Reports

163 kb
Date : 21 Jan 2014
Appendix Tables

Appendix Table II.1: Nominal Anchors – Pros and Cons

Anchor

Advantages

Disadvantages

Monetary targeting

Some monetary aggregates can be quickly and easily controlled by the central bank.

Monetary aggregates can be accurately measured (with short lags).

Increases the transparency of monetary policy, thereby avoiding the time- inconsistency trap.

Depends on a well-defined and stable relationship between monetary aggregates and nominal income. With financial innovations, this stability often breaks down.

Greater stress on making policy transparent (clear, simple and understandable) and on regular communication with the public may undermine credibility in the face deviations.

Nominal income targeting

It could be superior to monetary targeting, since it avoids the problem of velocity shocks and time inconsistency.

Allows a country to maintain independent monetary policy.

Compels a central bank to announce a potential GDP growth number, over which it has limited control.

Concept of nominal GDP is not clearly understood by the public, lowering transparency.

Could engender time inconsistency if the central bank announces too low or too high a number, which subsequently is found to be different from the announced one.

Exchange rate targeting

The nominal anchor of the exchange rate fixes the inflation rate for internationally traded goods and thus, contributes directly to keeping inflation in check.

If the exchange rate target is credible, it anchors inflation expectations to the inflation rate in the anchor country to whose currency it is pegged.

Has the advantage of simplicity and clarity; well understood by the public.

The central bank has limited control over its monetary policy.

The country becomes vulnerable to shocks emanating from the country to which its currency is pegged.

Speculative attacks on the exchange rate might force the central bank to substantially raise its interest rates, with significant economic costs.

Inflation targeting

Preserves independence of monetary policy.

Provides a nominal anchor for the path of price level.

Clear and simple; hence, well-understood by the public.

Transparency increases the potential for promoting low inflation expectations, which helps to produce a desirable inflation outcome.

Too much focus on inflation often at the cost of output stabilisation.

Long and variable lags in monetary transmission means that a substantial amount of time must elapse before the success of monetary policy can be ascertained.

Efficacy could be compromised if interest rates hit a zero lower bound.

A rigid rule does not allow enough headroom (discretion) to respond flexibly to unforeseen contingencies.

Price level targeting

Lowers uncertainty about prices that would prevail in the near future.

Allows economic agents to form forwardlooking expectations, based on current price levels.

Can prove effective when nominal interest rates hit the zero lower bound.

Poses communication challenges. Under this approach, the central bank, at a minimum, needs to specify both an intercept (level of target in the base period) and a slope (rate of increase in target price path over time), over and above a time period.

Not practical experience on the success or failure of its implementation across countries in modern times1.

The transition costs of moving to this practice (for countries already on inflation targeting) could be large and uncertain.

Just-do-it strategy

Constructive ambiguity in policy making often helps central bank achieve its longterm goal (price stability).

Demonstrated success.

Non transparent; not clear to the public what the central bank intends to do (or, is doing).

Strongly dependent on skills and preferences of individuals in charge of the central bank.


Appendix Table II.2A: Inflation Targeting Countries – Advanced Economies

Country

Since when

Previous / why inflation targeting

Who sets the Target /goal independence

Target indicator, time frame and style

Frequency of Meeting

Key policy rate / Operational target/ instrumental independence

Any other comments

Australia

1993

None/Provide a new monetary anchor

Reserve Bank Board in agreement with Governor and the Minister of Finance (Treasurer)

Target range of 2-3 per cent inflation on average over the economic cycle. Medium term

Normally meets 11 times each year, on the first Tuesday of each month (no meeting in January)

Target cash rate /Interbank cash rate

In determining monetary policy, the Bank has a duty to maintain price stability, full employment, and the economic prosperity and welfare of the Australian people.

Canada

1990-1991

None/Provide a new monetary anchor and bring down inflation

The inflation targets are agreed jointly by the Government of Canada and the Bank of Canada

A target rate for total CPI of 2 per cent on a 12-month basis, with a 1-3 per cent control range. The current target range extends to December 2016

In late 2000, the Bank of Canada adopted a system of eight pre-set dates per year on which it announces its key policy rate.

The Bank carries out monetary policy by influencing short-term interest rates. It does this by raising and lowering the target for the overnight rate.

 The Bank also monitors a set of “core” inflation measures, including the CPIX, which strips out eight of the most volatile CPI components. These “core” measures allow the Bank to “look through” temporary changes in total CPI inflation and to focus on the underlying trend of inflation, which is a good indicator of where total CPI inflation is headed in the absence of policy action.

Japan January 2013   The Act states, 'The Bank of Japan's autonomy regarding currency and monetary control shall be respected.' sufficiently.' Price stability target of 2 per cent in terms of the year-onyear rate of change in the CPI at the earliest possible time, with a time horizon of about two years. Monetary Policy Meetings (MPMs) are held once or twice a month, for one or two days. Disclosure via press releases, minutes of the meetings, press conference. The Bank controls the amount of funds in the money market, mainly through money market operations. The Bank supplies funds to financial institutions by, for example, extending loans to them, which are backed by collateral submitted to the Bank by these institutions. Such an operation is called a funds-supplying operation.
New Zealand 1989-90 None/Part of extensive reforms, dissatisfaction with earlier outcomes; provide a new nominal anchor The Minister of Finance and the Governor of the Reserve Bank shall together have a separate agreement setting out specific targets for achieving and maintaining price stability. This is known as the Policy Targets Agreement (PTA). The current agreement, signed in September 2012, calls for inflation to be kept within 1 to 3 percent a year, on average over the medium term, with a focus on keeping future average inflation near the 2 percent target midpoint. The Reserve Bank has published an interactive inflation calculator on its website. Eight scheduled decision making meetings in a year. Official cash rate (OCR)- the wholesale price of borrowed money. The Reserve Bank publishes its Monetary Policy Statement (MPS) quarterly. Each Monetary Policy Statement must set out:1) how the Reserve Bank proposes to achieve its targets; 2) how it proposes to formulate and implement monetary policy during the next five years; and 3) how monetary policy has been implemented since the last Monetary Policy Statement.
Norway 2001 Exchange rate / gradual movement towards flexible exchange rate and stronger emphasis on price stability The Government has set an inflation target for monetary policy. The operational target of monetary policy shall be annual consumer price inflation of close to 2.5 per cent over time. The Executive Board sets the key rate at pre-announced times, normally six times a year. Key policy rate, which is the interest rate on banks' deposits in Norges Bank. The Norges Bank’s focus is on price stability, financial stability and generating added value through investment management.
Sweden Announced in January 1993, adopted in 1995 Exchange rate / Forced off a fixed exchange rate regime The Executive Board of the Riksbank makes the monetary policy decisions without instruction from any other parties. 2 per cent target in annual change in headline CPI The Executive Board holds six scheduled monetary policy meetings a year.

