market operations (OMOs) for administering monetary policy, instead of statutory controls like the Cash Reserve Ratio (CRR).

The recent move towards inflation targeting is another attempt at granting more autonomy and accountability to the RBI. The RBI can now use any tool at its disposal to achieve an inflation rate of 2-6 per cent. However, it will be answerable for its failure to do so.

Yet, considerable issues remain to be resolved. First, the RBI manages the government’s debt and also sets the benchmark interest rates. This leads to a conflict of interest. Second, the RBI’s ability to regulate Public Sector Banks (PSBs) is limited by the fact that both the RBI and the PSBs are government owned and again, there is a conflict of interest. Finally, excessive focus on inflation targeting can make the RBI’s approach to monetary policy too conservative, hurting investment prospects.

Thus, there is an urgent need to resolve these issues. A committee of experts from the banking sector, RBI and the government can be constituted. 
 
(This article was originally published on DNA. Read the <a href="https://www.dnaindia.com/analysis/column-evolution-of-central-banking-in-india-2684415">original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

&nbsp;

The current tussle between the Central Government and the Reserve Bank of India (RBI) has brought into focus the issue of autonomy of the central bank in operationalising its monetary policy.

The current tussle between the Central Government and the Reserve Bank of India (RBI) has brought into focus the issue of autonomy of the central bank in operationalising its monetary policy. While the RBI wants to bring in more discipline into banks’ lending operations, the Centre wants a greater share of the RBI’s surplus and has also criticised the central bank for being too conservative on lending restrictions, thereby tightening liquidity especially for Non-Banking Finance Companies (NBFCs). Central banks were initially opened as bankers to the government. They held the government’s tax revenues, non-tax revenues and loans. Over time, these banks were nationalised and brought fully under government control. In later years, it became evident that the central bank, being a banker to the government, had an information advantage over other banks. It could use that information advantage to regulate the activities of other banks to reduce possibilities of moral hazard and adverse selection – the two most important market failures in the financial sector. Even later, it evolved into a banker to the banks and a lender of last resort. By standing as a guarantee to other banks, the central bank brought trust into the banking system and reduced bank runs. The RBI came into existence in 1935 based on the recommendations of the Hilton-Young Commission. It is governed by the Reserve Bank of India Act, 1934. Although it was initially owned by private shareholders, it was nationalised in 1949 after India’s Independence. Prior to the 1991 reforms, the RBI enjoyed very little autonomy vis-a-vis the government. It was primarily responsible for monetising the government budget deficit. At the same time, it was accused of keeping interest rates deliberately low to reduce the government’s interest payments. This period was therefore called the period of fiscal dominance. Post the reforms of 1991, the RBI gained considerable autonomy. The automatic monetisation of the fiscal deficit was phased out between 1993 and 1997. The FRBM Act further gave statutory backing to this restricted application of monetization of debt. There was also a move towards market-determined tools like interest rates and open market operations (OMOs) for administering monetary policy, instead of statutory controls like the Cash Reserve Ratio (CRR). The recent move towards inflation targeting is another attempt at granting more autonomy and accountability to the RBI. The RBI can now use any tool at its disposal to achieve an inflation rate of 2-6 per cent. However, it will be answerable for its failure to do so. Yet, considerable issues remain to be resolved. First, the RBI manages the government’s debt and also sets the benchmark interest rates. This leads to a conflict of interest. Second, the RBI’s ability to regulate Public Sector Banks (PSBs) is limited by the fact that both the RBI and the PSBs are government owned and again, there is a conflict of interest. Finally, excessive focus on inflation targeting can make the RBI’s approach to monetary policy too conservative, hurting investment prospects. Thus, there is an urgent need to resolve these issues. A committee of experts from the banking sector, RBI and the government can be constituted. (This article was originally published on DNA. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Evolution of central banking in India

What the government giveth, the government taketh. Beginning 1934, the Reserve Bank of India has enjoyed uninterrupted and unquestionable primacy in all things monetary in India.&nbsp;

The sudden volte-face by the government, has therefore shaken the RBI to its very foundations. When the inter-ministerial committee (IC) was constituted in October 2017, little did the RBI realise that it would result in ending its long era of dominance over regulating payment systems in India.

A quick flashback takes us to the RBI Act of 1934, which vested all matters monetary and regulatory with the central bank. This was consolidated with the Payment and Settlement Systems Act, 2007 (PSS Act) designating RBI, the banking regulator, as the over seer for all forms of payment systems.

The IC Report with its recommendation for a Payment Regulatory Board (PRB) with RBI being a minority stakeholder, has truly shaken and stirred the regulator, who till date exercised a monopoly over proceedings.&nbsp;

Even under the PSS Act of 2007, there was a central board comprised only of RBI representatives with its governor in the chair. The PRB, first mooted under the Finance Act 2017, paved the first step towards the dilution of RBI’s monopoly with its inclusion of equal representation of three central government representatives along with three RBI officials. The Finance Act, however, still vested the RBI governor with the position of ex-officio chairperson.

Then came the blow through the IC Report, which proposes for any “Person appointed by the government in consultation with the RBI”, to be appointed as the ex-officio chairperson.&nbsp;

Further, with the increase in the composition of the PRB to seven members with four (including the chairperson) being central government representatives, RBI clearly becomes a minority presence.

The central bank has not questioned government representation on the proposed PRB, but has voiced strong dissent against the dilution of its powers – especially of the chairperson no longer being only the RBI governor.&nbsp;

It has therefore insisted on this as also for veto powers to the chairperson, to ensure its majority. Its claim is based inter alia on its role as the banking regulator and hence the need for harmonious regulations.

The IC’s concessions to RBI’s dissent is to include the need for the chairperson to have “experience in the central banking function” and for RBI to have the power to “make a reference” to the PRB for consideration of issues pertaining to monetary policies. Neither of these meets the RBI’s pitch for retaining its power over regulating payment systems.

RBI faces a strong threat to unfettered primacy over regulating payment systems and its fear that this is only the beginning, may also not be misconceived. After all, RBI is no stranger to trespassing on alternate turfs, as was evident from its April 6, 2018, circular on financial data localisation by all payment systems, upstaging the then awaited government committee report.

The possibilities facing RBI now are (a) divestment of powers over payment systems, (b) dilution of its monopoly over regulating payment systems to merely a recommendatory role and (c) being reduced from a monopolistic regulatory position to that of an advisory one.&nbsp;

The implications for the nation are larger with the central government taking back the power to regulate payment systems instead of the settled construct of a unitary regulatory body exercising powers over all things monetary.&nbsp;

On one hand, this may reduce the now palpable friction between government policies or intent and regulatory execution (through RBI) and ensure harmony. On the other, monetary policies will seesaw with every change in the government. &nbsp;

Such state of flux may not augur well for certainty or stability in monetary policies. Internal turf wars then become a definitive possibility.

Legally speaking, RBI would be hard pressed to prove its claim to retain its monopolistic regulatory right. The sovereign right over deciding India’s monetary policy vests with the central government.

RBI’s right to regulate payment systems is through statutory authority vested under the PSS Act of 2007. This, of course, can or may be modified through parliamentary process, which is what the proposed amendments to the PSS Act envisages.&nbsp;

Prolonged vesting of authority in RBI by itself is therefore not going to be sufficient for the central bank to sustain its claim. The separation of powers argued by the RBI in its dissent note is one of vested authority and not a constitutional one.&nbsp;

The RBI dissent is that of a singular minority in the report of the IC and the majority view may therefore prevail. In any event, the report itself is merely a recommendation. It is for the houses of Parliament (or the Finance Act route) to decide the future of regulation of payment systems.&nbsp;

Payment systems now permeate chat apps and online games. In just a decade, private, especially international players, have slowly become the primary or preferred payment mechanisms, as opposed to banks. Despite tightening of regulation, private players have consistently found loopholes.

