The Hindu Business Line : 2019-06-12

BANKING : 8 : 8


CHENNAI BANKING 8 BusinessLi­ne WEDNESDAY JUNE 12 2019 • • Excess RBI capital must be used to recapitali­se ailing PSBs: BofA-ML WX PRESS TRUST OF INDIA Mumbai, June 11 The Bimal Jalan panel may recommend transferri­ng up to ₹3-lakh crore of excess RBI capital to the government, and the money should be used for recapitali­sing struggling state-run lenders, according to a report. Bimal Jalan panel report The report of the six-member committee on economic capital framework for RBI, headed by former RBI Governor Bimal Jalan, is likely to submit its report this month. Depending on the methodolog­y, the panel will identify ₹1-lakh crore to ₹3-lakh crore, or 0.5-1.5 per cent of GDP as the excess capital, a report by economists at Bank of America Merrill Lynch said on Tuesday. They opined that the high non-performing loans in the system do not require additional capital to be kept aside by the RBI. “We actually welcome the use of excess RBI capital to recapitali­se public sector banks to support economic recovery,” they said, adding that even the RBI Act allows for transfer of the capital, provided the central bank maintains $0.7 million of reserves. The RBI can “monetise networth as the creator of money”, and will not have to resort to selling of G-Secs or forex reserves either, it said. If the excess capital is used for recapitali­sing state-run lenders, it will be neutral from both fiscal deficit and liquidity management perspectiv­es, it said. It also said bank recapitali­sation can indirectly support RBI objectives on liquidity management, where the central bank has been buying back bonds to inject liquidity. Drawing down from the excess capital will not impact ratings, as the ratings depend on the RBI’s forex reserves and not on internal reserves or the networth, it said. Trump renews attacks on Fed for ‘underminin­g’ his policies urged the Fed to cut rates and take additional steps to stimulate economic growth. His latest rebuke comes at a pivotal moment. The Fed has paused its steady march toward higher rates and begun reorientin­g policy toward potential cuts amid slowing growth. Markets now expect the Fed to cut rates within the next two months. Futures pricing suggested that a cut by the end of July is now about 84 per cent priced into markets, up from less than 20 per cent a month ago. But Trump is putting Fed Chairman Jerome H Powell and his colleagues in a difficult spot. The president’s ongoing trade war with China — including his threat to slap tariffs on virtually all remaining Chinese imports if no agreement is reached — is creating uncertaint­y, causing businesses to put off investment and hiring. cheaper to buy and putting the US at a disadvanta­ge. “They devalue their currency,” Trump said. “They have for years. It’s put them at a tremendous competitiv­e advantage, and we don’t have that advantage because we have a Fed that doesn’t lower interest rates. We should be entitled to have a fair playing field, but even without a fair playing field — because our Fed is very, very disruptive to us — even without a fair playing field we are winning.” Before adopting its current cautious stance, the Fed had raised rates nine times since late 2015, with four of those coming after Trump nominated Powell to lead the central bank. It has also been shrinking its large balance sheet of government­backed bonds — which it amassed in the wake of the financial crisis to help prop up the economy — though it is in the process of slowing and stopping drawdown. Trump seemed to blame Fed policy partly on personnel. He has nominated four of the Fed’s five board members in Washington, but boards at the 12 regional central banks select their leaders. In total, 13 of the 17 people sitting around the policy-setting table were not selected by the White House. He said the Fed had not listened to him, and that “they’re not my people”. All four of the Fed governors he selected voted in favour of rate increases last year, including Powell, Richard Clarida, Randal Quarles and Michelle Bowman. The Fed operates independen­tly of the White House by design, so that its officials are free to make decisions that could cause short-term pain but are better for the nation’s longterm economic health. the NEW YORK TIMES June 11 President Donald Trump renewed his criticism of the Federal Reserve, saying the Fed erred in lifting interest rates last year and put the United States at a disadvanta­ge to China. Trump said the Fed “made a big mistake: they raised interest rates far too fast”. The president also seemed to lament that the Fed, which is independen­t of the White House, did not operate like China’s central bank, which is largely subservien­t to the government. “The head of the Fed in China is President Xi,” said Trump, asserting that “he can do whatever he wants”. If it intensifie­s, the economic drag might be enough to prompt Fed rate cuts. But by lowering borrowing costs, the central bank would be giving Trump exactly what he wants, creating a risk that it would look political even though it was acting on economic fundamenta­ls. Economic policies US trade war with China Trump repeatedly attacked the Fed’s decision last year to raise interest rates, accusing it of underminin­g his economic policies and slowing growth. And he has The president has been particular­ly critical of the Fed’s policies in the context of his trade war. Trump has said that China devalues its currency, making its goods

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