Overnight repo rate /

Overnight repo rate target

The Riksbank’s function is to keep inflation close to the goal of 2 per cent. If the credibility of this inflation target is not threatened, the Riksbank can make further contributions to reducing variations in areas such as production and employment - the 'real economy’.
South Korea April 1998   Based on Bank of Korea Act, it sets the midterm inflation target to be applied for three years in consultation with the government. The inflation target measure during the period from 2013 to 2015 is set at 2.5~3.5%, based on consumer price inflation (yearon- year). The Base Rate, the BOK's policy rate, is set during the 'main meeting' of the Monetary Policy Committee that takes place once every month. The Bank of Korea Base Rate is the reference policy rate. In addition, the Bank of Korea also gives explanation to the general public as to the status of the medium term inflation target by monitoring it on an annual basis.
UK October 1992

Exchange rate

Inflation targeting

Forced off a fixed exchange rate regime to maintain price stability/

Price stability is defined by the Government’s inflation target of 2%.

The inflation target of 2 per cent is expressed in terms of an annual rate of inflation based on the Consumer Prices Index (CPI). Monetary Policy Committee meets monthly for a two-day meeting. Decisions are made by a vote of the Committee on a one-person one-vote basis. The 1998 Bank of England Act made the Bank independent to set interest rates. Bank rate is being used since 2009; asset purchase as an additional instrument. In August 2013 the MPC provided some explicit guidance regarding the future conduct of monetary policy. The MPC intends at a minimum to maintain the present highly stimulative stance of monetary policy until economic slack has been substantially reduced, provided this does not entail material risks to price stability or financial stability.

Appendix Table II.2B: Non-inflation Targeting Countries – Advanced Economies

Country

Since when

Previous/any target other than inflation targeting

Who sets the Target / Goal independence

Target indicator, timeframe and style

Frequency of Meeting

Key policy rate / Operational target/ Instrumental independence

Any other comments

Euro area

 

To maintain price stability is the primary objective of the Eurosystem and of the single monetary policy for which it is responsible. This is laid down in the Treaty on the Functioning of the European Union, Article 127 (1).

the Governing Council.

price stability is defined as 'a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2 per cent. Price stability is to be maintained over the medium term'.

Twice a month, with first day discussing overall assessment of the economic situation and the risks to price tability based on a comprehensive economic and monetary analysis in the context of the ECB’s (two-pillar) monetary policy strategy.

Minimum rate in main refinancing operation (MRO) and the interest rates on the marginal lending facility and the deposit facility.

The Euro system currently accepts a very broad range of debt instruments, issued both by public and private issuers.

Switzerland

 

The Swiss National Bank (SNB) implements its monetary policy by fixing a target range for the three-month Swiss franc Libor.

Article 99 of the Federal Constitution entrusts the SNB, as an independent central bank, with the conduct of monetary policy in the interests of the country as a whole.

SNB equates price stability with a rise in the national consumer price index of less than 2 per cent per annum in terms of total CPI.

Quarterly meetings (March, June, September and December) with press release and bulletin publication.

CHF 3-month Libor.

Medium- term inflation forecasts.

Singapore Early 1980s Centred on the management of the exchange rate. The exchange rate policy band is periodically reviewed to ensure that it remains consistent with the underlying fundamentals of the economy. The objective of Singapore's exchange rate policy has always been to promote sustained and non-inflationary growth for the Singapore economy. Regular monetary policy announcements are scheduled in April and October. The tradeweighted exchange rate is allowed to fluctuate within a policy band, and where necessary, Monetary Authority of Singapore (MAS) conducts direct interventions in the foreign exchange market to maintain the exchange rate within this band. MAS' monetary policy is centred on the management of the exchange rate rather than targeting interest rate levels.
United States   No formal target/ The Committee judges that inflation at the rate of 2 per cent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run. Statutory Mandate from the Congress. Maximum employment, stable prices, and moderate long-term interest rates. FOMC meetings and press conference. Decision by consensus/ Eight scheduled per year, with others as needed/ Meetings may last one or two days. In the most recent projections, FOMC participants’ estimates of the longer-run normal rate of unemployment had a central tendency of 5.2- 6.0 per cent.

Source: BIS MC Compendium, Petursson (2004), monthly bulletin, Handbook of Central Banking, 29, Bank of England, different central bank websites till January 10, 2014


Appendix Table II.3: Inflation Targeting Countries – Emerging Market Economies

Country

Since when

Previous / why inflation targeting

Who sets the Target / operational independence

Target indicator, timeframe and style

Frequency of Meeting

Key policy rate

Any other comments

Performance on inflation

Chile

September 1999

High inflation due to expansionary policies, oil price hike during Gulf war, failure with exchange rate based stabilisation programme, instability of money demand and difficulty in monetary targeting, provide a new monetary anchor and gradual disinflation.

Central bank/ Yes

Annual CPI (headline) Point target: 3 per cent/ +/-1 percentage point/ Around 2 years.

Monetary Policy Report/ 4 times a year.

Monetary Policy Interest Rate (Overnight interbank rate).

 

 

Brazil

June 1999

Due to concerns on fiscal front, collapse of currency under speculative attack and search for a nominal anchor within IMF programme.

National Monetary Council (both Govt and central bank Governor)/ Yes

Headline Broad National CPI/ 4.5 per cent +/-2 percentage point Yearly target.

Inflation Report/ 4 times a year

An overnight interest rate (SELIC )

 

 

Hungary

June 2001

Increasing incompatibility of fixed exchange rate regime and disinflation; need to bring down inflation with future EU membership in mind

Central bank/ Yes

CPI/ 3 per cent per annum/ Medium-term.

Quarterly Report on Inflation/ 4 times a year.

Interest rate on 2-week central bank bond.

 

 

Indonesia July 2005 The relationship between monetary aggregates and nominal income becoming tenuous due to instability in income velocity of money following financial deregulation and less success with exchange rate as nominal anchor. Government in consultation with central bank/ Yes. CPI / 4.5 per cent +/- 1 percentage point/ Mediumterm. Monetary Policy Report/ 4 times a year. BI rate.    
Israel Informally in 1992; full-fledged from June 1997 Lock in disinflation and define the slope of the exchange rate crawling peg. Government. in consultation with central bank Governor/ Yes. CPI / Target Range of 1- 3 per cent/ Within 2 years. Inflation Report/ Twice a year. Short-term interest rate (overnight transactions between central bank and banks).    
Mexico 2001 Difficulty with monetary targeting, unreliability of relationship between monetary base and inflation, and lack of nominal anchor to guide inflation expectations. The Board of Governors/ Yes. CPI / Multiannual inflation target 3 per cent +/-1 per cent/ Mediumterm. Inflation Report/ 4 times a year. Overnight inter-bank rate.    
South Africa February 2000 Following liberalisation and structural developments, changing relationship between output, prices and money growth, making monetary targeting less useful; need for greater transparency in policy. Government in consultation with central bank/ Yes. CPI / A Target range of 3-6 per cent/ On a continuous basis. Monetary Policy Review/ Twice a year. Repo rate.    
Peru January 2002 Formalisation of earlier regime; greater transparency of policy. Target is approved by the Board of Directors. CPI / 2 per cent +/-1 percentage point/ At all times. Inflation Report/ 4 times a year. Reference interest rate.    
Philippines January 2002 Formalisation and simplification of earlier regime; greater transparency and focus on price stability. Government in consultation with central bank/Yes. CPI / 4 per cent +/- 1 percentage point for 2012, 2013 and 2014/ Mediumterm. Inflation Report/ 4 times a year Key Policy interest rates for overnight repo/ reverse repo and term repo/ reverse repo and special deposit accounts. Target is announced 2 years in advance.  
Poland 1998 Considered the most effective way to bring down inflation as a precondition for subsequent EU membership. Monetary Policy Council/ Yes. CPI / 2.5 per cent +/- 1 percentage points/ Mediumterm. Inflation Report/ 3 times a year Reference rate (the rate that determines the yield on the main OMOs).    
South Korea April 1998 Unstable money demand following structural changes in financial markets, and with 1997 financial crisis; discontinuation of exchange rate. Central Bank in consultation with the Govt./ Yes. CPI / 3 per cent +/- 1 percentage point/ 3 years. Monetary Policy Report/ Twice a year. Bank of Korea Base rate.    
Thailand May 2000 Inflation targeting considered more appropriate with floating exchange rate than money supply targeting after the financial crisis of 1997. MPC in consultation with the Govt./ Yes. 3.0 per cent +/- 1.5 percentage points/ 8 quarters. Inflation Report/ 4 times a year. One day repo rate. Target is set by MPC annually. The target decided in agreement with the Minister of Finance, which then requires approval by the Cabinet.  
Turkey January 2006   MPC in consultation with the Government. Annual CPI/ 5 per cent +/-2 percentage points for 2012, 2013 and 2014/ Multi-year horizon 3 years. Inflation Report/ 4 times a year. One week repo auction rate. Interest rate corridor and required reserve ratios also used as policy instruments.  