The recent thrust has been towards digital payment alternatives, especially after demonetisation.&nbsp;

In a world ill-equipped to deal with evolving technologies – abject digital illiteracy, poor enforcement mechanisms against evolving cyber-crimes, financial frauds, Ponzi schemes and technology-enabled crimes, the urgent need is for a strong regulator with sufficient powers to not only prevent, but to also protect and punish.&nbsp;

 
(This article was originally published on DNA. Read the <a href="https://www.dnaindia.com/analysis/column-rocking-the-central-bank-2680325">original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

&nbsp;

What the government giveth, the government taketh. Beginning 1934, the Reserve Bank of India has enjoyed uninterrupted and unquestionable primacy in all things monetary in India.

What the government giveth, the government taketh. Beginning 1934, the Reserve Bank of India has enjoyed uninterrupted and unquestionable primacy in all things monetary in India. The sudden volte-face by the government, has therefore shaken the RBI to its very foundations. When the inter-ministerial committee (IC) was constituted in October 2017, little did the RBI realise that it would result in ending its long era of dominance over regulating payment systems in India. A quick flashback takes us to the RBI Act of 1934, which vested all matters monetary and regulatory with the central bank. This was consolidated with the Payment and Settlement Systems Act, 2007 (PSS Act) designating RBI, the banking regulator, as the over seer for all forms of payment systems. The IC Report with its recommendation for a Payment Regulatory Board (PRB) with RBI being a minority stakeholder, has truly shaken and stirred the regulator, who till date exercised a monopoly over proceedings. Even under the PSS Act of 2007, there was a central board comprised only of RBI representatives with its governor in the chair. The PRB, first mooted under the Finance Act 2017, paved the first step towards the dilution of RBI’s monopoly with its inclusion of equal representation of three central government representatives along with three RBI officials. The Finance Act, however, still vested the RBI governor with the position of ex-officio chairperson. Then came the blow through the IC Report, which proposes for any “Person appointed by the government in consultation with the RBI”, to be appointed as the ex-officio chairperson. Further, with the increase in the composition of the PRB to seven members with four (including the chairperson) being central government representatives, RBI clearly becomes a minority presence. The central bank has not questioned government representation on the proposed PRB, but has voiced strong dissent against the dilution of its powers – especially of the chairperson no longer being only the RBI governor. It has therefore insisted on this as also for veto powers to the chairperson, to ensure its majority. Its claim is based inter alia on its role as the banking regulator and hence the need for harmonious regulations. The IC’s concessions to RBI’s dissent is to include the need for the chairperson to have “experience in the central banking function” and for RBI to have the power to “make a reference” to the PRB for consideration of issues pertaining to monetary policies. Neither of these meets the RBI’s pitch for retaining its power over regulating payment systems. RBI faces a strong threat to unfettered primacy over regulating payment systems and its fear that this is only the beginning, may also not be misconceived. After all, RBI is no stranger to trespassing on alternate turfs, as was evident from its April 6, 2018, circular on financial data localisation by all payment systems, upstaging the then awaited government committee report. The possibilities facing RBI now are (a) divestment of powers over payment systems, (b) dilution of its monopoly over regulating payment systems to merely a recommendatory role and (c) being reduced from a monopolistic regulatory position to that of an advisory one. The implications for the nation are larger with the central government taking back the power to regulate payment systems instead of the settled construct of a unitary regulatory body exercising powers over all things monetary. On one hand, this may reduce the now palpable friction between government policies or intent and regulatory execution (through RBI) and ensure harmony. On the other, monetary policies will seesaw with every change in the government. Such state of flux may not augur well for certainty or stability in monetary policies. Internal turf wars then become a definitive possibility. Legally speaking, RBI would be hard pressed to prove its claim to retain its monopolistic regulatory right. The sovereign right over deciding India’s monetary policy vests with the central government. RBI’s right to regulate payment systems is through statutory authority vested under the PSS Act of 2007. This, of course, can or may be modified through parliamentary process, which is what the proposed amendments to the PSS Act envisages. Prolonged vesting of authority in RBI by itself is therefore not going to be sufficient for the central bank to sustain its claim. The separation of powers argued by the RBI in its dissent note is one of vested authority and not a constitutional one. The RBI dissent is that of a singular minority in the report of the IC and the majority view may therefore prevail. In any event, the report itself is merely a recommendation. It is for the houses of Parliament (or the Finance Act route) to decide the future of regulation of payment systems. Payment systems now permeate chat apps and online games. In just a decade, private, especially international players, have slowly become the primary or preferred payment mechanisms, as opposed to banks. Despite tightening of regulation, private players have consistently found loopholes. The recent thrust has been towards digital payment alternatives, especially after demonetisation. In a world ill-equipped to deal with evolving technologies – abject digital illiteracy, poor enforcement mechanisms against evolving cyber-crimes, financial frauds, Ponzi schemes and technology-enabled crimes, the urgent need is for a strong regulator with sufficient powers to not only prevent, but to also protect and punish. (This article was originally published on DNA. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Rocking the central bank

Iran on Saturday authorised the central bank to intervene in the foreign exchange market in defence of the rial, state television reported, after the currency fell to repeated record lows in recent weeks following the reimposition of US&nbsp;sanctions.

The rial has slumped due to a weak economy, difficulties at local banks and heavy demand for dollars among Iranians who fear Washington's withdrawal from a landmark 2015 nuclear deal and renewed US&nbsp;sanctions could shrink Iran's oil exports and derail its economy.

A set of US&nbsp;sanctions targeting Iran's oil industry is due to take effect in November. President Hassan Rouhani has called the sanctions an "economic war" against Iran.

A top government body, headed by Rouhani and the heads of parliament and the judiciary, "gave the central bank governor the necessary authority to intervene in the foreign exchange market and to manage it", state TV said.

"The central bank will intervene in the foreign exchange market through banks and authorised exchange shops and carry out the necessary measures to control the exchange rate of hard currencies," the television quoted the body as saying.

The central bank will "announce the rate of exchange in the foreign exchange market at an appropriate time," the body added.

It was not immediately clear whether Saturday's announcement meant the government would return to a policy, abandoned in recent months, of injecting hard currencies into the market.

The Iranian rial hit a record low on the unofficial market on Wednesday, and was offered for 186,000 rials to the dollar according to foreign exchange websites. The rial has lost approximately 75 percent of its value so far this year.

On Saturday, the first trading day of the week, the rial recouped some its losses to be traded at around 174,300-174,500 per dollar, according to foreign exchange websites 2gheroon.ir and bonbast.com, which track the unofficial market.

The official exchange rate is 42,000 rials per dollar and is used mostly for imports of state subsidised basic goods such as food and medicine.

The top government body also gave final approval to a move allowing money exchange shops to import foreign currency banknotes, and requiring non-oil exporters to repatriate their hard cash earnings within three months to be reinvested or sold in a regulated secondary market to importers.

Officials have said Iran was moving to ease regulations on imports of hard currency bills and gold by exchange shops, after Washington in August re-imposed sanctions on Iran's purchases of dollars, its trade in gold and precious metals, and its dealings with metals, coal and some software.

Iran on Saturday authorised the central bank to intervene in the foreign exchange market in defence of the rial, state television reported, after the currency fell to repeated record lows in recent weeks following the reimposition of US sanctions.

