Here is today’s important banking news to keep you updated and help you prepare for IBPS and other bank exams:
Important Banking News: Raghuram Rajan Questions New GDP Formula
- Reserve Bank Governor Raghuram Rajan on Thursday said the country needs a better methodology to capture growth measured in terms of gross domestic product (GDP). There is a need for better computation of numbers to avoid overlaps and capture the net gains to the economy, he said.
- “There are problems with the way we count GDP which is why we need to be careful sometimes just talking about growth,” Dr Rajan said.
- The new formula to calculate growth, based on market prices, shows India is the fastest-growing major economy in the world. Critics say the headline growth rates appear strong because of change in statistical methods that seek to capture more evidence of economic activity.
- Other barometers such as bank credit growth, jobs and consumer demand paint a less healthy picture, analysts say.
- Speaking to students at the Indira Gandhi Institute of Development Research, Dr Rajan said, “We have to be a little careful about how we count GDP because sometimes we get growth because of people moving into different areas. It is important that when they move into newer areas, they are doing something which is adding value.
- We do lose some, we gain some and what is the net, let us be careful about how we count that.”
- There are many suggestions from various quarters on the ways to calculate GDP in a better way and we should take those seriously, Dr Rajan noted.
- According to the new GDP methodology, the economy is growing at slower pace in nominal terms than in real terms for the first time. In the September quarter, the real GDP clipped at 7.4 per cent, while the nominal GDP grew much lower at 6 per cent.
Important Banking News: Citigroup Sees RBI Maintaining Status Quo on Rates on February 2
- RBI is likely to keep key policy rates unchanged until the Budget on February 29 and go for a 25-basis point easing in March/April this year, says a Citigroup report.
- According to the global financial services major, the Reserve Bank of India is expected to maintain an accommodative stance.
- “Considering the near-term risks on CPI inflation and the uncertainties around FY17 budget, we expect the RBI to leave rates unchanged until the Budget on February 29th,” Citigroup said in a research note on Thursday.
- Citigroup believes a 25-bp easing is likely in March/ April this year.
- “As regards timing, we think RBI could ease right after the Budget, potentially in March itself. We also note that the banking system will move to a new marginal cost-based lending rate regime from April 1st (for better transmission) which could influence timing as well,” the report noted.
- The near term risks to Consumer Price Index (CPI) include sustained rise in food prices (pulses, edible oil, sugar), and also the torrential flooding in southern states in November-December.
- Furthermore, the impending wage hikes from 7th pay commission could add around 50 bps to headline CPI-based inflation in early 2016-17, the global brokerage firm said.
- According to Citigroup, CPI inflation could briefly exceed RBI’s target range in the near term. In addition, there are uncertainties around the fiscal deficit roadmap in the upcoming FY17 budget on account of 7th pay commission implementation, which would entail additional revenue expenditure of around 0.5 per cent of GDP.
- RBI’s next bi-monthly policy review is on February 2.