Source: 1. Petursson T. G. (2005): “Inflation Targeting and its Effects on Macroeconomic Performance”, SUERF studies: 2005/5
- The European Money and Finance Forum, Vienna.
2. Hammond G. (2012): “State of the Art of Inflation Targeting”, CCBS, Handbook No.29, Bank of England.


Appendix Table II.4A: Individual Countries Inflation Targets

Country

Target Measure

Target 2013

Target Type

Armenia

H CPI

4% ± 1.5 pp

P + T

Australia

H CPI

2% - 3%

Range

Brazil

H CPI

4.5% ± 2 pp

P + T

Canada

H CPI

2% (mid-point of 1%-3%)

P + T

Chile

H CPI

3% ± 1 pp

P + T

Colombia

H CPI

2% - 4%

Range

Czech Republic

H CPI

2% ± 1 pp

P + T

Ghana

H CPI

9% ± 2 pp

P + T

Guatemala

H CPI

4% ± 1 pp

P + T

Hungary

H CPI

3%

Point

Iceland

H CPI

2.5%

Point

Indonesia

H CPI

4.5% ± 1 pp

P + T

Israel

H CPI

1% - 3%

Range

Mexico

H CPI

3% ± 1 pp

P + T

New Zealand

H CPI

1% - 3%

Range

Norway

H CPI

2.5%

Point

Peru

H CPI

2% ± 1 pp

P + T

Phillippines

H CPI

4.0% ± 1 pp

P + T

Poland

H CPI

2.5% ± 1 pp

P + T

Romania

H CPI

2.5% ± 1 pp

P + T

Serbia

H CPI

4.0% ± 1.5 pp

P + T

South Africa

H CPI

3% - 6%

Range

South Korea

H CPI

2.5% - 3.5%

Range

Sweden

H CPI

2%

Point

Thailand

Core Inflation

0.5% - 3.0%

Range

Turkey

H CPI

5.0% ± 2 pp

P + T

United Kingdom

H CPI

2%

Point

H CPI - Headline CPI; P+ T - Point with tolerance; PP – Percentage point
Source: Hammond G. (2012);”State of the art of inflation targeting”, CCBS, Handbook - No.29, Bank of England and Website of Central Banks


Appendix Table II.4B: Non-Inflation Targeting Countries

Country

Target Measure

Desired level of Inflation

US

PCE

< 2 %

ECB

H CPI

Below but close to 2%

Malaysia

H CPI

2% - 3%

Singapore

H CPI

3% - 4%

Russia

H CPI

5% - 6%

China

H CPI

3.50%

PCE: Personal Consumption Expenditure
Source: Website of Central Banks


Appendix Table II.5: Time Horizon for attending Price Stability

Inflation Targeting

Non-inflation Targeting

Country

Time horizon

Country

Time horizon

Armenia

Medium term

US

Long-term

Australia

Medium term

ECB

Medium-term

Brazil

Yearly Target

Malaysia

Short-term

Canada

Six-eight quarters; current target extends to Dec.2016

Singapore

Short-term

Chile

Around two years

Russia

Medium-term

Colombia

Medium term

China

Short-term

Czech Republic

Medium term,12-18 months

 

 

Ghana

18-24 months

 

 

Guatemala

End of year

 

 

Hungary

Medium term

 

 

Iceland

On average

 

 

Indonesia

Medium term

 

 

Israel

Within two years

 

 

Mexico

Medium term

 

 

New Zealand

Medium term

 

 

Norway

Medium term

 

 

Peru

At all times

 

 

Philippines

Medium term(from 2012-14)

 

 

Poland

Medium term

 

 

Romania

Medium term target from 2013

 

 

Serbia

Medium term

 

 

South Africa

On a continuous basis

 

 

South Korea

Three years

 

 

Sweden

Normally two years

 

 

Thailand

Eight quarters

 

 

Turkey

Multi year(Three years)

 

 

United Kingdom

At all times

 

 

Source: Hammond G. (2012);”State of the art of inflation targeting”, CCBS, Handbook - No.29, Bank of England and Website of Central Banks


Appendix Table II.6A: Communication and Transparency Practices in Inflation Targeting Countries

Country

Open
letter

Parliamentary
hearings?

Press Notice/
Conference

Minutes

Votes

Inflation

Frequency

Armenia

No

Yes, annual

PR

Yes, within ten days

No

Yes

4

Australia

No

Yes, twice yearly

Notice

Yes, after two weeks

n/a

Yes

4

Brazil

Yes

Yes, six per year

PR + PC for IR

Yes, after eight days

Balance of votes

Yes

4

Canada

No

Yes, twice yearly

PR + PC for IR

No

n/a

Yes

4

Chile

 

Yes, four times per year

PR

Yes, after two weeks

yes

Yes

4

Colombia

No

Yes, twice yearly

PR + PC for IR

Yes, after two weeks

Majority/unanimous

Yes

4

Czech Republic

No

No (Report)

PR + PC for IR

Yes, after eight days

Yes

Yes

4

Ghana

No

No

PR + PC

No

n/a

Yes

4 to 6

Guatemala

No

Yes, twice yearly

PR + PC

Yes, after four weeks

no

Yes

3

Hungary

No

Yes, once a year

PC

Yes

yes

Yes

4

Iceland

Yes

Yes, twice yearly

PR + PC

Yes

Balance of votes

Yes

2 plus2

Indonesia

No

No

PR

No

n/a

Yes

4

Israel

No

Yes, twice yearly

PR

Yes, after two weeks

Balance of votes

Yes

2

Mexico

No

Yes, not regular

PR

Yes, after two weeks

n/a

Yes

4

New Zealand

Other

Yes, four times a year

PR + PC for IR

No

n/a

Yes

4

Norway

No

Yes

PR + PC

No

n/a

Yes

3

Peru

No

Yes, once a year

Teleconference

No

No

Yes

4

Phillippines

Yes

No

PR + PC

Yes, after four weeks

No

Yes

4

Poland

No

No(a)