Iran on Saturday authorised the central bank to intervene in the foreign exchange market in defence of the rial, state television reported, after the currency fell to repeated record lows in recent weeks following the reimposition of US sanctions. The rial has slumped due to a weak economy, difficulties at local banks and heavy demand for dollars among Iranians who fear Washington's withdrawal from a landmark 2015 nuclear deal and renewed US sanctions could shrink Iran's oil exports and derail its economy. A set of US sanctions targeting Iran's oil industry is due to take effect in November. President Hassan Rouhani has called the sanctions an "economic war" against Iran. A top government body, headed by Rouhani and the heads of parliament and the judiciary, "gave the central bank governor the necessary authority to intervene in the foreign exchange market and to manage it", state TV said. "The central bank will intervene in the foreign exchange market through banks and authorised exchange shops and carry out the necessary measures to control the exchange rate of hard currencies," the television quoted the body as saying. The central bank will "announce the rate of exchange in the foreign exchange market at an appropriate time," the body added. It was not immediately clear whether Saturday's announcement meant the government would return to a policy, abandoned in recent months, of injecting hard currencies into the market. The Iranian rial hit a record low on the unofficial market on Wednesday, and was offered for 186,000 rials to the dollar according to foreign exchange websites. The rial has lost approximately 75 percent of its value so far this year. On Saturday, the first trading day of the week, the rial recouped some its losses to be traded at around 174,300-174,500 per dollar, according to foreign exchange websites 2gheroon.ir and bonbast.com, which track the unofficial market. The official exchange rate is 42,000 rials per dollar and is used mostly for imports of state subsidised basic goods such as food and medicine. The top government body also gave final approval to a move allowing money exchange shops to import foreign currency banknotes, and requiring non-oil exporters to repatriate their hard cash earnings within three months to be reinvested or sold in a regulated secondary market to importers. Officials have said Iran was moving to ease regulations on imports of hard currency bills and gold by exchange shops, after Washington in August re-imposed sanctions on Iran's purchases of dollars, its trade in gold and precious metals, and its dealings with metals, coal and some software.

Iran allows central bank to defend rial by intervening in forex market

World stocks slipped on Friday as expectations of trade tensions dominating this weekend's summit of G7 countries, along with renewed talk of monetary tightening by major central banks, weighed on risk sentiment.

The MSCI All-Country World index, which tracks shares in 47 countries, was down nearly half a per cent in morning trade in Europe - though it was still set to break a three-week streak of losses.

Fears of a trade war, expectations of more rate hikes in the United States, and a wind-down of a massive monetary stimulus in Europe fuelled a risk-off tone in markets, investors said.

The US&nbsp;Federal Reserve is widely expected to raise interest rates for a second time this year next week. The focus is on whether it will hint at raising rates four times in 2018.

European Central Bank policymakers meeting on June 14 will debate whether to end bond purchases later this year, the bank's chief economist said this week, in a hawkish message that sent the euro to a three-week top, hit emerging markets, and spurred demand for safe-haven bonds.

Before those meetings, however, markets will have to digest fallout from the G7 summit in Quebec, where the mounting risk of a tariff war between the United States and its major trade partners will be in the spotlight.

An unprecedented US-North Korea summit scheduled for June 12 in Singapore, with Washington seeking to pressure Pyongyang into abandoning its nuclear weapons programme, is giving investors another reason for caution.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.1 per cent after six straight sessions of gains took it to its highest since mid-March. It was on track for a weekly gain of more than 1 per cent.

Chinese shares slipped, with the blue-chip Shangai-Shenzhen index down 1.7 per cent and Hong Kong's Hang Seng.HSI declining 1.5 per cent.

Japan's Nikkei average and South Korea's KOSPI were off 0.6 per cent and 0.8 per cent, respectively, while Australian shares ended 0.1 per cent lower.

The pan-European STOXX 600 index was on track for its third weekly loss in a row, with renewed strength in the euro also weighing. It was down 0.7 per cent.

Italy's government bonds faced renewed selling pressure, as the risk aversion in world markets and unease about Rome's spending plans set yields on short-dated debt up for their biggest weekly rise since 2012.

"A few things are contributing to nervousness today -- the trade issues are back on, then there is the Italy situation and we are not sure how the ECB will respond to that," said Salman Ahmed, chief investment strategist at Lombard Odier Investment Management.

"And in emerging markets, there are some idiosyncratic risks (Turkey, Argentina and Brazil) which are becoming worrying." He remained "cautious" on adding risk, as "none of these issues seems to have a clear short-term resolution."

The dollar rebounded 0.3 per cent from near three-week lows against a basket of currencies, helped by the strong jobless claims numbers in the US&nbsp;on Thursday.

The dollar has come under pressure this week as the euro bounced back from 10-month lows thanks to an ebbing of political concerns over Italy as well as the possible ECB moves over its bond purchases.

The dollar fell against the safe-haven Japanese yen to 109.35 but remained well below a four-month top of 111.39 touched in May.

The euro inched down to $1.1763 after four straight session of gains took it to its highest level since mid-May.

In commodities, copper came off from a 4-1/2-year high touched on Wednesday.

Oil prices fell as surging US&nbsp;output and signs of weakening demand in China output outweighed support from supply woes in Venezuela and OPEC's production cuts.

U.S. crude fell 0.5 per cent to $65.64 a barrel, while Brent dropped 0.5 per cent to $76.95.

Spot gold slipped 0.1 per cent at $1,298.47 an ounce.

Fears of a trade war, expectations of more rate hikes in the United States, and a wind-down of a massive monetary stimulus in Europe fuelled a risk-off tone in markets, investors said

World stocks slipped on Friday as expectations of trade tensions dominating this weekend's summit of G7 countries, along with renewed talk of monetary tightening by major central banks, weighed on risk sentiment. The MSCI All-Country World index, which tracks shares in 47 countries, was down nearly half a per cent in morning trade in Europe - though it was still set to break a three-week streak of losses. Fears of a trade war, expectations of more rate hikes in the United States, and a wind-down of a massive monetary stimulus in Europe fuelled a risk-off tone in markets, investors said. The US Federal Reserve is widely expected to raise interest rates for a second time this year next week. The focus is on whether it will hint at raising rates four times in 2018. European Central Bank policymakers meeting on June 14 will debate whether to end bond purchases later this year, the bank's chief economist said this week, in a hawkish message that sent the euro to a three-week top, hit emerging markets, and spurred demand for safe-haven bonds. Before those meetings, however, markets will have to digest fallout from the G7 summit in Quebec, where the mounting risk of a tariff war between the United States and its major trade partners will be in the spotlight. An unprecedented US-North Korea summit scheduled for June 12 in Singapore, with Washington seeking to pressure Pyongyang into abandoning its nuclear weapons programme, is giving investors another reason for caution. MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.1 per cent after six straight sessions of gains took it to its highest since mid-March. It was on track for a weekly gain of more than 1 per cent. Chinese shares slipped, with the blue-chip Shangai-Shenzhen index down 1.7 per cent and Hong Kong's Hang Seng.HSI declining 1.5 per cent. Japan's Nikkei average and South Korea's KOSPI were off 0.6 per cent and 0.8 per cent, respectively, while Australian shares ended 0.1 per cent lower. The pan-European STOXX 600 index was on track for its third weekly loss in a row, with renewed strength in the euro also weighing. It was down 0.7 per cent. Italy's government bonds faced renewed selling pressure, as the risk aversion in world markets and unease about Rome's spending plans set yields on short-dated debt up for their biggest weekly rise since 2012. "A few things are contributing to nervousness today -- the trade issues are back on, then there is the Italy situation and we are not sure how the ECB will respond to that," said Salman Ahmed, chief investment strategist at Lombard Odier Investment Management. "And in emerging markets, there are some idiosyncratic risks (Turkey, Argentina and Brazil) which are becoming worrying." He remained "cautious" on adding risk, as "none of these issues seems to have a clear short-term resolution." The dollar rebounded 0.3 per cent from near three-week lows against a basket of currencies, helped by the strong jobless claims numbers in the US on Thursday. The dollar has come under pressure this week as the euro bounced back from 10-month lows thanks to an ebbing of political concerns over Italy as well as the possible ECB moves over its bond purchases. The dollar fell against the safe-haven Japanese yen to 109.35 but remained well below a four-month top of 111.39 touched in May. The euro inched down to $1.1763 after four straight session of gains took it to its highest level since mid-May. In commodities, copper came off from a 4-1/2-year high touched on Wednesday. Oil prices fell as surging US output and signs of weakening demand in China output outweighed support from supply woes in Venezuela and OPEC's production cuts. U.S. crude fell 0.5 per cent to $65.64 a barrel, while Brent dropped 0.5 per cent to $76.95. Spot gold slipped 0.1 per cent at $1,298.47 an ounce.

