Monetary policy needs a relook
Apropos the Editorial ‘Walking the tight rope’ (June 9), RBI has been doing its best to contain the inflation and inflationary expectations without losing track of growth revival by being pragmatic and realistic.
Inflation cannot be controlled by monetary measures alone. It requires more administrative measures and a non-traditional approach as the demand induced inflation comes from people perhaps having sources of income other than known and declared sources. Further, even the fast digitisation of the economy may have influenced the surge in demand causing perhaps the demand induced inflation.
A highly coordinated fiscal policy with adequately supported administrative policies can be more useful in taming inflation. Since the present inflation seems to be man made it would be more appropriate to combine some non-traditional methods with the traditional methods to curb rising prices.
With reference to the Editorial ‘Walking the tight rope’ (June 9), deposits form a major chunk of bank liabilities while they earn interest income from the loans they extend. The pricing of the various deposit products of different tenures needs to be reasonably above the inflation rate. The asset-liability management being supervised by the Asset-Liability Committee (ALCO) and is responsible for mitigating interest and liquidity risks must not lag the transmission of the hike in the repo rate to the depositors, particularly at a time when the rate of inflation is above the rates on deposits.
Lenders also need to deploy the hard-earned money of the depositors with utmost care to ensure that the assets created generate income. This is crucial to instil confidence among the depositors, besides sustaining the financial soundness and credibility of the lenders.
The present repo hike will make funds dearer and therefore an upward revision of repo-linked lending rates needs to be accompanied by an increase in deposit rates.
Staving off the galloping prices of commodities, and essential goods are central to shoring up the value of the currency besides attracting the inflow of capital. Therefore financial intermediaries must pass the repo hike to depositors as well as to the borrowers.
Change in mindset vital
Apropos ‘FM launching EASE 5.0 reforms common agenda for Public Sector Banks’ (June, 9), despite all talk of ‘customer centricity’, digital banking and the interlinking of branches, the mindset of the staff is still geared towards branch banking.
If a customer having account in one branch walks into another, to operate the account, he inevitably faces ‘sullenness across the counter’.
This mindset change needs to percolate down from the top, besides providing the staff focused training.
PSBs also need to upgrade their IT infrastructure, so that their customers are not inconvinienced. While the PSBs may be hampered when it comes to opening branches in prime locations and having to cater to mass banking, unlike the private banks, nothing prevents the employees from keeping their own seats and surroundings clean.
Arithmetic of MSP vs Inflation
Apropos ‘Govt hikes MSP of Kharif crops by 4-9%: Farmers not happy’ (June 9), with the last two years hitting the economy hard, covering the majority of sectors, the major challenge that any government faces is to strike a balance between inflation and price rise, vis-à-vis MSP. There cannot be a lopsided approach since both the farmers as well as the consumers deserve unbiased treatment from the policy makers.
Moreover MSP hike is a gradual process and a drastic hike can distort the market. Farmers must adopt the basic practice of reducing input costs which helps them produce crops with an enhanced margin by adopting GAP where cost of manuring and labour forms the majority of production cost.
In short inflation vs price fixation is a pure act of arithmetic.
Halekere Village (Karnataka)