PR + PC

Yes, after three weeks

Yes in IR

Yes

4

Romania

No

No

PR + PC for IR

No

No

Yes

4

Serbia

Yes

No(b)

PR + PC

No

No

Yes

4

South Africa

No

Yes, at least three per year

PR + PC

No

n/a

Yes

2

South Korea

No

Yes

PR + PC

Yes, after six weeks

No

Yes

2

Sweden

No

Yes, twice yearly

PR

Yes, after two weeks

Yes

Yes

3 plus3

Thailand

Yes

No

PR + PC

Yes, after two weeks

Balance of votes

Yes

4

Turkey

Yes

Yes, twice yearly

PR

Yes

No

Yes

4

United Kingdom

Yes

Yes, three per year

PR + PC for IR

Yes, after two weeks

Yes

Yes

4

IR: Inflation Report. PC: Press Conference PR: Press Release.
(a) Governor reports to Lower House once a year on Monetary Policy in preceding year.
(b) Governor explains reports to National Assembly.
Source: Hammond G. (2012);”State of the art of inflation targeting”, CCBS, Handbook - No.29, Bank of England and Website of
Central Banks


Appendix Table II.6B: Communication and Transparency Practices in Non-inflation Targeting Countries

Country

Press Notice/ Conference

Minutes of Monetary Policy Meeting

Inflation Projection

Other Publications

US

PR + PC

Yes, within twenty days

2 years ahead

 

ECB

PR + PC

No

N.A.

 

Malaysia

PR

No

One Year

Outlook and Policy (annual)

Singapore

PR

No

One year

Macroeconomic Review (twice a year)

Russia

PR

No

N.A.

Guidelines for Single State Monetary Policy, Monetary Policy Report

China

PR

No

One year

Quarterly Monetary Policy Report

PR: Press Release; PC: Press Conference.
Source: Website of Central Banks.


Appendix Table III.1: Monetary Policy Framework - International Experience

Country/ Central Bank

Decision making by

Policy objective

Monetary policy target

Key policy rate

Standing Facility

Reserve requirements

Market operations

United States (Federal Reserve System)

Federal Open Market Committee

Promote price stability and maximum sustainable employment

Maximum employment and 2 per cent inflation*

Uncollateralised interbank rate

Primary Credit Facility. No Deposit facility**

Yes

Yes

United Kingdom (Bank of England)

Monetary Policy Committee

To maintain price stability and to support the objectives for growth and employment

An inflation targeting framework

The official Bank Rate paid on commercial bank reserves

Yes

No

Yes

Brazil (Central Bank of Brazil)

Monetary Policy Committee

Achievement of inflation targets set by the Government

An inflation targeting framework

Interest rate on overnight interbank loans

Yes

Yes

Yes

Canada (Bank of Canada)

Governing Council

Contributing to sustained economic growth, rising levels of employment and improved living standards

An inflation targeting framework

Interest rate on collateralized market-based overnight transactions

Yes

No

Yes

*: In its recent policy announcements, the Fed has indicated that their assessment suggests that it will be appropriate to maintain the current target range for the Federal Funds rate well past the time that the unemployment rate declines below 6.5 per cent, especially if projected inflation continues to run below the committee’s 2 per cent longer-run goal.
** In 2008, the Fed started paying interest on required and excess reserves, to avoid downward pressures on the Fed Funds rate.

(Contd...)


Appendix Table III.1: Monetary Policy Framework - International Experience (Concld.)

Country/ Central Bank

Decision making by

Policy objective

Monetary policy target

Key policy rate

Standing Facility

Reserve requirements

Market operations

Euro area (European System of Central Banks)

Governing Council

To maintain price stability

Inflation below but close to 2 per cent over medium-term

Minimum bid rate in main refinancing operations

Yes

Yes

Yes

Australia (Reserve Bank of Australia)

Reserve Bank Board

Achievement of inflation target

An inflation targeting framework

Target cash rate

Yes

No

Yes

Japan (Bank of Japan)

The Policy Board

Multiple objectives

2 per cent inflation

Uncollateralized overnight call rate

Yes

Yes

Yes

Singapore (Monetary Authority of Singapore)

Monetary and Investment Policy

Price stability for sustainable economic growth

Price stability for sustainable economic growth

Exchange rate

Yes

Yes

Exchange intervention

Mexico (Bank of Mexico)

Board of Governors

Achievement of price stability

An inflation targeting framework

Target for the interbank overnight funding rate

Yes

No

Yes

Switzerland (Swiss National Bank)

Governing Board

Price stability

Price stability

CHF 3-month Libor

Yes

Yes

Yes

Sweden (Riksbank)

Executive Board

Maintain price stability

An inflation targeting framework

Repo rate

Yes

No

Yes

Korea (Bank of Korea)

Monetary Policy Committee

Price stability

An inflation targeting framework

The Bank of Korea Base Rate

Yes

Yes

Yes


Appendix Table III.2: Standing Facilities, Main Liquidity Operations and Other Discretionary
Operations of Some Major Central Banks

Country

Bank Reserve

Standing Facility

Main Liquidity Operation

Other discretionary

Counter party

Req.

Avg.

Loan

Deposit

Tenor

Instrument(s)

Tenor

Freq.

Instrument

Tenor

Collateral

Lending Operations

Australia

N

-

Y

Y

Overnight

Repo/ Rev. repo

1 day to 12 months

daily

Outright / Fx-Swap / term deposit

1 day to 3 month

discretion

Wide

Brazil

Y

Y

Y

Y

Two Days

Repo/ Rev. repo

1-30 days

daily

Outright operation; non-standardized, non-regular

no discretion

 

Canada

N

-

Y

Y

Overnight

OMO / Intraday through special purchase and Resale

daily

 

collateral includes US treasury bills, notes and bonds, list of treasure were expanded during the crisis

OMO for PDs, SF for Payment and settlement system participants

Euro Area

Y

Y

Y

Y

Overnight

Collateralized Credit

variable

weekly/ monthly

OMO and Intraday credit

the Governing council has the discretion to expand

Wide in terms of both type and participants

Hong Kong SAR

N

-

Y

 

Overnight

Two way convertibility undertaking

 

all exchange fund bill and notes, extended to use US Treasuries under discount window

 

Japan

Y

Y

Y

Y

Fixed Term

Repo (short run)

overnight to 1 year

2-3 times a day

OMO

 

Japan Government Bonds / CPs; Law generally limits expanding collateral

Wide but varies with facilities

Korea

Y

Y

Y

Y

Overnight

Repo/Rev. repo (issuer / redemption of money stabilisation bonds)

7 days

weekly

Additional repos

1-3 days

Bank of Korea act gives the bank discretion to extend loan against the collateral of any asset.

Narrow for OMO, wide for SF

– : Not applicable.

(Contd...)


