📃 RBI annual report, Fed’s approach to inflation & Types of loans.

Orowealth Weekend Reads: August 30, 2020

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NEWS WE HAVE BEEN FOLLOWING

#Inflation

The US Federal Reserve Chairman Jerome H. Powell outlined a significant shift in the way the central bank would aim to achieve its twin objectives of price stability and maximum employment. Under the new approach, based on learnings from the most recent economic expansion, the central bank will not raise interest rates even when unemployment drops. It will not worry too much about low interest rates leading to a rise in price levels either. Powell announced this change in approach at the annual economic policy symposium which is usually hosted in Jackson Hole, Wyoming. These assessments were made after a long review of the central bank’s monetary policy. A drop in unemployment leads to a rise in inflation and the Fed usually raises rates at a point when inflation reaches its targeted 2% level. This move helps inflation remain contained instead of undergoing unwanted spikes which would warrant unexpected policy measures. Now, it has opened itself to let inflation rise above that level if more US citizens can continue joining and remaining in the workforce.

Takeaway-
Though the Federal Reserve has modified its approach to monetary policy, it expects overshoots to its targeted price stability level to be moderate and not lasting for a long time.

#RBIAnnualReport

The Reserve Bank of India (RBI), in its Annual Report, said that economic contraction may be prolonged because of stricter lockdown rules being imposed by states.

It further added that it was imperative to withdraw stimulus measures once the cure to Covid-19 is found. Pointing to high-frequency indicators, the central bank noted that the reduction in economic activity was ‘unprecedented in history’. It observed that the recovery that was being witnessed in May and June due to easing of some restrictions lost steam in July and August as stricter rules were put back in place; this is why the economic recovery is thought to stretch over a longer period than otherwise expected. It also observed that the shock to consumption was severe and it would take time to recover to pre-COVID levels.

In terms of fiscal policy, it said that the large debt burden incurred due to the pandemic will drive it. Also, given the demand on public finances, it is quite possible that states cut down on capital expenditure.

On the important matter of bank recapitalization, the central bank favored the same for both public and private sector banks as it expected the deterioration in macroeconomic conditions to negatively impact asset quality, capital adequacy, and profitability of banks.

Takeaway –
In a small positive, the RBI noted that “the crisis presents opportunities and the shape of the future will depend on how well they are exploited.”

FROM OUR BLOG SECTION

Types of Loans In India

There are numerous types of loans available in India. However, most people choose a personal loan over other types in spite of having a variety of assets, which they can mortgage to avail loans at a lower interest rate.

QUOTE OF THE WEEK
“The worst thing that can happen to a good cause is not to be skillfully attacked, but to be ineptly defended.” – Claude-Frédéric Bastiat (a French economist)
Chosen by Abhishek – Orowealth.