Does globalization affect monetary policy? - Pragnya IAS Academy - News Analysis.

Does globalization affect monetary policy?.

Researchers argue that in an open economy, policymakers can simultaneously achieve only two of three key objectives: financial stability, independent national financial policies, and cross-border financial integration

The rapid spread of Covid-19 has predictably stirred fears around greater globalization and created ripple effects on financial markets globally, complicating the task of central bankers and policymakers across the world.
Such risks are par for the course in a globalized world, making it tougher for central banks to maintain financial stability, wrote economists Simone Arrigoni, Roland Beck, Michele Ca’ Zorzi, and Livio Stracca in VoxEu, a research portal run by the Centre of Economic Policy Research (CEPR).

The researchers argue that in an open economy, policymakers can simultaneously achieve only two of three key objectives: financial stability, independent national financial policies, and cross-border financial integration.
This “financial trilemma" means that unless policymakers are prepared to tame globalization, preserving financial stability would require compromising the independence of monetary policy.
The researchers find that both real economy indicators, such as output and physical investments, and financial indicators, such as bank credit and stock prices, tend to move together across countries.
This “co-movement" is much stronger in reality than suggested by economic theory. Given the growing financial linkages in a globalized world, this means that the real sector of different countries are much more intertwined than ever before.
The researchers show that in the high globalization period (post-2003) such cross-country linkages were higher for most economic variables compared to the period of relatively low globalization (pre-2003). Better use of macro-prudential policy tools, such as limits on debt exposure and flexible reserve requirements, can help policymakers combat global headwinds better, the researchers write. (Source: Livemint)


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Does globalization affect monetary policy?.

Forest cover increasing but still lower than 33% target: official - Pragnya IAS Academy - News Analysis.

Forest cover increasing but still lower than 33% target: official.

The country’s forest policy targeted forest and tree cover for over 33% of the total geographical area, the official said

The forest cover in India is increasing, but is still lower than the targeted 33% of the total geographical area under the country’s forest policy, an official said here on Thursday.
Speaking on the sidelines of a regional training programme for institutionalising capacities on climate change, Ministry of Environment, Forest and Climate Change (MoEFCC) Additional Secretary Ravi S. Prasad said as per the India State of Forest Report (ISFR) 2019, the total forest and tree cover in the country is 8,07,276 square kilometres, which is 24.56% of the total geographical area.

He said the country’s forest policy targeted forest and tree cover for over 33% of the total geographical area, but added that it was aspirational.
The Forest Survey of India has been assessing the forest and tree resources of the country on a biennial basis since 1987. The results of the assessment are published in the ISFR.
As per ISFR 2017, the total forest and tree cover was at 24.39%, Mr. Prasad added.
The country’s forest cover is consistently on the rise. In 2017, it had registered an increase of 1% or 8,021 square km over 2015, he said.
Under the recent assessment in 2019, the total carbon stock in the country’s forests is estimated to be close to 7,124.6 million tonnes, which is an increase of 42.6 million tonnes as compared to the assessment in 2017, the official added.
Addressing the training programme, Himachal Environment, Science and Technology Director D.C. Rana said, “Climate change is happening due to human activity. If something concrete is not done, temperature will further increase and global warming will further harm our ecosystem.”
Delegates from nine States and three Union Territories from northern India are taking part in the two-day training programme. (Source: The Hindu)


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Forest cover increasing but still lower than 33% target: official.

RBI cuts repo rate by 25 basis points, changes policy stance to neutral - Pragnya IAS Academy - News Analysis.

RBI cuts repo rate by 25 basis points, changes policy stance to neutral.

The monetary policy committee of the Reserve Bank of India today cut the policy interest rate by 25 basis points to 6.25% in a 4-2 decision. The move could spur banks and non-banking finance companies into reducing their lending rates for consumer and home loans, resulting in lower EMIs for borrowers. In another key move, the central bank changed its stance to ‘neutral’ from the earlier ‘calibrated tightening’.