Appendix Table III.2: Standing Facilities, Main Liquidity Operations and Other Discretionary Operations of
Some Major Central Banks (Concld.)

Country

Bank Reserve

Standing Facility

Main Liquidity Operation

Other discretionary

Counter party

Req.

Avg.

Loan

Deposit

Tenor

Instrument(s)

Tenor

Freq.

Instrument

Tenor

Collateral

Lending Operations

Mexico

N

 

Y

Y

Overnight

Open market operation

1-25 days

daily

Long term sterilisation of excess liquidity/ sporadic use of compulsory deposit

central bank has the discretion to expand other type of collaterals

OMO for all local banks, SF for private sector banks only

Singapore

Y

Y

Y

Y

Overnight

Exchange rate intervention

FS- spot

discretionary

Repo / Fx-swap direct lending/ borrowing

Up to 1 year

MAS has the discretion to expand collateral

PD only for OMO, all RTGS participants for SF

Sweden

N

 

Y

Y

Overnight

Repo / Riksbank certificate

1 week

 

loan / deposit

Overnight

Act allows expansion of collateral

Wide

Switzerland

Y

Y

Y

 

Overnight

Open market operation /repo /SNB Bills

Mostly one week

daily

Injection / absorption through auctions

Mostly overnight

SNB has discretion on collateral

Wide in terms of type

UK

Voluntary

Y

Y

 

Overnight

Short term (fixed rate) long term (variable rate repo operation)

weekly / monthly

Sterling Financing through OMO

broad based security for discount window

Varies with facilitybanks for liquidity

USA

Y

Y

 

Primary Credit

Generally Overnight

repo

up to 65 days

daily / weekly

OMO

variable

Under exceptional situation

PDs only OMOs; wide for SF

Source: BIS Markets Committee several publications, web-sites of central banks, Narrow=restricted for select few institutions (wide otherwise); Y=yes, N=No, PD=primary dealers, SF =Standing liquidity facility.


Appendix Table III.3: Deregulation of Interest Rates in India

Deposit Rates*

Lending Rate

Saving Deposit

Term Deposit

Effective from

Restrictions and Regulations Prescribed

Month & Year

Restrictions and Regulations Prescribed

Month & Year

Restrictions and Regulations Prescribed

July 1, 1977

3 per cent (chequeble deposits) and 5 per cent (non- chequeable)

Apr. 1985

Banks were allowed to set interest rates for maturities between 15 days and up to 1 year, subject to a ceiling of 8 per cent.

March 1981

A broad framework of interest rates was provided with fixed rates on certain types of advances and ceiling rate on other types of advances.

March 2, 1978

4.5 per cent, uniformly

May 1985

Freedom to set interest rates accorded in April 1965 was withdrawn.

October 1988

Fixed rate stipulations converted into floor rates with option to banks to raise the rates.

April 24,1992

6.0 per cent

Oct. 1989

Domestic short term deposits of maturity 46 days to 90 days and 90 days to one year merged together with uniform interest rate payable, effective October 11, 1989.

September 1990

Discontinuation of sector-specific and programme-specific interest rate stipulations, barring a few areas like agriculture, small industries, differential rate of interest (DRI) scheme and export credit. Linking interest rate to the size of the loan (over `2 lakh) was introduced.

July 1,1993

5.0 per cent

Apr. 1992

Replacement of maturity-wise ceiling rates by a single ceiling rate of 13 per cent on all deposits above 46 days.

April 1992

The interest rates of SCBs (except DRI advances and export credit) were rationalized by bringing the six slabs of advances to four slabs according to size of credit.

November 1, 1994

4.5 per cent

Nov. 1994

Ceiling rate was brought down to 10 per cent.

April 1993

L ending rates were further rationalized as the number of slabs was brought down from four categories to three categories by merging the first two slabs.

April 1, 2000 4.0 per cent

Apr. 1995

Ceiling rate raised to 12 per cent. October 1994 Lending rates for credit limit of over `2 lakh were deregulated. Banks were required to declare their Prime Lending Rates (PLRs).
March 1, 2003 3.5 per cent

Oct. 1995

Interest rates on deposits with maturity of over two years were freed. October 1995 Interest rate on advances against term deposits of `2 lakh and above for both domestic and NRE deposits were deregulated.
May 3, 2011 4.0 per cent

Jul. 1996

Freedom to set rates for term deposit above one year maturity. Minimum period of term deposit brought down from 46 days to 30 days. For the maturity bucket of 30 days to 1 year, banks could fix interest rates subject to a ceiling. February 1997 Banks allowed to prescribe PLRs and spreads separately for loan and cash credit components of loans.
Oct 25, 2011 Deregulation subject to conditions.

Apr. 1997

Ceiling interest rate on domestic term deposits of maturity of 30 days and up to 1 year was linked to Bank Rate October 1997 For term loans of 3 years and above, separate Prime Term Lending Rates (PTLRs) were required to be announced by banks.
   

Oct.1997

Term deposit rates were fully deregulated. April 1998 PLR converted as a ceiling rate on loans up to `2 lakh.
   

Apr.1998

Freedom to offer differential interest rate for bulk deposits of `15 lakh and above. Freedom to set own penal interest rates on premature withdrawal of domestic term deposits. Minimum period of maturity of term deposits reduced from 30 days to 15 days. April 1999 Banks were provided freedom to operate tenor linked PLR.
   

Apr. 2001

Minimum maturity period of 15 days reduced to 7 days for wholesale deposits of `15 lakh and above. October 1999 Flexibility to charge interest rates without reference to the PLR on certain categories of loans/credit.
   

Nov. 2004

Minimum maturity period of 15 days reduced to 7 days for all deposits. April 2000 Banks allowed to charge fixed/ floating rate on their lending for credit limit of over `2 lakh.
   

Jan.2013

Banks were permitted to offer differential deposit rates for bulk deposits of `1 crore and above. April 2001 Commercial banks allowed to lend at sub-PLR rate for loans above `2 lakh.
        April 2003 Tenor linked PLR system replaced by Benchmark Prime Lending Rate (BPLR).
        July 2010 Introduction of Base Rate System, which serves as the floor rate for almost all types of advances.

*: The regulation that no interest may be paid on current deposits continues till date.