Global Stocks: Stocks slip as central bank talk, trade, weigh on risk sentiment

The US unemployment rate fell to its lowest level&nbsp;in 18 years&nbsp;in May, the Labor Department reported&nbsp;Friday, showing the world's biggest economy remains robust even as President Donald Trump's aggressive trade policies have stoked fears of an all-out trade war.

The jobless rate fell to 3.8 per cent from 3.9 per cent in the prior month, the lowest level since April 2000.

The last time the rate was lower than 3.8 per cent was December 1969.

With a shortage of workers reported throughout the country and across many industries and skill levels, the latest data confirmed wages are rising.

The economy added 223,000 non-farm jobs last month, stronger than the consensus forecast of economists, and better than the increase of 159,000 in April.

And the jobless rate for African American workers dropped sharply in the month to 5.9 per cent from 6.6 per cent, the lowest since the government began keeping records in 1972.

President Donald Trump has been touting that figure as a major accomplishment of his economic policies.

"We have reached yet one more historic milestone with 3.8 per cent unemployment just announced, and another all-time record low African-American unemployment," Trump said at an event shortly after the data were released.

At an event later&nbsp;Friday&nbsp;he continued to tout the strong results.

"We have such a great country right now," he said. "We have some of the best economic numbers we've ever had as a nation and that goes a long way. And we're building something very special."

But many economists and businesses have warned that jobs and economic growth could be victims of Trump's confrontational trade policies which includes steep tariffs on steel and aluminium that have hit key alli

Trump broke with protocol by tweeting about the report an hour before release time, hinting the figures would be positive.

"Looking forward to seeing the employment numbers at&nbsp;8:30&nbsp;this morning," he said on Twitter.

The data are kept strictly confidential and subject to tight security to prevent early release since investors worldwide are waiting to trade on the information.&nbsp;

The report is given to the White House a day in advance, although officials never hint at the contents.

A government rule prevents officials from commenting on sensitive data reports until one hour after release, something Trump administration officials have ignored on various occasions.

Markets did not appear to react to the tweet ahead of release time but were delighted afterwards.&nbsp;

US stocks surged after the opening bell, and mostly continued upward, with the tech-rich Nasdaq closing up 1.5 per cent, while the Dow gained 0.9 per cent.

With robust hiring continuing -- well beyond the monthly average of 179,000 for the past three months -- employers have been reporting the need to increase salaries and benefits to attract workers and keep them from being poached by competitors.

The report shows average hourly earnings rose 0.3 per cent last month to $26.92, which is 2.7 per cent higher than a year ago.

And the pace of hiring is shrinking the pool of available workers -- defined as those working or actively looking for work -- and that was the main driver behind the lower unemployment rate.&nbsp;

With wage gains finally above the Federal Reserve's two per cent inflation target, the central bank will be watching carefully to see if rising salaries translate into accelerating price increases.

However, the Fed signalled clearly that it is willing to tolerate inflation slightly above two per cent for a short period.

The central bank is widely expected to raise the benchmark lending rate at its meeting later in June, the second increase of three or four expected this year.

Hiring was strong across multiple sectors, although there was a slowdown in manufacturing -- contrary to Trump's repeated claims that the industry is adding workers due to last year's tax cuts and his trade policies, which include steep tariffs on aluminium and steel.

The manufacturing sector added 18,000 workers, the least since September 2017, retailers added 31,000, while health care rose 29,000 and construction 25,000.

Ben Herzon of IHS Markit said the labour market "is tightening rapidly" -- meaning the jobless rate is likely to fall further.

"Nearly all aspects of this report were positive and consistent with the solid growth of wage-and-salary income in the second quarter," Herzon said.

The jobless rate fell to 3.8 per cent from 3.9 per cent in the prior month, the lowest level since April 2000

The US unemployment rate fell to its lowest level in 18 years in May, the Labor Department reported Friday, showing the world's biggest economy remains robust even as President Donald Trump's aggressive trade policies have stoked fears of an all-out trade war. The jobless rate fell to 3.8 per cent from 3.9 per cent in the prior month, the lowest level since April 2000. The last time the rate was lower than 3.8 per cent was December 1969. With a shortage of workers reported throughout the country and across many industries and skill levels, the latest data confirmed wages are rising. The economy added 223,000 non-farm jobs last month, stronger than the consensus forecast of economists, and better than the increase of 159,000 in April. And the jobless rate for African American workers dropped sharply in the month to 5.9 per cent from 6.6 per cent, the lowest since the government began keeping records in 1972. President Donald Trump has been touting that figure as a major accomplishment of his economic policies. "We have reached yet one more historic milestone with 3.8 per cent unemployment just announced, and another all-time record low African-American unemployment," Trump said at an event shortly after the data were released. At an event later Friday he continued to tout the strong results. "We have such a great country right now," he said. "We have some of the best economic numbers we've ever had as a nation and that goes a long way. And we're building something very special." But many economists and businesses have warned that jobs and economic growth could be victims of Trump's confrontational trade policies which includes steep tariffs on steel and aluminium that have hit key alli Trump broke with protocol by tweeting about the report an hour before release time, hinting the figures would be positive. "Looking forward to seeing the employment numbers at 8:30 this morning," he said on Twitter. The data are kept strictly confidential and subject to tight security to prevent early release since investors worldwide are waiting to trade on the information. The report is given to the White House a day in advance, although officials never hint at the contents. A government rule prevents officials from commenting on sensitive data reports until one hour after release, something Trump administration officials have ignored on various occasions. Markets did not appear to react to the tweet ahead of release time but were delighted afterwards. US stocks surged after the opening bell, and mostly continued upward, with the tech-rich Nasdaq closing up 1.5 per cent, while the Dow gained 0.9 per cent. With robust hiring continuing -- well beyond the monthly average of 179,000 for the past three months -- employers have been reporting the need to increase salaries and benefits to attract workers and keep them from being poached by competitors. The report shows average hourly earnings rose 0.3 per cent last month to $26.92, which is 2.7 per cent higher than a year ago. And the pace of hiring is shrinking the pool of available workers -- defined as those working or actively looking for work -- and that was the main driver behind the lower unemployment rate. With wage gains finally above the Federal Reserve's two per cent inflation target, the central bank will be watching carefully to see if rising salaries translate into accelerating price increases. However, the Fed signalled clearly that it is willing to tolerate inflation slightly above two per cent for a short period. The central bank is widely expected to raise the benchmark lending rate at its meeting later in June, the second increase of three or four expected this year. Hiring was strong across multiple sectors, although there was a slowdown in manufacturing -- contrary to Trump's repeated claims that the industry is adding workers due to last year's tax cuts and his trade policies, which include steep tariffs on aluminium and steel. The manufacturing sector added 18,000 workers, the least since September 2017, retailers added 31,000, while health care rose 29,000 and construction 25,000. Ben Herzon of IHS Markit said the labour market "is tightening rapidly" -- meaning the jobless rate is likely to fall further. "Nearly all aspects of this report were positive and consistent with the solid growth of wage-and-salary income in the second quarter," Herzon said.

US unemployment falls to 3.8% in May, lowest in 18 years

China has agreed to roll over a loan of USD 500 million that it has placed with the State Bank of Pakistan as Islamabad's official foreign currency reserves remain in a precarious position despite taking USD 44 billion in loans in the past five years.

The Express Tribune reported that the People's Bank of China, through China's State Administration of Foreign Exchange (SAFE), had deposited USD 500 million with the SBP in June 2012.

The loan is going to mature in the first week of June this year, but China has agreed to roll it over for one more year, said sources in the ministry of finance.

Pakistan cannot use the USD 500 million Chinese deposit and its only purpose is to shore up foreign currency reserves.

According to sources, the loan has been rescheduled at the same old terms. Since the money could not be utilised, the interest rate was only 1 per cent, they said.

During the week ended May 18, the SBP's gross reserves dropped USD 479 million to only USD 10.32 billion due to payments on account of external debt servicing. The reserves are barely enough for two months of imports and are below the International Monetary Fund's adequacy levels.