The RBI policy is a very dovish one and signals further rate cuts. Inflation estimates have been revised very sharply lower by the central bank. The panel cut its estimates for inflation based on consumer prices for the first six months of the next financial year (April-March) to 3.2%-3.4% from 3.8-4.2% earlier, a cut in estimates by as much as 60 basis points. The central bank also lowered its inflation projection for the entire year 2018-19 to 3.9%.
The committee has been more influenced by the persistently low inflation based on retail consumer prices. The MPC is mandated to target headline inflation based on the consumer price index (retail inflation). As per its target for the current period, that is set at 4%. From 4.92% in June, CPI inflation fell to an 18-month low of 2.19% in December, staying below the medium-term target of 4% for five consecutive months.
In cutting the rate, the committee has chosen to ignore high core inflation as well as the government’s unimpressive performance on the fiscal front. According to Union Budget 2019-20 — an expansionary one — the government has slipped on its fiscal deficit target for the second year in a row and the next fiscal year, too, won’t see any consolidation. The 2018-19 number slipped by 10 basis points to 3.4% after revision and is projected to stay the same in the next 12-month period starting April.
Hopefully, the RBI’s move should also help ease the liquidity situation in the market, currently facing the IL&FS imbroglio, debt defaults by other corporates and high NPAs in the banking sector. A banker told Mint that the cost of borrowing for even ‘triple-A’ rated companies had risen to 10.5%-11.0% with home loans being given out at 9% plus and car loans at 10.5%-11.0% to retail consumers. The rate cut should help banks and other lenders bring down those rates.
The central bank also projected an economic growth rate of 7.4% for the next fiscal year, up from 7.2% estimated for the current fiscal year by the Central Statistics Office (CSO). GDP growth is likely to be influenced by growth in bank credit and overall financial flows to commercial sectors, though slowing global demand could play a dampener, according to the RBI document released after the MPC.
In its December policy, the RBI had projected a GDP growth rate of 7.4% for 2018-19 (7.2-7.3% in the second half and 7.5% for the first half of 2019-20) with risks somewhat to the downside.
The CSO has estimated GDP growth at 7.2% for 2018-19. (Source:Livemint)


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RBI cuts repo rate by 25 basis points, changes policy stance to neutral.

RBI’s monetary policy committee cautious on inflation - Pragnya IAS Academy - News Analysis.

RBI’s monetary policy committee cautious on inflation.

The six-member committee unanimously decided to leave rates unchanged at the meeting two weeks ago, while staying optimistic on growth.

India’s monetary policy committee sounded cautious on inflation and preferred to wait for more data to see for how long price pressure and growth momentum would remain soft, according to minutes of its December 5 meeting published on Wednesday.The six-member committee unanimously decided to leave rates unchanged at the meeting two weeks ago, while staying optimistic on growth.
While the Reserve Bank of India (RBI) under the former governor, Urjit Patel, sounded hawkish at the meeting, the panel, under the new chief, Shaktikanta Das, might be more focussed on boosting growth and cutting rates after a recent sharp decline in inflation.
Shaktikanta Das took charge at the RBI last week, two days after Urjit Patel’s resignation.
“While the recent downward surprises to inflation have significantly reduced the extent of policy tightening required in future, they have not eliminated the requirement altogether,” said RBI Deputy Governor Viral Acharya in the minutes.
While noting the recent easing of inflation and growth momentum, the panel members preferred to wait for some more data to determine the interest rate outlook, citing uncertainties over the medium-term outlook on food inflation and oil prices.
However, under Shaktikanta Das, who is in favour of supporting growth, the rhetoric is likely to change given that inflation has eased further this month.
India’s November headline inflation fell to its lowest in 17 months, to 2.33%, well below the RBI’s medium-term target of 4%.
Economists expect inflation to stay muted for the next few months as global crude prices are likely to stay soft and India’s food prices might remain low.
The RBI revised its inflation projections downwards to 2.7-3.2% by March, from 3.9-4.5% two months back, and expects it to stay within 4.2% by September 2019.
One committee member, R Dholakia, known for his dovish attitude, called for a change in stance to “neutral” from “calibrated tightening” as the downside risks to inflation “cannot be overlooked”.
“We should not deny any possibility of either a rate cut or a rate hike in the near future depending on data coming in,” Dholakia said.
India’s growth in July-September slowed to 7.1% from 8.2% in the previous quarter and could soften further as private investment remained low.
A slowdown in global growth with concern over a potential recession in the United States could add to expectations of a rate cut.
Traders will closely monitor a US Federal Reserve statement due later on Wednesday for indications of expectations about rate increases there. (Source:Livemint)


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RBI’s monetary policy committee cautious on inflation.

Cabinet approves Agricultural export policy to double farmers' income by 2022 - Pragnya IAS Academy - News Analysis.

Cabinet approves Agricultural export policy to double farmers' income by 2022.

The Union Cabinet chaired by Prime Minister Narendra Modi has approved the Agriculture Export Policy, 2018 with an aim to double farmers' income by 2022. Exports of agricultural products would play a pivotal role in achieving this goal.

