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Thesis代写Liquidity and Exchange Rate Management

发布于2020-09-22 作者:留学写作网 阅读:
Liquidity and Exchange Rate Management (2007-08)

The predominant issue that continues to confront the RBI in 2007-08 has been the steady increase of forex flows. These large and volatile inflows have resulted in rapid appreciation of rupee—almost by 12% against the dollar along with high interest rate in the economy.

1. The first phase of rupee appreciation--due to RBI stepping back from market: Active intervention by RBI in the forex market prevented the rupee from strengthening fully in response to the dollar global weakness. Indeed, increase in foreign currency reserves by USD 86 bn between 2004 to March 2007 indicates the scale of intervention. However the obvious consequence of this was an increase in money supply and inflation. Inflation as measured by WPI ran as high as 6-6.8% from January to April 2007 while M3 continued to hover above RBI’s comfort zone. Concerns over rising inflation ultimately forced RBI to step away from the forex market in April 2007. As a result rupee appreciated at a rapid pace between April and May approximately by 10%. Besides impacting the pace of appreciation, the decision to step away from the market led to change in expectation for rupee. The market expected the currency to move in only in one direction namely appreciate, appreciate and appreciate.

Was RBI’s decision to step away from the market correct? I think the decision need to be viewed in the backdrop of high inflation rates prevailing in the beginning of the year. While a stronger rupee can have a negative impact on export growth, but a sustained up move in inflation could have triggered an increase in inputs costs for exports and would have ultimately made the exports non competitive despite a stable exchange rate. Though it cannot be contested that if RBI had allowed appreciation on a gradual basis over a period of time instead of side stepping for a complete month, the pain would have been much less. This would have enabled companies to adjust their costing and expectations on a continuous basis, rather than having to deal with it in one fell swoop.

Perhaps this is a classical “Dutch Disease” situation where non-tradeables become over-priced and erode the competitiveness of the economy in the tradeable sector. Which emphasize the “need” to restrain these capital flows and enhanced the absorptive capacity in the economy.

However to summarize, the first phase of appreciation was caused by RBI’s action or to say inaction in the forex market-- an exogenous factor rather than a market force say increase in inflows.

2. The second phase of rupee appreciation: Rupee was once again under strong appreciation pressure as Fed cut it’s rate by half-percentage point to 4.75% on Sept 18, 2007, followed by a quarter percentage point cut to 4.5% on Oct 31, 2007. The reason for the Fed’s decision was fears of recession following the sub-prime credit crisis. Impressive growth rates and appreciating rupee resulted in large inflows especially portfolio investment. As the move was driven more by market exuberance rather than any change in fundamentals, RBI intervened aggressively to protect the pace if not the level of rupee. The extent of RBI’s dollar purchases is reflected in the USD 3.7 bn increase in its foreign exchange reserves during the week ended Sept 21. Besides direct market intervention, RBI also liberalized overseas investment norms for Indian companies and mutual funds raised the prepayment limit for ECB’s and doubled the foreign remittance limit for individuals. Modifications were also introduced on participatory notes to make investment flows transparent apart from easing of FII registration norms with SEBI. For ECB the amount that could be brought in was capped at USD 20mn per corporate per year. The consequence of this active intervention was that rupee has stayed ranged despite strong inflows.

This second phase of rupee appreciation has pushed liquidity management as a top priority: In order to ensure that the intervention does not erase the success gained in terms of control in inflation and non-food credit growth, RBI continued with the simultaneous sterlisation policy. Basically combination of three tools has been used: (i) Absorption of liquidity through its reverse repo window at a cost of 6%. (ii) Raising CRR, which is currently at 7.5% (iii) Issuance of MSS bonds to manage the issue of injected liquidity. Though there were associated costs with these sterilization tools (refer note 1 below for more details), RBI continued with it for the above-mentioned reasons as well as to manage export competitiveness. Withdrawal of the ceiling on daily reverse repos under the LAF in August and hike in CRR by 50 basis points in August to 7% and again in November to 7.5% helped absorbing excess liquidity during this period. Also ceiling for outstanding MSS bonds was raised to Rs. 2,50,000 cr on November 7, 2007 in a phased manner.

3. Going Forward - Will the rupee continue to appreciate in 2008 also?

A look at inflows from supply and demand perspective in 2008:

Supply side - Will the inflows continue to come in the system at the same pace?