The USD 10.32-billion gross foreign currency reserves include loans of USD 6.13 billion the central bank has acquired from domestic banks to inflate the reserves.

Owing to the government's wrong policies, the external debt and liabilities swelled over 42 per cent to USD 92 billion by April this year, according to central bank data.

The current government has got foreign loans of USD 44.2 billion to repay maturing debt, provide cushion to foreign currency reserves and finance the import bill.

Sources said in addition to the USD 500-million loan rollover, China was expected to increase the SAFE deposit limit by USD 500 million to USD 1 billion. Apart from this, another USD 1 billion in Chinese foreign commercial loan is being negotiated.

Pakistan has already taken USD 2.2 billion in commercial loans from China in the current fiscal year. It is also holding negotiations to take USD 200-350 million in commercial loans from Gulf banks.

In January last year, Pakistan had returned USD 500 million to SAFE that had reached maturity. The loan in the form of deposits had been taken in January, 2009 due to weak current account situation at the time.

This week, Pakistan and China also extended the currency swap arrangement between the SBP and People's Bank of China for three years in respective local currencies. The swap limit has been increased from 10 billion to 20 billion Chinese yuan and from Rs 165 billion to Rs 351 billion.

Owing to the fast deteriorating fiscal and external accounts, the SBP on Friday increased key discount rate by 50 basis points to 6.5 per cent after putting off the increase twice earlier.

The balance of payments position, despite increase in exports and some deceleration in imports, has deteriorated due to a sharp increase in international oil prices and limited financial inflows, according to the central bank.

In its statement, the SBP added that twin deficits, the budget deficit and the current account deficit&nbsp;were depicting elevated aggregate demand and were adversely affecting near-term macroeconomic stability.

However, it seems that the federal government is deliberately destroying the economic fundamentals. It posted a record budget deficit of Rs 4.81 trillion for July-April of the current fiscal year, which is equal to 4.3 per cent of gross domestic product (GDP).

In spite of that, Prime Minister Shahid Khaqan Abbasi on Friday approved an honorarium equal to three basic salaries for federal government employees. This came despite opposition from the finance ministry that estimated its impact in the range of Rs 100 billion to Rs 125 billion.

The honorarium has been announced for all federal government employees and attached departments, including the armed forces.

A senior official of the finance ministry said the ministry would try to limit the damage and was not in a mood to fully honour the premier's decision. If the decision is implemented, the budget deficit for the current fiscal year would jump close to 7 per cent of GDP. This excludes the circular debt that has been parked outside budget books.

When the government came to power in June 2013, the budget deficit was 6 per cent of GDP excluding circular debt payments.&nbsp;

The loan is going to mature in the first week of June this year, but China has agreed to roll it over for one more year, said sources in the ministry of finance

China has agreed to roll over a loan of USD 500 million that it has placed with the State Bank of Pakistan as Islamabad's official foreign currency reserves remain in a precarious position despite taking USD 44 billion in loans in the past five years. The Express Tribune reported that the People's Bank of China, through China's State Administration of Foreign Exchange (SAFE), had deposited USD 500 million with the SBP in June 2012. The loan is going to mature in the first week of June this year, but China has agreed to roll it over for one more year, said sources in the ministry of finance. Pakistan cannot use the USD 500 million Chinese deposit and its only purpose is to shore up foreign currency reserves. According to sources, the loan has been rescheduled at the same old terms. Since the money could not be utilised, the interest rate was only 1 per cent, they said. During the week ended May 18, the SBP's gross reserves dropped USD 479 million to only USD 10.32 billion due to payments on account of external debt servicing. The reserves are barely enough for two months of imports and are below the International Monetary Fund's adequacy levels. The USD 10.32-billion gross foreign currency reserves include loans of USD 6.13 billion the central bank has acquired from domestic banks to inflate the reserves. Owing to the government's wrong policies, the external debt and liabilities swelled over 42 per cent to USD 92 billion by April this year, according to central bank data. The current government has got foreign loans of USD 44.2 billion to repay maturing debt, provide cushion to foreign currency reserves and finance the import bill. Sources said in addition to the USD 500-million loan rollover, China was expected to increase the SAFE deposit limit by USD 500 million to USD 1 billion. Apart from this, another USD 1 billion in Chinese foreign commercial loan is being negotiated. Pakistan has already taken USD 2.2 billion in commercial loans from China in the current fiscal year. It is also holding negotiations to take USD 200-350 million in commercial loans from Gulf banks. In January last year, Pakistan had returned USD 500 million to SAFE that had reached maturity. The loan in the form of deposits had been taken in January, 2009 due to weak current account situation at the time. This week, Pakistan and China also extended the currency swap arrangement between the SBP and People's Bank of China for three years in respective local currencies. The swap limit has been increased from 10 billion to 20 billion Chinese yuan and from Rs 165 billion to Rs 351 billion. Owing to the fast deteriorating fiscal and external accounts, the SBP on Friday increased key discount rate by 50 basis points to 6.5 per cent after putting off the increase twice earlier. The balance of payments position, despite increase in exports and some deceleration in imports, has deteriorated due to a sharp increase in international oil prices and limited financial inflows, according to the central bank. In its statement, the SBP added that twin deficits, the budget deficit and the current account deficit were depicting elevated aggregate demand and were adversely affecting near-term macroeconomic stability. However, it seems that the federal government is deliberately destroying the economic fundamentals. It posted a record budget deficit of Rs 4.81 trillion for July-April of the current fiscal year, which is equal to 4.3 per cent of gross domestic product (GDP). In spite of that, Prime Minister Shahid Khaqan Abbasi on Friday approved an honorarium equal to three basic salaries for federal government employees. This came despite opposition from the finance ministry that estimated its impact in the range of Rs 100 billion to Rs 125 billion. The honorarium has been announced for all federal government employees and attached departments, including the armed forces. A senior official of the finance ministry said the ministry would try to limit the damage and was not in a mood to fully honour the premier's decision. If the decision is implemented, the budget deficit for the current fiscal year would jump close to 7 per cent of GDP. This excludes the circular debt that has been parked outside budget books. When the government came to power in June 2013, the budget deficit was 6 per cent of GDP excluding circular debt payments.

China to roll over $500 million loan to Pakistan central bank

US-educated Yi Gang, a reform-minded deputy governor of the People&#39;s Bank of China, was nominated on Monday to take over the reins of the central bank.

Yi, who taught at Indiana University before returning to China, was the only nominee for the governor post ahead of a vote by the rubber-stamp National People&#39;s Congress later Monday.

Another American-educated official, President Xi Jinping&#39;s top economic adviser Liu He, was nominated for a position as vice premier.

Both men speak fluent English and have pushed for economic reforms.

While at the PBOC, Yi called for the further internationalisation of China&#39;s currency and greater market access for foreign investors.

At a press conference earlier in the annual parliamentary session, Yi said the central bank would work to push through reforms that will bring about &quot;equal treatment for domestic and foreign investors.&quot;

A shakeup in China&#39;s bureaucracy announced last week will give the central bank more power to push through such reforms.

The bank was given the responsibility of drafting new laws and regulations for the banking and insurance sectors, giving the PBOC new authority over China&#39;s financial system.

An economic reformer, Yi studied in the US and earned a tenured position at Indiana University before returning to China to take a position at Peking University.

From there he moved to the central bank and rose within its ranks under Zhou Xiaochuan, who has led the bank for more than a decade, providing stability for China&#39;s monetary policy.

Yi, who taught at Indiana University before returning to China, was the only nominee for the governor post ahead of a vote by the rubber-stamp National People's Congress later Monday

US-educated Yi Gang, a reform-minded deputy governor of the People's Bank of China, was nominated on Monday to take over the reins of the central bank. Yi, who taught at Indiana University before returning to China, was the only nominee for the governor post ahead of a vote by the rubber-stamp National People's Congress later Monday. Another American-educated official, President Xi Jinping's top economic adviser Liu He, was nominated for a position as vice premier. Both men speak fluent English and have pushed for economic reforms. While at the PBOC, Yi called for the further internationalisation of China's currency and greater market access for foreign investors. At a press conference earlier in the annual parliamentary session, Yi said the central bank would work to push through reforms that will bring about "equal treatment for domestic and foreign investors." A shakeup in China's bureaucracy announced last week will give the central bank more power to push through such reforms. The bank was given the responsibility of drafting new laws and regulations for the banking and insurance sectors, giving the PBOC new authority over China's financial system. An economic reformer, Yi studied in the US and earned a tenured position at Indiana University before returning to China to take a position at Peking University. From there he moved to the central bank and rose within its ranks under Zhou Xiaochuan, who has led the bank for more than a decade, providing stability for China's monetary policy.

