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23 August 2024 at 9:59:04 pm

Rate Pivot

The Reserve Bank of India has decided that cheap money has had its run. By raising the repo rate by 25 basis points to 5.50 percent, the Monetary Policy Committee has changed the economic mood. This rate hike in nearly four years marks a consequential shift in India’s economic calculus, from nurturing growth to guarding against inflation. The RBI’s dilemma is unusually revealing. India is growing at a pace that allows the central bank to tighten without fearing an immediate recession. The RBI...

Rate Pivot

The Reserve Bank of India has decided that cheap money has had its run. By raising the repo rate by 25 basis points to 5.50 percent, the Monetary Policy Committee has changed the economic mood. This rate hike in nearly four years marks a consequential shift in India’s economic calculus, from nurturing growth to guarding against inflation. The RBI’s dilemma is unusually revealing. India is growing at a pace that allows the central bank to tighten without fearing an immediate recession. The RBI has raised its FY27 growth forecast to 7.1 percent, while simultaneously lifting its inflation projection to 5.2 percent. For borrowers, the immediate effect will be incremental rather than dramatic. Floating-rate home loans, vehicle loans and corporate credit will become somewhat more expensive as the increase filters through the banking system. The more important change is psychological. Households and businesses can no longer assume that the next policy move will make borrowing cheaper. Monetary policy works partly through expectations. When consumers believe rates will keep falling, they refinance debt and bring forward investment. When the direction reverses, the calculations change. A quarter-point increase today can therefore have effects larger than the quarter point itself. The other side of the equation is the depositor. Years of relatively low rates have been a peculiar tax on conservative savers, particularly households dependent on fixed-income returns. A tightening cycle should eventually improve the returns available on deposits and other interest-bearing instruments. This is one of the less celebrated consequences of higher rates. The monetary transmission mechanism does not merely redistribute money between borrowers and lenders; it redistributes purchasing power between different kinds of households. Equity investors face a different calculation. Higher rates increase the discount applied to future earnings and can expose valuations that were sustained partly by abundant liquidity. Debt markets will likewise have to price the possibility that the RBI’s tightening is not a one-off gesture. For companies, the message is even plainer: capital is no longer getting progressively cheaper. Investment decisions will once again have to clear a higher hurdle. Higher crude prices are particularly uncomfortable for India, given its dependence on imported oil. Once higher prices begin influencing wages, expectations and business pricing, an apparently transient shock can become embedded. The RBI has an unenviable task to keep inflation expectations anchored without tightening so aggressively that it suffocates investment and consumption. The repo rate hike is thus a declaration that the RBI is no longer willing to assume that inflation will behave itself. For households, businesses and markets, that is the real change. The era of treating cheaper money as the natural direction of travel has ended. Whatever comes next, the easy assumption that the RBI will always be there to lower the price of money has now been shattered.

Knives out in legislature

Writer: Abhijit Mulye
Abhijit Mulye
Mar 20, 2025
3 min read

Updated: Mar 21, 2025

Disha Salian

Mumbai: Death of celebrity manager Disha Salian in 2020 once again rocked the Maharashtra legislature on Thursday. While cabinet ministers Nitesh Rane and Shambhuraj Desai demanded that Shiv Sena (UBT) leader Aditya Thackeray be arrested in the case, BJP MLA Amit Satam in the assembly and another BJP member Chitra Wagh in the council demanded that the report of SIT to probe Salian’s death be made public.


Incidentally, amidst repeated disruptions in both the houses, some members from the treasury benches were seen speaking in favour of Aditya Thackeray, while Shiv Sena (UBT) members like Adv Anil Parab were seen supporting the BJP members’ demand that the report of the SIT probe be made public. In addition, there were allegations and counter allegations and personal accusations among members from the treasury and opposition benches which led to heated debate on occasions.


The opposition termed the attempts from the treasury benches to link Shiv Sena (UBT) leader Aditya Thackeray’s name in the case, as a ‘conspiracy’.


“I think this matter has gone to the court. We have no idea what he (Disha’s father) has said, but Aaditya Thackeray is a mature leader, a young leader. The Bharatiya Janata Party is conspiring to defame him by putting pressure on him. We don’t need to answer to this conspiracy. The court will answer,” Ambadas Danve said.


Earlier in the day, when the house gathered for the business, Minister of State for Home appraised the assembly of the status in this case. “SIT has been formed to probe in the case. Their report has not been received as yet. However, the government shall act according to directives from the court,” the minister told the house.


Another BJP minister Nitesh Rane, however, said that since Satish Salian has levelled allegations against an MVA minister, that leader be treated like a common person and that everybody should be treated equally before the law. Shiv Sena minister Shambhuraj Desai too supported the demand. “Since the allegations are grave, the person in question should be immediately arrested and the case be investigated,” he said.


Later, while speaking to media in the legislature premises, Rane asked Uddhav Thackeray to come clean on the issue. “If they say that we are politicizing the issue, Uddhav Thackeray should also tell the people why he had called, not just once but twice, to the then union minister Narayan Rane urging him to save his son?” Rane said.


He also accused the opposition of shying away from coming clean on the issue. “If they feel that we are not telling the truth, they should say so in the house. But they are shying away from doing so. Bhaskar Jadhav, who is always aggressive, was nowhere to be seen when this issue came up in the house. Sunil Prabhu too escaped the house under the pretext of a phone call. I challenge them to say that whatever I said on the issue is wrong,” Rane said.


He also said that Aditya Thackeray should resign on moral grounds till his name is cleared in the case.


BJP MLA Amit Satam demanded that the details of the SIT probe be made public so that the people would know if the probe is headed in right direction.


Interestingly, while the ruling parties were targeting the opposition in the case, senior BJP leader Sudhir Mungantiwar surprised all with his unexpected support to Thackerays. “I do not have any evidences in the case. But if her father has made any fresh allegations that needs to be investigated thoroughly. The assembly can discuss the issue at length tomorrow. In the meanwhile, members like Rane, who seem to have some evidences in the case should hand them over to the investigating agencies and help the probe,” he told the house.


Shiv Sena’s Sanjay Gaikwad and Sheetal Mhatre too toed the line and demanded that more and more evidences should come forth.


Similarly, when members of treasury benches were pushing for revealing the details of the probe till date to the public, Shiv Sena (UBT) member Anil Parab supported the demand. “Doing that shall conclusively prove the innocence of Aditya Thackeray,” he said.

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