Most probably not, as the biggest chunk of inflows, which was pumped in by FII’s—aggregated to USD 26.8 bn during April 2007- January 11, 2008 was due of market exuberance rather than fundamental change. Therefore we can expect these flows to resume to normal levels. Infact there have been significant outflow of funds on account of FII’s aggregating to USD 3.2 bn since January 10, 2008 despite Fed cutting it’s rate to 3%. Rapid escalation of risk aversion could be a possible reason for such outflows.

Whereas ECB’s, another important source of inflows--amounted to USD 10.6 bn from April-September 2007-08, can also slow in future because of the global credit squeeze, which could be around USD 2 trillion because of sub prime crises.

Demand side—Active market intervention: RBI has continued to say that it will intervene, as India is a developing economy, with inflexible mechanism, therefore steps are needed to smoothen out volatility. However the challenges of intervention and management of expectations will be particularly daunting in case of financial contagion, because such events are characterised by suddenness, high speed and large magnitudes of unexpected flows, in either direction.

RBI sterlisation policy: Since inflation remains a concern, RBI will continue to sterlise these interventions. Currently the level of current account deficit is lower than the amount of capital inflows. Therefore the enlargement of absorptive capacity would be an appropriate approach, but only up to the limit of sustainable levels which is achievable over the medium term under normal circumstances.

There has also been growing concern about the use of appropriate mix of instruments for sterlisation. The LAF is used for very short period flows. The MSS handles the longer-term flows slightly better than the LAF, and the CRR is more appropriate for addressing fairly longer-term flows. However effectiveness of the MSS depends more on the initiatives of the market participants than on the decisions of the RBI.

Growing global uncertainties: There are worries about global slowdown impacting both our exports as well as capital flows. With the external sector now accounting for almost 40% of GDP, we cannot be fully immune to international developments. Therefore we need to redouble our efforts to maintain the domestic drivers of growth and ensure that policy facilitates even faster growth. However considerable sluggishness in the domestic industrial sector is a cause of concern. IIP in November declined to 5.3%, against 15.8% in the same month last year, which is lowest since October 2006. Although the cumulative growth for the period April-November 2007-08 was at 9.2% over the corresponding period of the pervious year. Consumer demand has taken a hit due to high interest rates while investment demand continues to be strong, as indicated by 11.2% growth in the machinery and equipment sector and 24.5% growth in capital goods production over 29.4 % a year ago.

Fiscal actions to be export competitive? Capital account openness is beneficial when it is appropriately teamed with other policies--monetary and fiscal. RBI will continue to use MSS, CRR and LAF to manage the challenges of monetary policy. However there are suggestions to use fiscal policy, as the main tool for countering appreciation of the currency. Which requires raising taxes and cutting public spending to control currency appreciation. This is politically challenging, but it is a necessary corollary of the decision to free capital flows.

Possibility of outflows liberalization: It is sometimes, suggested that encouraging outflows would be a good solution to manage surging inflows, because they help reducing the pressures on currency and inflation. However, liberalising outflows may not be of great help in the short run because a greater liberalised regime generally attracts more inflows, as also seen in second phase of rupee appreciation. However recourse to some encouragement to outflows such as the liberalisation of overseas investment by our corporates in the real sector is helpful, though it has to be combined with other measures to manage the flows depending on their intensity.

Possibility of more restriction on inflows if pace again become strong: An inescapable consequence of growth is greater capital inflows. The cautious approach to opening the capital account followed thus far as a conscious act of policy has given the government some leeway in limiting inflows of certain categories. However in order to control these flows it is important to recognise the relative attractiveness of different types of flows. In this regard FDI is the most preferred form of flow since it comes packaged with technological and organisational know-how. These benefits may be true of equity but not true of debt finance. But unlike most FDI, inflows through FII’s are inflationary. Investments in Indian firms through the stock market and by venture capital funds in unlisted companies are also potentially beneficial. While ECB’s and other short-term flows are areas where one can introduce an element of control to moderate sudden surges, as has been done in second phase of rupee appreciation.

Does this mean that no further rupee appreciation? Not really. RBI will continue to intervene to arrest any fast pace of appreciation. Hence will allow rupee to appreciate at a gradual level.

*Note 1: Issuance of MSS bonds has a fiscal cost as government has to pay interest on bonds. This represents an opportunity cost, since the same funds could have been used for development purpose. RBI bears the cost when it sucks out liquidity through its reverse repo window while the banking system bears the cost when CRR is raised. Also sustained absorption of liquidity through any or combination of the above measures sooner or later gets reflected in higher interest costs for borrowers, which adversely affect the growth in investments and consumption. Beside the direct fiscal cost mentioned above, there is the indirect cost to the economy of allowing ECB’s by companies at much higher interest rates than what the RBI receives for its reserves held as safe assets abroad.