China names reform-minded Yi Gang to lead central bank

The RBI has said that Rs 500 and Rs 1,000 notes, returned to banks when the government demonetised high-value currency 15 months ago, are still being &quot;processed for their arithmetical accuracy and genuineness&quot;.

This is being done in an &quot;expedited manner&quot;, the central bank said.

&quot;Specific bank notes are being processed for their arithmetical accuracy and genuineness and the reconciliation for the same is ongoing. This information can, therefore, be shared on completion of the process and reconciliation,&quot; the RBI said in reply to an RTI application filed by a PTI correspondent.

To a query on the number of demonetised notes, it said, &quot;...Subject to future corrections if any, arising in the course of verification process, the estimated value of specified bank notes received as on June 30, 2017 is Rs 15.28 trillion (lakh crore)&quot;.

Asked to provide the details of the deadline for finishing the counting of demonetised notes, the RBI&nbsp;said &quot;specified bank notes are being processed in an expedited manner&quot;.

As on date, 59 sophisticated Currency Verification and Processing (CVPS) machines are in operation in RBI for the purpose, it said.

The reply did not specify the location of the machines.

&quot;Besides, eight CVPS machines available with commercial banks are also being used. In addition to this, seven more CVPS machines on lease basis have been installed at RBI regional offices,&quot; the RTI reply said.

The government had on November 8, 2016 banned the use of Rs 500 and Rs 1,000 notes and allowed the holders of these currency bills to deposit them with banks or use them at certain notified utilities.

In its annual report for 2016-17 released on August 30 last year, the RBI said Rs 15.28 lakh crore, or 99 per cent of the demonetised notes, had returned to the banking system.

The central bank said in the report, for the year ended June 30, 2017, that only Rs 16,050 crore of the Rs 15.44 lakh crore in old high denomination notes had not returned.

As on November 8, 2016, there were 1,716.5 crore pieces of Rs 500 and 685.8 crore pieces of Rs 1,000 notes in circulation, totalling Rs 15.44 lakh crore, it had said.&nbsp;

The central bank has said that Rs 500 and Rs 1,000 notes, returned to banks when the government demonetised high-value currency 15 months ago, are still being 'processed for their arithmetical accuracy and genuineness'

The RBI has said that Rs 500 and Rs 1,000 notes, returned to banks when the government demonetised high-value currency 15 months ago, are still being "processed for their arithmetical accuracy and genuineness". This is being done in an "expedited manner", the central bank said. "Specific bank notes are being processed for their arithmetical accuracy and genuineness and the reconciliation for the same is ongoing. This information can, therefore, be shared on completion of the process and reconciliation," the RBI said in reply to an RTI application filed by a PTI correspondent. To a query on the number of demonetised notes, it said, "...Subject to future corrections if any, arising in the course of verification process, the estimated value of specified bank notes received as on June 30, 2017 is Rs 15.28 trillion (lakh crore)". Asked to provide the details of the deadline for finishing the counting of demonetised notes, the RBI said "specified bank notes are being processed in an expedited manner". As on date, 59 sophisticated Currency Verification and Processing (CVPS) machines are in operation in RBI for the purpose, it said. The reply did not specify the location of the machines. "Besides, eight CVPS machines available with commercial banks are also being used. In addition to this, seven more CVPS machines on lease basis have been installed at RBI regional offices," the RTI reply said. The government had on November 8, 2016 banned the use of Rs 500 and Rs 1,000 notes and allowed the holders of these currency bills to deposit them with banks or use them at certain notified utilities. In its annual report for 2016-17 released on August 30 last year, the RBI said Rs 15.28 lakh crore, or 99 per cent of the demonetised notes, had returned to the banking system. The central bank said in the report, for the year ended June 30, 2017, that only Rs 16,050 crore of the Rs 15.44 lakh crore in old high denomination notes had not returned. As on November 8, 2016, there were 1,716.5 crore pieces of Rs 500 and 685.8 crore pieces of Rs 1,000 notes in circulation, totalling Rs 15.44 lakh crore, it had said.

15 months after demonetisation, RBI says returned notes still being 'processed'

Colombia started circulating a new 50,000-peso banknote&nbsp;on Friday&nbsp;bearing the likeness of late Nobel-winning author Gabriel Garcia Marquez.

The light purple piece of money, worth equivalent of $17.40, &quot;pays honour to a person who carried Colombia&#39;s name far and wide from the middle of the last century,&quot; the head of the country&#39;s central bank, Jose Dario Uribe, said.

The banknote was launched in a ceremony in Santa Marta, a town on Colombia&#39;s Caribbean coast, close to Garcia Marquez&#39;s birthplace, that served as the setting for the writer&#39;s landmark 1967 novel &quot;One Hundred Years of Solitude.&quot;

The first retail bank customer to receive the new bill, Jadis Saker, said &quot;this moment will remain carved into my memory,&quot; according to the newspaper El Heraldo.

Garcia Marquez, who was born in 1927, started out as a journalist before finding fame as an author and pioneering a style called &quot;magic realism.&quot; In 1982, he won the Nobel Prize for Literature

He died in April 2014 aged 87, in Mexico, where he lived with his wife. 
 
(AFP)

Country's central bank head said note pays tribute to man who 'carried country's name far and wide'

Colombia started circulating a new 50,000-peso banknote on Friday bearing the likeness of late Nobel-winning author Gabriel Garcia Marquez. The light purple piece of money, worth equivalent of $17.40, "pays honour to a person who carried Colombia's name far and wide from the middle of the last century," the head of the country's central bank, Jose Dario Uribe, said. The banknote was launched in a ceremony in Santa Marta, a town on Colombia's Caribbean coast, close to Garcia Marquez's birthplace, that served as the setting for the writer's landmark 1967 novel "One Hundred Years of Solitude." The first retail bank customer to receive the new bill, Jadis Saker, said "this moment will remain carved into my memory," according to the newspaper El Heraldo. Garcia Marquez, who was born in 1927, started out as a journalist before finding fame as an author and pioneering a style called "magic realism." In 1982, he won the Nobel Prize for Literature He died in April 2014 aged 87, in Mexico, where he lived with his wife. (AFP)

Colombia honours Garcia Marquez by using his face on banknote

Citibank plans to close the account Venezuela uses to make international payments, President Nicolas Maduro said on Monday, accusing the US-based bank of a &quot;financial blockade&quot;. 
 
&quot;Citibank, with no warning or communication, says that it is going to close the Central Bank and Bank Of Venezuela account. That is what you call a financial blockade,&quot; the embattled president said in televised remarks. 
 
He said the move amounted to an &quot;inquisition&quot; by US President Barack Obama&#39;s administration.&nbsp;Maduro said his South American nation, a major oil producer, uses the account to make payments &quot;within 24 hours, to other accounts in the United States and worldwide&quot;. 
 
Maduro&#39;s socialist government has often claimed that US &quot;right wing&quot; interests and local business elites were trying to blockade his state-led economy and prevent Venezuela&#39;s access to international credit. 
 
&quot;Do you think they are going to stop us by putting in place a financial blockade? No, ladies and gentlemen, nobody stops Venezuela. With Citibank or without it, we are moving forward. With Kimberly or without, we are moving.&quot; 
 
Venezuela&#39;s government said just hours earlier that it would take over operations at facilities where US consumer goods giant Kimberly-Clark just shut down, citing unworkable economic conditions.&nbsp;The American company announced on Saturday it would cease production, saying that it was impossible to get enough hard currency to buy raw materials, and that inflation was surging. 
 