Appendix Table III.4: Money Demand Estimates

M3 deflated by GDP deflator
Rolling Reg Output: Log(real money) , log(rgdp), call rate (i) with 15-year window

 

start

end

lrgdp

t-stat

Call Rate

t-stat

Constant

t-stat

1

1991

2005

1.57

18.5

0.00

0.3

-10.75

-12.3

2

1992

2006

1.58

21.7

0.00

0.3

-10.85

-14.4

3

1993

2007

1.57

28.1

0.00

-0.4

-10.79

-18.5

4

1994

2008

1.58

35.4

-0.01

-1.2

-10.80

-23.1

5

1995

2009

1.59

35.7

0.00

-0.9

-10.94

-23.1

6

1996

2010

1.60

35.1

0.00

-0.6

-11.05

-22.7

7

1997

2011

1.52

29.3

-0.01

-1.2

-10.23

-17.8

8

1998

2012

1.44

34.6

-0.02

-2.6

-9.34

-20.5

9

1999

2013

1.40

37.2

-0.02

-3.1

-8.89

-21.9

M3 deflated by WPI Index
Rolling Reg Output: Log(real money) , log(rgdp), call rate (i) with 15-year window

 

start

end

lrgdp

t-stat

Call Rate

t-stat

Constant

t-stat

1

1991

2005

1.59

23.1

0.00

0.1

-10.94

-15.4

2

1992

2006

1.58

26.6

0.00

0.0

-10.83

-17.6

3

1993

2007

1.56

36.1

0.00

-1.2

-10.61

-23.5

4

1994

2008

1.56

44.9

-0.01

-2.0

-10.59

-29.0

5

1995

2009

1.56

44.0

-0.01

-1.8

-10.61

-28.1

6

1996

2010

1.55

40.4

-0.01

-1.6

-10.55

-25.6

7

1997

2011

1.51

34.4

-0.01

-1.0

-10.05

-20.7

8

1998

2012

1.42

45.3

-0.02

-2.9

-9.13

-26.6

9

1999

2013

1.39

49.7

-0.02

-3.5

-8.73

-29.1

M3 deflated by GDP deflator
Rolling Reg Output: Log(real money) , log(rgdp), WALR with 15-year window

 

start

end

lrgdp

t-stat

WALR

t-stat

Constant

t-stat

1

1991

2005

1.54

31.5

0.00

-1.0

-10.44

-21.6

2

1992

2006

1.15

16.1

-0.07

-6.1

-5.60

-6.5

3

1993

2007

1.18

14.6

-0.06

-5.3

-5.89

-6.0

4

1994

2008

1.30

16.8

-0.05

-4.2

-7.28

-7.7

5

1995

2009

1.32

17.1

-0.05

-4.0

-7.54

-8.0

6

1996

2010

1.33

13.5

-0.04

-3.0

-7.74

-6.4

7

1997

2011

1.23

14.9

-0.06

-4.4

-6.45

-6.3

8

1998

2012

1.24

22.7

-0.06

-5.2

-6.63

-9.5

9

1999

2013

1.22

26.4

-0.06

-5.5

-6.34

-10.5

WALR: Weighted Avereage Lending Rate.

Appendix Table III.5: Access to Liquidity Under Refinance Facilities

15-Apr-1997

A general refinance facility was introduced effective from April 26, 1997 under which all SCBs (expect RRBs) were provided General Refinance equivalent to 1 per cent of each bank's forthightly average outstanding aggregate deposits in 1996-97 in two blocks of 4 weeks each at Bank rate for the first block of 4 weeks and Bank rate plus one percentage point for second block of 4 weeks.

15-Apr-1997

From April 26, 1997 the base level ECR limit at 20 per cent of export credit as on Feb. 16, 1996 was withdrawn and SCBs were provided ECR only to the extent of 100 per cent of the increase in outstanding export credit eligible for refinance over the level of such credit as on Feb. 16, 1996. Interest rate was retained at 11 per cent (i.e., the Bank Rate).

16-Jan-1998

Effective from Jan 17, 1998 the ECR limit was lowered to 50 per cent of the increase in outstanding export credit eligible for refinance over the level of such credit as on Feb. 16, 1996, in order to reduce the access to liquidity in the context of measures announced relating to foreign exchange market.

16-Jan-1998

Access to General Refinance Facility was reduced to equivalent to 0.25 per cent of forthightly average outstanding aggregate deposits in 1996-97.

15-Apr-1998

General Refinance Facility was closed (effective from April 20, 1998).

29-Apr-1998

Export Credit Refinance Limit was raised to 100 per cent (effective from May 9, 1998).

19-Apr-2001

With effect from May 5, 2001 SCBs were provided ECR to the extent of 15 per cent of the outstanding export credit eligible for refinance as at the second preceding fortnight.

3-Nov-2008

A special refinance facility was introduced under which all SCBs (excluding RRBs) were provided refinance (which could be flexibly drawn and repaid) from the Reserve Bank equivalent to up to 1.0 per cent of each bank’s NDTL as on October 24, 2008 at the LAF repo rate up to a maximum period of 90 days.

18-May-2004

ECR made available at the Reverse Repo Rate.

15-Nov-2008

Eligible limit for ECR facility increased from 15 per cent to 50 per cent of outstanding export credit eligible for refinance.

6-Dec-2008

Refinance facility of `7,000 crore was provided to SIDBI at the Repo Rate. This facility was available up to March 31, 2010

11-Dec-2008

Refinance facility of `4,000 crore was provided to the National Housing Bank at the Repo Rate. This facility was available up to March 31, 2010

11-Dec-2008

Refinance facility of `5,000 crore was provided to the EXIM Bank at the Repo Rate. This facility was available up to March 31, 2013.

27-Oct-2009

The special refinance facility introduced on November 03, 2008 was closed.

27-Oct-2009

Eligible limit of ECR facility reduced from 50 per cent of the outstanding rupee export credit eligible for refinance to 15 per cent.

18-Jun-2012

Export Credit Refinance limit increased to 50 per cent from 15 per cent of eligible outstanding export credit.

14-Jan-2013

INR-USD swap facility with the Reserve Bank was provided to SCBs (except RRBs) to support incremental Pre-shipment export credit in foreign currency, with the option to access rupee refinance to the extent of swap with the RBI under Special Export Credit Refinance Facility (SECRF). The scheme was closed on June 28, 2013.

18-Nov-2013

Refinance facility of `5,000 crore was provided to SIDBI . This refinance facility is be available up to November 13, 2014.


Appendix Table III.6: CPI-Combined

(back-casted series*)

 

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2001

55.5

55.4

55.7

56.1

56.5

57.1

57.8

58.2

58.0

58.6

59.0

58.8

2002

58.6

58.5

58.9

59.2

59.6

60.2

60.8

61.1

61.2

61.5

61.7

61.3

2003

61.2

61.4

61.8

62.7

62.8

63.0

63.5

63.1

63.2

63.7

63.8

63.7

2004

63.8

63.8

63.9

64.1

64.6

65.1

65.6

66.2

66.3

66.8

66.6

66.1

2005

66.6

66.6

66.6

67.1

66.7

66.8

67.9

68.1

68.2

68.8

69.5

69.2

2006

69.3

69.3

69.3

70.0

70.9

71.9

72.3

72.8

73.3

74.2

74.2

73.9

2007

73.9

74.1

74.1

74.8

75.2

75.8

76.9

77.2

77.3

77.9

78.0

78.0

2008

78.1

78.6

79.7

80.7

80.8

81.9

83.3

84.3

85.1

86.7

86.7

85.5

2009

85.9

85.8

86.1

87.0

87.9

88.9

92.0

92.9

93.6

94.6

96.5

96.7

2010

97.4

96.5

96.3

97.0

97.8

99.0

101.3

101.4

102.3

102.9

103.5

104.7

2011

105.9

105.3

105.6

106.2

107.1

108.8

110.5

111.7

113.0

113.8

114.1

113.6

2012

114.0

114.6

115.5

117.1

118.2

119.6

121.4

122.9

124.0

124.9

125.4

125.6

2013

126.3

127.1

127.5

128.1

129.2

131.4

133.1

134.6

136.2

137.5

139.5

138.0

*The new series of Consumer Price Index-Combined (CPI-C) (Base: 2010=100) is available on a monthly basis from January-2011. For the purpose of empirical analysis in this Report, back-casted data had to be generated, and the data presented here should not be seen as an official price index. The back-casted series of CPI-C was generated by using the price indices of Consumer Price Index-Industrial Workers (CPI-IW) (Base: 2001=100) and applying the corresponding weighting diagram of CPI-C at sub-group level, with some minor adjustments.