流动资金及汇率管理(2007-08 )

在2007-08年度继续面对打点的主要问题,一直稳步增长,外汇流入。这些大震荡流入12% ,兑美元快速升值导致卢比,几乎伴随着高利率经济。
1。卢比升值的第一阶段 - 由于打点退一步从市场:加强全面响应全球疲软的美元在外汇市场积极干预打点阻止卢比。事实上,外汇储备增加86亿美元,从2004年至2007年3月表示干预的规模。然而,这明显的后果是增加货币供应量和通货膨胀。 WPI作为衡量通货膨胀跑高达6-6.8 % ,从1月到2007年4月,而M3的持续徘徊以上打点的舒适区。通胀上升的担忧最终迫使打点一步之遥,从2007年4月在外汇市场。如因卢比升值以迅猛的速度在四月和五月约10 % 。除了影响人民币的升值速度,决定远离市场导致改变期望卢比。市场预期的货币,只在一个方向移动,即欣赏,欣赏和赞赏。
打点一步之遥从市场正确的决定?我觉得需要被视为在高通胀的背景下,现行年初决定。虽然卢比升值,出口增长有负面影响,但持续的举动可能引发通胀的投入增加出口成本,并最终将非出口的竞争力,尽管汇率稳定。虽然它可以是不可争议的,如果打点允许一个渐进的基础上升值一段时间,而不是一个完整的一个月侧加强,痛苦的人会少得多。这将有调整使公司的成本核算和期望,连续的基础上,而不是来对付它一举。
也许,这是一个经典的“荷兰病”的情况下,非贸易成为超过定价和流通部门,削弱经济竞争力。强调“需要”来约束这些资本流动和经济的吸收能力增强。
然而,要总结,第一阶段升值通过打点的行动引起的或说在外汇市场上的无所作为 - 一个外生因素,而不是市场力量说,资金流入增加。
2。在第二阶段,卢比升值:卢比是再次强大的升值压力下作为美联储削减它的速率由0.5个百分点至4.75%年9月18 ,二零零七年,随后一个季度百分比点削减至4.5 %, 2007年10月31日。美联储的决定的原因是次级信贷危机后经济衰退的担忧。令人印象深刻的增长率和卢比升值导致的大量流入,尤其是投资组合。作为移动市场的繁荣,而不是任何基本面变化带动更多的,打点干预,积极保护的步伐,如果不是水平卢比。打点的美元购买的程度是体现在美元在其外汇储备截至9月21日的一周内增加3.7亿。除了直接的市场干预,打点也放开了印度公司和共同基金的海外投资规范提出提前还款的限制,欧洲央行的一倍为个人外汇汇款限额。修改参与票据还引入了使投资流动透明的,除了放宽外国机构投资者在SEBI​​注册规范。对于欧洲央行可能带来的金额上限为每个企业每年2,000万美元。这种积极干预的后果是,卢比不等,尽管一直保持强劲的资本流入。
卢比升值的第二阶段推流动性管理作为重中之重:为了确保干预不会删除在控制通胀和非食品信贷增长方面取得的成功,继续打点的同时sterlisation政策。组合基本上已经使用三种工具:(一)吸收流动性通过其反向回购窗口在6%的成本。 (二)提高档案室,这是目前在7.5 % (三)发行, MSS债券注入流动性管理问题。虽然有这些消毒工具的相关费用(请参阅下文附注1更多的细节) ,继续打点上述理由,以及管理的出口竞争力。提款8月每日反向回购协议下的LAF的天花板上,并在8月至7%和11月7.5%的50个基点,加息在CRR帮助吸收多余的流动性,在此期间。优秀MSS债券上限提高卢比。 2,50,000 CR分阶段在2007年11月7日。
3。展望未来 - 卢比,在2008年也继续升值吗?
从供给和需求的角度来看,2008年流入一看:
供应方 - 流入系统中以同样的速度继续来?
最有可能,最大的一块流入,被抽中的FII's汇总至26.8亿美元在2007年4月 - 1月11日, 2008年由于市场的繁荣,而不是根本性的变化。因此,我们可以预期这些流量恢复到正常水平。逸岸已经有显着的资金流出考虑外国机构投资者的合3.2亿美元,自2008年1月10日,尽管美联储削减它的速率为3% 。快速升级的风险厌恶可能是这种外流的一个可能的原因。