In order to provide an impetus to agricultural exports, the Government has come out with a comprehensive "Agriculture Export Policy" aimed at doubling the agricultural exports and integrating Indian farmers and agricultural products with the global value chains.
The Cabinet has also approved the proposal for the establishment of Monitoring Framework at Centre with Commerce as the nodal Department with representation from various line Ministries/Departments and Agencies and representatives of concerned State Governments, to oversee the implementation of Agriculture Export Policy.
The Agriculture Export Policy has the vision to harness the export potential of Indian agriculture, through suitable policy instruments, to make India global power in agriculture and raise farmers' income.
It aims at doubling the agricultural exports from present USD 30+ Billion to USD 60+ Billion by 2022 and reach USD 100 Billion in the next few years thereafter, with a stable trade policy regime.
It also aims to diversify our export basket, destinations and boost high value and value-added agricultural exports including the focus on perishables and to promote novel, indigenous, organic, ethnic, traditional and non-traditional Agri-products exports.
It also strives to double India's share in world agricultural exports by integrating with global value chain at the earliest and enable farmers to get the benefit of export opportunities in the overseas market. (Source: The Business Standard)


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Cabinet approves Agricultural export policy to double farmers' income by 2022.

Pompeo Forms 'Iran Action Group' for Post-Nuclear Deal Policy - Pragnya IAS Academy - News Academy.

Pompeo Forms 'Iran Action Group' for Post-Nuclear Deal Policy.

Secretary of State Mike Pompeo on Thursday formed a group to coordinate and run U.S. policy toward Iran as the Trump administration moves ahead with efforts to force changes in the Islamic Republic’s behavior after withdrawing from the 2015 Iran nuclear deal.

Accusing Iran of unleashing “a torrent of violence and destabilizing behavior against the United States, our allies, our partners and, indeed, the Iranian people themselves,” Pompeo announced the creation of the Iran Action Group, which he said would drive administration policy in Washington and overseas.
He said the administration remains willing to talk to Iran but that in order to do so “we must see major changes in the regime’s behavior both inside and outside its borders.”
Pompeo named Brian Hook, who is currently the State Department’s director of policy planning, to run the group with the title of special representative for Iran. Hook led the administration’s ultimately unsuccessful attempt to negotiate changes to the nuclear deal with European allies before President Donald Trump decided in May to pull out of the accord.
Since withdrawing, the administration has re-imposed sanctions that were eased under the deal and has steadily ramped up pressure on Iran to try to get it to stop what it describes as “malign activities” in the region. In addition to its nuclear and missile programs, the administration has repeatedly criticized Iran for supporting Syrian President Bashar Assad, Lebanon’s Hezbollah movement, Shiite rebels in Yemen and anti-Israel groups.
It has also in recent weeks stepped up criticism of Iran’s human rights record and is working with other nations to curb their imports of Iranian oil.
The administration is warning Iran’s oil customers that they will face U.S. sanctions in November unless they significantly reduce their imports with an eye on eliminating them entirely. It has also told businesses and governments in Europe that they may also be subject to penalties if they violate, ignore or attempt to subvert the re-imposed U.S. sanctions.
Hook, accusing Iran of being “a force for instability and violence,” said he would also kept the door open to talks but made clear that U.S. efforts to isolate Tehran both economically and diplomatically would not end until its leadership changed policies.
“The burden is on the Iranian regime to change its behavior,” he said.
Critics of the administration’s approach suggested that Hook’s new position was a sign the U.S. was adopting a policy of regime change in Iran, something that Pompeo and other officials have denied. They maintain they only want to see the government change course.
Some critics noted that the creation of the Iran Action Group was announced during the 65th anniversary of the five-day period in 1953 in which former Iranian Prime Minister Mohammad Mosaddegh was overthrown in a U.S.- and British-backed coup.
Hook said the timing was “pure coincidence” and rejected comparisons between the Iran group and an earlier State Department initiative known as the “Future of Iraq Project” that was undertaken when U.S. policy was to promote the downfall of former Iraqi leader Saddam Hussein.
Hook is expected to be replaced as policy planning chief by Kiron Skinner, a foreign policy academic and adviser to several Republican presidential candidates who served on Trump’s national security transition team and very briefly at the State Department after Trump took office, according to officials who were not authorized to publicly discuss personnel matters and spoke on condition of anonymity.


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Pompeo Forms 'Iran Action Group' for Post-Nuclear Deal Policy.