Appendix Table V.1: Measures Aimed at Managing the Impact of Taper Talk

Country

Key Policy Rate Hikes

Key Policy Rate Cuts

Liquidity Measures

FX intervention

FX swaps

Capital account management

Macro-prudential measures

Indonesia

Rates were hiked in several stages by 175 bps.

 

Assurance to provide domestic liquidity.

Assurance to provide domestic liquidity.

Yes Also a special swap line with Bank of Korea.

Allowed more mineral exports; easing of holding period restrictions to attract inflows.

Bank Indonesia Deposit Certificates added as a component of Secondary Statutory Reserves; LTV on property loans raised.

Thailand

 

Cut overnight repo rate by 25 bps to 2.5% on May 29, 2013.

 

 

 

 

 

South Korea

 

 

 

Yes

Swap line with Bank Indonesia.

 

 

Turkey

 

 

Cut required reserve ratios on forex deposits to boost market liquidity.

Tried using forex intervention for monetary policy goals, but this could not contain inflation.

 

Doubled the amount of reserves that banks are allowed to keep in foreign currency.

Forex reserve ratio requirement was increased.

Russia     Undertook liquidity management reforms. Introduced 1-week term repos as the main instrument. 1-day repo to be discontinued from Feb.1, 2014. Will start using 1-6 day repo as fine-tuning operations. Introduced standing facility.        
Brazil Hiked Selic rate 150 bps from 8.0% to 9.5% during May-Oct. 2013. Earlier it had raised Selic rate 75 bps during Jan-April 2013.     On Aug.24 US$54 bn Intervention Plan announced after 15% depreciation of real in three months. Included weekly auction of US$1 bn dollar loans. US$0.5 bn of forex swaps four days a week. Real appreciated 7.7% during Sept-Oct. 2013 aided by intervention plan but raised the cost of its continuation. However, on Nov. 8, the central bank announced rollover of swaps thus increasing its intervention. Relaxed capital inflows. Scrapped the 6% IOF on foreign portfolio inflows into fixed income investments.  

Appendix Table V.2: Monetary Measures to Address Exchange Market Pressures

Asian crisis of 1997-98

Rate Measures

Increase in Bank Rate (to 11 per cent) and reverse repo rate (to 9 per cent) by two percentage points each on January 16, 1998. Increase in interest rate surcharge on bank credit for imports to 30 per cent on January 16, 1998.

Hike in the interest rate on post-shipment rupee export credit beyond 90 days and up to 6 months from 13 per cent to 15 per cent on November 26, 1997 (a brief period of stability in end-December led to withdrawal of the hike from January 1, 1998).

On December 17, 1997 it was stipulated that the minimum interest rate of 20 per cent per annum to be charged on overdue export bills. An interest rate surcharge of 15 per cent on import credit was also announced.

Quantity Measures

CRR was raised twice in December 1997 (by 50 bps to 10 per cent and the incremental 10 per cent CRR on NRE and NRNR deposit schemes was withdrawn) and January 1998 (by 50 bps to 10.5 per cent). This was intended to absorb excess liquidity and remove the arbitrage on account of low rates in the call money market and the potential gains in the foreign exchange market.

Reduction in access to refinance facilities (general refinance limit reduced from 1.0 per cent to 0.25 per cent of fortnightly average outstanding aggregate deposits in 1996-97 and export refinance limit reduced from 100 per cent to 50 per cent of the increase in outstanding export credit over February 16, 1996).

Global financial crisis of 2008-09

Rate Measures

Cut in the repo rate under the LAF by a cumulative 425 bps from 9.0 per cent to 4.75 per cent.
Cut in the reverse repo rate by a cumulative 275 bps from 6.0 per cent to 3.25 per cent.
The ceiling rate on export credit in foreign currency increased to LIBOR plus 350 bps.
Cumulative increase in the interest rate ceilings on FCNR(B) and NR(E)RA term deposits by 175 bps each since September 16, 2008.

Quantity Measures

Cut in the CRR by a cumulative 400 bps of NDTL from 9.0 per cent to 5.0 per cent.

Introduction of a special refinance facility up to March 31, 2010 under which all SCBs (excluding RRBs) provided refinance from the Reserve Bank equivalent to 1.0 per cent of each bank’s NDTL as on October 24, 2008.

Term repo facility under the LAF to enable banks to ease liquidity stress faced by mutual funds, NBFCs and housing finance companies (HFCs) with associated SLR exemption of 1.5 per cent of NDTL. This facility is available up to March 31, 2010. Reduction in statutory liquidity ratio (SLR) from 25 per cent to 24 per cent of NDTL with effect from the fortnight beginning November 8, 2008.

Introduction of a mechanism to buyback dated securities issued under the MSS.

Extension of the period of entitlement by 90 days of the first slab of pre-shipment and post-shipment rupee export credit with effect from November 15, 2008 and November 28, 2008, respectively.

Increase in the eligible limit of the ECR facility for scheduled banks (excluding RRBs) from 15 per cent to 50 per cent of the outstanding export credit eligible for refinance.

In order to provide liquidity support to housing, export and MSE sectors, RBI provided a refinance facility to NHB, EXIM Bank and SIDBI up to March 2010.

Scope of OMO widened by including purchases of government securities through an auction-based mechanism.

Special market operations to meet the foreign exchange requirements of public sector oil marketing companies against oil bonds.

HFCs registered with the NHB were allowed to raise short-term foreign currency borrowings under the approval route, subject to compliance with prudential norms laid down by the NHB.

ADs allowed to borrow funds from their head office, overseas branches and correspondents and overdrafts in nostro accounts up to a limit of 50 per cent of their unimpaired Tier 1 capital or US$ 10 million, whichever was higher.

A foreign exchange swap facility with tenure up to three months to Indian public and private sector banks having overseas operations in order to provide them flexibility in managing their short-term funding requirements at their overseas offices.

Systemically important non-deposit taking NBFCs were permitted to raise short-term foreign currency borrowings under the approval route, subject to compliance with the prudential requirements of capital adequacy and exposure norms.