而欧洲央行的资金流入的另一个重要来源 - 2007-08 9月达10.6亿美元,也可以在未来放缓,因为全球信贷紧缩,这可能是因为次贷危机的2万亿美元左右。
需求侧活跃市场干预:打点继续说,它会介入,印度是一个发展中的经济体系,机制不灵活,因此需要采取措施理顺波动。然而,预期干预和管理的挑战将是在金融危机蔓延的情况下尤为艰巨,因为这类事件的特点是突发性,高速和大意想不到的流量大小,在任何一个方向。
打点sterlisation政策:由于通胀仍令人担忧, RBI将继续这些干预, sterlise 。目前经常帐赤字水平低于资本流入量。因此吸收能力的扩大将是一个合适的方法,但在正常情况下,在中期实现可持续的水平,这是到了极限。
同时也出现了适当的手段组合使用sterlisation的日益关注。用于流动资金调节机制很短时间内流动。 MSS处理长期流动略优于LAF ,和相当长期流动,档案室是比较合适的。然而, MSS的有效性取决于市场参与者的积极性比打点的决定。
不断增长的全球不确定性:全球经济放缓的担心影响我们的出口以及资本流动。随着现在对外部门占国内生产总值的近40% ,我们不能完全免疫的国际发展。因此,我们需要加倍努力,以维持国内的增长驱动力,并确保该政策有利于更快的增长。然而相当低迷的国内工业部门是一个值得关注的问题。国际投资头寸在11月下降至5.3% ,对去年同月,这是2006年10月以来的最低水平15.8% 。虽然2007-08年4月-11月期间累计增长的上一年度同期为9.2% 。消费需求已经受到了冲击,由于高利率,而投资需求继续保持强劲,增长11.2% ,机械设备板块和资本货物生产增长24.5% ,超过去年同期的29.4% 。
财政行动是出口竞争力?资本账户的开放是有益的,当它被适当地与其他政策 - 货币政策和财政合作。 RBI将继续使用MSS ,档案室和LAF管理货币政策的挑战。然而,有建议,运用财政政策,为对付货币升值的主要工具。这需要提高税收和削减公共开支,以控制货币升值。这是政治上具有挑战性的,但它是一个资本自由流动的决定的必然结果。
流出自由化的可能性:有时,建议,鼓励流出,将是一个很好的解决方案来管理汹涌的流入,因为它们有助于减少货币和通货膨胀的压力。但是,流出的自由化可能不会在短期内有很大的帮助,因为更大的自由化一般吸引更多的资金流入,也看到了卢比升值的第二阶段。然而,诉诸一些鼓励我们的企业债券的海外投资自由化的实体经济部门,如流出是很有帮助的,虽然它必须结合其他措施,以管理流动取决于其强度。
对资本流入的限制,如果步伐再次变得强大:经济增长的一个不可避免的后果的可能性是更大的资本流入。开放资本账户的审慎做法沿袭迄今,作为一种自觉行为的政策已经给政府限制某些类别的流入一些余地。不过,为了控制这些流量,重要的是要认识到不同类型的流量的相对吸引力。在这方面,外国直接投资流量,因为它涉及包装技术和组织诀窍是最喜欢的形式。这些利益可能是真正的股票,但不是真正的债务融资。但不像大多数外国直接投资,通过外国机构投资者的资金流入是通胀。印度企业通过股市和风险资本基金投资于非上市公司也可能有利。虽然欧洲央行和其他短期资本流动是其中一个可以控制的要素引入到中度突然上涨,卢比升值的第二阶段已经完成。
这是否意味着没有进一步卢比升值?真的没有。印度储备银行将继续进行干预,以制止任何快速的升值步伐。因此将允许卢比升值一个渐进的水平。
*注1 : MSS债券的发行有财政成本作为政府支付的债券利息。这代表一种机会成本,因为同样的资金可能已被用于发展的目的。 RBI承担的成本时,它吸出通过其反向回购窗口的流动性,而银行体系承担CRR时的成本提高。也持续吸收或通过任何上述措施相结合的流动性迟早会反映在更高的利息成本的借款人,在投资和消费的增长产生不利影响的。除了上面提到的直接财政成本,是对经济的间接成本,允许欧洲央行的企业更高的利率比什么打点接收国外作为安全资产持有其储量。
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