Latest News Today – Vaccination Push Has Brightened Near-Term Prospects Of


Aggressive vaccination push has brightened near term economic prospects, RBI has said

The near-term prospects for the Indian economy have brightened with the tapering of the second wave as well as aggressive vaccination push, is what the Reserve Bank of India (RBI) has observed in its monthly bulletin for July 2021, while commenting on the overall state of the economy.

At the same time though, it has noted that a substantial increase in aggregate demand has not happened, even though various high frequency indicators have shown a recovery.

On the other hand, the central bank’s bulletin said that agricultural conditions are favourable with monsoon’s revival, however the second wave has adversely impacted the revival of manufacturing and services sectors.

“A pick-up in inflation is driven largely by adverse supply shocks and sector-specific demand-supply mismatches caused by the pandemic,” the bulletin said.

These factors should ease over the year as supply side measures take effect, it noted.

Monetary policy transmission in the country is the second key area under focus in RBI’s bulletin, where it has said that transmission of policy repo rate changes to deposit and lending rates of scheduled commercial banks (SCBs) has improved substantially since the introduction of external benchmark linked lending rate (EBLR) regime in October 2019.

“Data collected from banks suggest that the share of outstanding loans linked to external benchmark in total floating rate loans has increased from as low as 2.4 per cent during September 2019 to 28.5 per cent by the end of 2020-21,” it said.

The third main focus of RBI bulletin is on the pharmaceutical exports, where it has observed that the Indian pharmaceutical industry is currently heavily dependent on its imports of active pharmaceutical ingredients (APIs), especially from China, despite having domestic research and development (R&D) potential through various channels such as joint ventures and domestic capacity improvements.

It has suggested that timely diversification of imports of raw materials and a long-term approach towards R&D is required for elevating the sector’s global position.



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Latest News Today – Banks’ Buffers Strong Enough To Withstand Future Shocks,


RBI said that banks have strong enough capital and liquidity buffers to withstand future shocks

Banks have strong enough capital and liquidity buffers to withstand future shocks as the impact of the pandemic on their balance sheets has not been as severe as projected earlier, a report from the Reserve Bank of India (RBI) said.

The Financial Stability Report is published bi-annually by the RBI on behalf of the Financial Stability and Development Council, an umbrella group of regulators which gives an overview of the health of India’s financial system.

The report said banks’ gross non-performing assets could rise to 9.8 per cent of total assets by March 2022 from around 7.48 per cent as of the end of March this year under a baseline scenario and to 11.22 per cent under a severe stress scenario.

The projections are much less pessimistic than the report released in January, in which the RBI had said that bad loans could double in a severely stressed scenario.

“Capital and liquidity buffers are reasonably resilient to withstand future shocks, as the stress tests presented in this report demonstrate,” RBI Governor Shaktikanta Das, wrote in the foreword to the report.

He also said there are new risks which have emerged on the horizon, including potential future waves of the coronavirus pandemic, international commodity prices and inflationary pressures and rising instances of data breaches and cyber attacks.

The report showed that Indian banks, which have been carrying a significant bad loan burden for several years, managed to bring down bad loans to 7.5 per cent in March 2021, compared with 8.5 per cent in March 2020 despite the pandemic-led challenges.

“Unprecedented policy support has contained the impairment of balance sheets of banks in India despite the dent in economic activity brought on by waves of the pandemic,” the report said. Lenders also have sufficient capital even under a stress scenario, it stated.

The RBI did also say that downside risks remained, especially from loans given to small and medium enterprises. Subdued loan growth can also adversely impact net interest income levels of banks, it added.



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Latest News Today – Covid Second Wave Has Hit Domestic Demand, Says RBI


RBI has noted that second wave of pandemic has hit domestic demand the most

The Reserve Bank of India (RBI) has observed that the Indian economy continues to wrestle with the second wave of Coronavirus pandemic even though cautious optimism is returning. It has assessed that the second wave has basically hit domestic demand hard.

In its monthly bulletin for June 2021, the central bank has focussed on the overall state of the economy, India’s sovereign yield curve and the fiscal framework of the country, in the form of three articles.

Commenting on the state of the economy, the central bank has said that while the second wave has hit domestic demand, on the brighter side, several aspects of aggregate supply conditions – agriculture and contactless services are holding up, while industrial production and exports have surged compared to last year amidst pandemic protocols.

“Going forward, the speed and scale of vaccination will shape the path of recovery. The economy has the resilience and the fundamentals to bounce back from the pandemic and unshackle itself from pre-existing cyclical and structural hindrances,” it said.

In the macroeconomic view of India’s sovereign yield curve, RBI found that the level of the yield curve has undergone a downward shift from the second quarter of 2019, reflecting the ultra-accommodative stance of monetary policy.

On the fiscal framework and quality of expenditure in India, the RBI noted in its study that the Coronavirus pandemic necessitated an overwhelming fiscal response from governments across the world.

“As India unwinds the fiscal stimulus and embarks on the path of fiscal adjustment, it is necessary to emphasise on ‘how’ over ‘how much’. This article proposes a few quantifiable indicators, i.e. ratios of revenue expenditure to capital outlay and revenue deficit to gross fiscal deficit along with threshold levels for them, that can be suitably blended into the fiscal fabric for a sustainable growth trajectory,” the RBI bulletin has noted.



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