&quot;We are going to sign, at the workers&#39; request... to authorise immediate occupation of the workplace known as Kimberly-Clark de Venezuela... by its workers,&quot; Labor Minister Oswaldo Vera said at the facility&#39;s plant in the central city of Maracay. 
 
The country&#39;s economy has been hard hit by the plunging value of its main export, oil. Analysts also criticise its state-led economy of gross mismanagement leading to shortages of toilet paper, diapers and food. 
 
Vera signed the document to loud cheers and&nbsp;he said machines would be back in operation within hours.&nbsp;In a sign of Maduro&#39;s concern at mounting social unrest, the president on Thursday replaced the head of the National Guard.&nbsp; 
 
The Venezuelan opposition launched efforts to remove the president after winning control of the legislature in January.&nbsp;But Maduro has challenged his rivals through the Supreme Court, which they accuse him of controlling. 
 
(AFP)

He accuses the US-based bank of a 'financial blockade', says the move amounts to an 'inquisition' by the Obama administration

Citibank plans to close the account Venezuela uses to make international payments, President Nicolas Maduro said on Monday, accusing the US-based bank of a "financial blockade". "Citibank, with no warning or communication, says that it is going to close the Central Bank and Bank Of Venezuela account. That is what you call a financial blockade," the embattled president said in televised remarks. He said the move amounted to an "inquisition" by US President Barack Obama's administration. Maduro said his South American nation, a major oil producer, uses the account to make payments "within 24 hours, to other accounts in the United States and worldwide". Maduro's socialist government has often claimed that US "right wing" interests and local business elites were trying to blockade his state-led economy and prevent Venezuela's access to international credit. "Do you think they are going to stop us by putting in place a financial blockade? No, ladies and gentlemen, nobody stops Venezuela. With Citibank or without it, we are moving forward. With Kimberly or without, we are moving." Venezuela's government said just hours earlier that it would take over operations at facilities where US consumer goods giant Kimberly-Clark just shut down, citing unworkable economic conditions. The American company announced on Saturday it would cease production, saying that it was impossible to get enough hard currency to buy raw materials, and that inflation was surging. "We are going to sign, at the workers' request... to authorise immediate occupation of the workplace known as Kimberly-Clark de Venezuela... by its workers," Labor Minister Oswaldo Vera said at the facility's plant in the central city of Maracay. The country's economy has been hard hit by the plunging value of its main export, oil. Analysts also criticise its state-led economy of gross mismanagement leading to shortages of toilet paper, diapers and food. Vera signed the document to loud cheers and he said machines would be back in operation within hours. In a sign of Maduro's concern at mounting social unrest, the president on Thursday replaced the head of the National Guard. The Venezuelan opposition launched efforts to remove the president after winning control of the legislature in January. But Maduro has challenged his rivals through the Supreme Court, which they accuse him of controlling. (AFP)

Venezuela President: Citibank planning to close account used to make international payments

The new head of Sri Lanka&#39;s central bank Indrajit Coomaraswamy pledged on Monday to uphold its credibility after allegations of insider dealing that forced his predecessor to leave. 
 
Sri Lanka&#39;s president bowed to pressure to replace Arjuna Mahendran after he was accused of leaking information to his son-in-law&#39;s firm, which allegedly made millions of dollars in profits from central bank bond auctions. 
 
The scandal came with Sri Lanka&#39;s economy under stress -- last month the country began receiving a $1.5 billion bailout from the International Monetary Fund. 
 
On Monday Coomaraswamy told staff the bank was &quot;one of the great institutions in this country&quot;. 
 
&quot;I am acutely aware that a primary responsibility, arguably the primary responsibility of the governor, is to uphold this reputation and credibility,&quot; said the 66-year-old former director of economic affairs at the Commonwealth Secretariat, an intergovernmental agency of&nbsp;Commonwealth countries in London. 
 
&quot;I can assure you that I will do my utmost to do so at all times.&quot; 
 
Mahendran, a Singaporean national of Sri Lankan origin, has consistently maintained his innocence and had indicated he wanted to stay on after his term expired on June 30. 
 
But a group of Sri Lankan academics and professionals had gone to court to demand action against him and the government decided not to keep him on. 
 
The new bank chief also promised to work independently following allegations that the office of the governor had become politicised in recent years. 
 
&quot;When I met the president he just told me one thing - &#39;Do your work in a straight way and do not fear anybody in discharging your duties&#39;. My intention is to follow his direction,&quot; Coomaraswamy told his staff. 
 
He said he wanted to ensure strong macro economic fundamentals to win the confidence of people both in and outside the country. 
 
(AFP)

'I can assure you that I will do my utmost to do so at all times,' the chief said

The new head of Sri Lanka's central bank Indrajit Coomaraswamy pledged on Monday to uphold its credibility after allegations of insider dealing that forced his predecessor to leave. Sri Lanka's president bowed to pressure to replace Arjuna Mahendran after he was accused of leaking information to his son-in-law's firm, which allegedly made millions of dollars in profits from central bank bond auctions. The scandal came with Sri Lanka's economy under stress -- last month the country began receiving a $1.5 billion bailout from the International Monetary Fund. On Monday Coomaraswamy told staff the bank was "one of the great institutions in this country". "I am acutely aware that a primary responsibility, arguably the primary responsibility of the governor, is to uphold this reputation and credibility," said the 66-year-old former director of economic affairs at the Commonwealth Secretariat, an intergovernmental agency of Commonwealth countries in London. "I can assure you that I will do my utmost to do so at all times." Mahendran, a Singaporean national of Sri Lankan origin, has consistently maintained his innocence and had indicated he wanted to stay on after his term expired on June 30. But a group of Sri Lankan academics and professionals had gone to court to demand action against him and the government decided not to keep him on. The new bank chief also promised to work independently following allegations that the office of the governor had become politicised in recent years. "When I met the president he just told me one thing - 'Do your work in a straight way and do not fear anybody in discharging your duties'. My intention is to follow his direction," Coomaraswamy told his staff. He said he wanted to ensure strong macro economic fundamentals to win the confidence of people both in and outside the country. (AFP)

Sri Lanka's new central bank chief to 'uphold credibility'

India&#39;s move to clean up the books of its banks saddled with $120 billion of sour loans will be largely unaffected by the decision of central bank chief Raghuram Rajan to step down, say bankers and government officials. 
 
As banks struggle with record levels of distressed assets, Rajan had set an ambitious March 2017 deadline for them to fully reveal the problem loans and make adequate provisions. 
 
An unprecedented asset quality review of banks ordered by the central bank led to reported bad loans surging more than 70 per cent in the six months to March. 
 
Rajan&#39;s decision to bow out in September has, however, raised questions on the fate of a clean-up seen as crucial to reviving new lending to support a nascent recovery in Asia&#39;s third-largest economy. 
 
Bankers and government officials said Rajan&#39;s successor may be less aggressive in fighting bad loans, but the general direction will remain the same. 
 
&quot;Having worked with eight (RBI) Governors, I have not seen any new incumbent turn an earlier policy, particularly relating to banks, on its head,&quot; said G. Padmanabhan, a former executive director at the RBI who currently chairs the board of third-biggest state-run lender, Bank of India. 
 
&quot;Second, and more important, this was not a one man decision and had the support of government as well,&quot; he said, although there could be some tweaks as the timeline was &quot;aggressive&quot; and banks&#39; capital needs had to be factored in. 
 
Shares in top lender State Bank of India have gained about 16 per cent since it reported March-quarter earnings on May 27, on hopes that the worst was behind it in terms of bad loans. The second biggest state-run bank, Bank of Baroda, is up about 12 per cent during that period. Two dozen lenders majority-owned by the Indian government hold the bulk of the soured loans. 
 
Deputy finance minister Jayant Sinha said recently it was prudent for the Reserve Bank of India to pursue its asset quality review of the banks, signalling government support for the clean-up. 
 
&quot;Investors of course like it. What Rajan and the RBI did was generally good, but I would say they were a bit too harsh,&quot; said one senior public sector banker, who still sees no clarity on how bad loans will be resolved. 
 
Others agree that the mechanics of resolving the issue still need to be clarified. 
 
In the absence of a strong system to buy bad loans from banks, deciding on haircuts and government capital infusion in banks may hobble resolution of the issue, said another senior banker with a state-run bank. 
 
Despite this, most remain confident that the RBI has already gone too far to reverse course. 
 
A senior policymaker who works closely with Rajan said the bank clean up exercise had been &quot;institutionalised&quot; and was on auto-mode, playing down any impact from Rajan&#39;s exit. 
 
&quot;He (Rajan) expedited things, but it was on the RBI&#39;s agenda,&quot; the official said, adding the clean-up was long overdue. 
(Reuters)

Indian banks remain unaffected by the country's central bank chief's sudden exit and focus on fixing sour loans worth $120 billion

India's move to clean up the books of its banks saddled with $120 billion of sour loans will be largely unaffected by the decision of central bank chief Raghuram Rajan to step down, say bankers and government officials. As banks struggle with record levels of distressed assets, Rajan had set an ambitious March 2017 deadline for them to fully reveal the problem loans and make adequate provisions. An unprecedented asset quality review of banks ordered by the central bank led to reported bad loans surging more than 70 per cent in the six months to March. Rajan's decision to bow out in September has, however, raised questions on the fate of a clean-up seen as crucial to reviving new lending to support a nascent recovery in Asia's third-largest economy. Bankers and government officials said Rajan's successor may be less aggressive in fighting bad loans, but the general direction will remain the same. "Having worked with eight (RBI) Governors, I have not seen any new incumbent turn an earlier policy, particularly relating to banks, on its head," said G. Padmanabhan, a former executive director at the RBI who currently chairs the board of third-biggest state-run lender, Bank of India. "Second, and more important, this was not a one man decision and had the support of government as well," he said, although there could be some tweaks as the timeline was "aggressive" and banks' capital needs had to be factored in. Shares in top lender State Bank of India have gained about 16 per cent since it reported March-quarter earnings on May 27, on hopes that the worst was behind it in terms of bad loans. The second biggest state-run bank, Bank of Baroda, is up about 12 per cent during that period. Two dozen lenders majority-owned by the Indian government hold the bulk of the soured loans. Deputy finance minister Jayant Sinha said recently it was prudent for the Reserve Bank of India to pursue its asset quality review of the banks, signalling government support for the clean-up. "Investors of course like it. What Rajan and the RBI did was generally good, but I would say they were a bit too harsh," said one senior public sector banker, who still sees no clarity on how bad loans will be resolved. Others agree that the mechanics of resolving the issue still need to be clarified. In the absence of a strong system to buy bad loans from banks, deciding on haircuts and government capital infusion in banks may hobble resolution of the issue, said another senior banker with a state-run bank. Despite this, most remain confident that the RBI has already gone too far to reverse course. A senior policymaker who works closely with Rajan said the bank clean up exercise had been "institutionalised" and was on auto-mode, playing down any impact from Rajan's exit. "He (Rajan) expedited things, but it was on the RBI's agenda," the official said, adding the clean-up was long overdue. (Reuters)

India seen pressing ahead with bank clean-up despite Rajan's exit

Indian markets are set to open lower on Monday after Reserve Bank of India (RBI) governor Raghuram Rajan unexpectedly said he will step down in September, though the central bank is likely to step in to support the Rupee, analysts and traders said. 
 
Traders predicted the Rupee would likely fall by 0.15 to 0.20 Rupees per Dollar at the start of trading, but that the RBI would intervene to prevent excessive volatility. 
 
The Rupee closed at 67.0775/67.0875 per Dollar on Friday. 
 
The 10-year benchmark bond yield was seen rising 3-5 basis points after closing at 7.50 per cent on Friday, while shares were forecast to fall at the open. 
 
Any volatility could be magnified given the surprise news that Rajan would step down after just one three-year term comes ahead of a UK referendum on Thursday about whether to leave the European Union, which has kept global investors on tenterhooks. 
 
Still, analysts said markets would stabilise as investors await word on who will be appointed as the next RBI Governor, with RBI deputy governor Urjit Patel and State Bank of India chair-managing director Arundhati Bhattacharya seen as potential replacements. 
 
&quot;There should be a knee-jerk reaction on the Rupee,&quot; said Ashtosh Raina, head of foreign exchange with HDFC Bank. &quot;Then the market will normalise. I think the government would already be on the job to find a suitable replacement.&quot; 
 
Rajan, a former International Monetary Fund chief economist, has been popular with foreign investors for his efforts to tackle inflation and helping to rescue India from its worst crisis in more than two decades when he took the helm in 2013. 
 
But he has faced mounting criticism from a faction within Indian Prime Minister Narendra Modi&#39;s ruling party for keeping interest rates high and over a perception he had begun to stray into politics. 
 
A senior official at a foreign bank said clients were already starting to call him. 
 
&quot;There are concerns. We have started seeing messages from foreign clients whether politics has taken over central banking. They are asking what&#39;s happening in India,&quot; he said, declining to be identified discussing conversations with clients. 
 
Still, analysts said markets would likely withstand any initial volatility, and expressed confidence the government would come up with an appointment that could gain the confidence of investors. 
 
&quot;The timing is certainly bad,&quot; said Rupa Rege Nitsure, group chief economist with L&amp;T Finance Holdings in Mumbai. 
 
&quot;I have confidence in the credibility of the RBI as a public institution and I&#39;m sure whoever fills in his shoes will be able to shoulder the challenge with the help of RBI &#39;s internal talent and skills.&quot; 
(Reuters)

Reserve Bank of India governor Raghuram Rajan unexpectedly said he will step down in September

Indian markets are set to open lower on Monday after Reserve Bank of India (RBI) governor Raghuram Rajan unexpectedly said he will step down in September, though the central bank is likely to step in to support the Rupee, analysts and traders said. Traders predicted the Rupee would likely fall by 0.15 to 0.20 Rupees per Dollar at the start of trading, but that the RBI would intervene to prevent excessive volatility. The Rupee closed at 67.0775/67.0875 per Dollar on Friday. The 10-year benchmark bond yield was seen rising 3-5 basis points after closing at 7.50 per cent on Friday, while shares were forecast to fall at the open. Any volatility could be magnified given the surprise news that Rajan would step down after just one three-year term comes ahead of a UK referendum on Thursday about whether to leave the European Union, which has kept global investors on tenterhooks. Still, analysts said markets would stabilise as investors await word on who will be appointed as the next RBI Governor, with RBI deputy governor Urjit Patel and State Bank of India chair-managing director Arundhati Bhattacharya seen as potential replacements. "There should be a knee-jerk reaction on the Rupee," said Ashtosh Raina, head of foreign exchange with HDFC Bank. "Then the market will normalise. I think the government would already be on the job to find a suitable replacement." Rajan, a former International Monetary Fund chief economist, has been popular with foreign investors for his efforts to tackle inflation and helping to rescue India from its worst crisis in more than two decades when he took the helm in 2013. But he has faced mounting criticism from a faction within Indian Prime Minister Narendra Modi's ruling party for keeping interest rates high and over a perception he had begun to stray into politics. A senior official at a foreign bank said clients were already starting to call him. "There are concerns. We have started seeing messages from foreign clients whether politics has taken over central banking. They are asking what's happening in India," he said, declining to be identified discussing conversations with clients. Still, analysts said markets would likely withstand any initial volatility, and expressed confidence the government would come up with an appointment that could gain the confidence of investors. "The timing is certainly bad," said Rupa Rege Nitsure, group chief economist with L&T Finance Holdings in Mumbai. "I have confidence in the credibility of the RBI as a public institution and I'm sure whoever fills in his shoes will be able to shoulder the challenge with the help of RBI 's internal talent and skills." (Reuters)

Economist stepping down as Indian central bank governor set to hit markets

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