Exchange market pressures since May 22 in response to talk of tapering

Rate Measures MSF was raised by 200 bps to 10.25 per cent (reversed by October 29, 2013).
Interest rate ceiling on NRI deposits of 3-5 years maturity was increased by 100 bps to LIBOR/SWAP plus 400 bps.
The ceiling on interest rate on NRE deposits removed.
Quantity Measures

Restriction on the overall access to LAF to 0.5 per cent of each bank’s NDTL.
OMO sales of `25 billion.
CRR, which banks had to maintain on a fortnightly average basis subject to a daily minimum requirement of 70 per cent, was modified requiring banks to maintain a daily minimum of 99 per cent of the requirement (reduced later to 95 per cent).
Auction of CMBs on a weekly basis of a notified amount of `220 billion for a few weeks.
With effect from fortnight beginning August 24, 2013, incremental FCNR (B) and NRE deposits, of three year and above maturity, were exempted from maintenance of CRR and SLR. This measure was announced to give impetus to banks to mop up NRI deposits of long-term maturity.
On August 28, 2013, a forex swap window was opened to meet the entire daily dollar requirements of three public sector oil marketing companies.
On September 4 2013, RBI opened a special concessional window for swapping fresh FCNR(B) dollar deposits, mobilised for a minimum tenor of three years and above at a fixed rate of 3.5 per cent per annum for the tenor of the deposit (up to November 30, 2013).
The existing overseas borrowing limit of 50 per cent of the unimpaired Tier I capital was also raised to 100 per cent and the borrowings mobilised could be swapped with RBI at a concessional rate of 100 bps below the ongoing swap rate prevailing in the market (up to November 30, 2013).


Appendix Table V.3: Counter-Cyclical Prudential Regulation: Variations in
Risk Weights and Provisioning Requirements

Date

Capital Market

Housing

Other Retails

Commercial Real Estate

Non-Deposit taking Systemically Important Non-Banking Financial Companies

Risk

Provisions

Risk

Provisions

Risk

Provisions

Risk

Provisions

Risk

Provisions

Weight

(%)

Weight

(%)

Weight

(%)

Weight

(%)

Weight

(%)

Dec-2004

100

0.25

75

0.25

125

0.25

100

0.25

100

0.25

Jul-2005

125

0.25

75

0.25

125

0.25

125

0.25

100

0.25

Nov-2005

125

0.40

75

0.40

125

0.40

125

0.40

100

0.40

May-2006

125

1.00

75

1.00

125

1.00

150

1.00

100

0.40

Jan-2007

125

2.00

75

1.00

125

2.00

150

2.00

125

2.00

May-2007

125

2.00

50-75

1.00

125

2.00

150

2.00

125

2.00

May-2008

125

2.00

50-100

1.00

125

2.00

150

2.00

125

2.00

Nov-2008

125

0.40

50-100

0.40

125

0.40

100

0.40

100

0.40

Nov-2009

125

0.40

50-100

0.40

125

0.40

100

1.00

100

0.40

Dec-2010

125

0.40

50-125

0.4-2.0#

125

0.40

100

1.00

100

0.40

Jul-2011

125

0.40

50-125

0.4-2.0

125

0.40

100

1.00

100

0.40

Jul-2012

125

0.40

50-125

0.4-2.0

125

0.40

100

1.00

100

0.40

Jul-2013

125

0.40

50-75*

0.4-2.0

125

0.40

100@

1.00

100

0.40

* The risk weights for housing loans vary according to amount of the loan and the loan-to-value ratio as below.
# Provisioning requirement for housing loans with teaser interest rates was increased to 2.0 per cent in December 2010. It remained at two per cent till one year after reset of interest rate to higher rate and thereafter it was 0.4 per cent. For other housing loans, the provisioning remained at 0.4 per cent.
@: As per the DBOD Circular No.DBOD.BP.BC.No. 104 dated June 21, 2013, a new subsector called 'Commercial Real Estate-Residential Housing (CRE-RH)' has been carved out of CRE and this segment attracts a lower risk weight of 75 per cent and lower standard asset provisioning of 0.75 per cent.


Appendix Table V.4: Capital Control Measures Taken to Address Exchange Market Volatility

Item

August 1995 to March 1996 (Mexican Crisis)

August 1997 - August 1998 (East Asian Crisis)

High Capital flow during 2003-04 to 2007-08

Global Crisis: 2008-09

Since May 2013

FCNR (B) & NRE

Foreign currency deposits like FCNR(B) and NR(NR) RD were exempted from CRR requirements.

Increase in interest rates on NRE deposits.

Removal of incremental CRR of 10 per cent on NRERA and NR(NR) deposits.

Reduction in interest rate ceiling on FCNR(B) and NR(E)RA deposits.

Increase in interest rate ceiling on FRNR (B) and NRE deposits.

Separate concessional swap window to attract FCNR(B) dollar funds.

Exemption from maintenance of CRR and SLR on incremental FCNR (B) deposits as also NRE deposits with reference to base date of July 26, 2013, and having maturity of three years and above.

Deregulation of interest rate on NRE deposits.

Increase in interest rate ceiling by 100 bps to LIBOR/ SWAP plus 400 bps on FCNR(B) deposits of maturity 3 to 5 years.

ECB and trade credit

Relaxation in the ECB norms.

 

Increasing the existing limit for prepayment of external commercial borrowings (ECBs) without the RBI’s approval from US$ 400 million to US$ 500 million, subject to compliance with the minimum average maturity period.

Relaxation in ECB policy in terms of upward revision in all-in-cost ceiling, eligible borrowers and end use.

CB allowed for repayment of outstanding rupee loan towards capital expenditure, under approval route.

Introduction of Foreign Currency Exchangeable bonds.

All-in-cost ceiling for trade credits with maturity up to one year and between one and three years has been revised to 350 bps above 6-month LIBOR.

Expansion of eligible end use of ECB to include import of services, technical know-how and payment of license fees as part of import of capital goods, subject to certain conditions.

Availment of ECB for working capital for civil aviation sector.

Extension of scheme for Buyback / Prepayment of FCCBs under the approval route, up to December 31,2013.

Availment of ECB for financing 3G spectrum outstanding rupee loan.

Availament of ECB by NBFCAsses Finance companies.

ECB raised under the approval route from foreign equity holder company with minimum average maturity of seven years allowed to use for general corporate purposes, subject to the certain conditions.

FII     Ban on use of Promissory Notes.

Lock-in period of long term infrastructure bonds for FIIs was reduced to one year.

Ceiling for FIIs investment in G-sec and corporate bonds raised by US$ 5 billion each to US$ 20 billion and US$ 45 billion respectively.

Enhance the limit for foreign investment in Government dated securities by US$ 5 billion to US$ 30 billion. Enhanced limit is available only for long term investors registered with SEBI (Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, Foreign Central Banks).
Others   Floating of Resurgent India Bonds.

Ban on use of offshore derivative products.

Ban on overseas individual to participate in Indian stock market.

Rupee Dollar Swap Facility.

To convert 10 per cent of the balances in the EEFC accounts.

Qualified Foreign Investors (QFIs) allowed to invest in mutual funds.

Broadening of investor base for G-sec to include Sovereign Wealth Funds, insurance funds and pension funds.

Increased in overseas borrowing limits for banks from 25 per cent to 50 per cent of Tier-I capital or US$ 10 million, whichever is higher.

Increase in overseas borrowing limits for banks from 50 per cent to 100 per cent of Tier-I capital.

Increase in overseas borrowing limits for banks from 50 per cent to 100 per cent of Tier-I capital or US$ 10 million, whichever is higher.

Outflows    

Limit on outward FDI increased gradually to 400 percent of the their net worth under the automatic route.

Gradual increase in limit of outward portfolio investments by listed companies to 50 per cent of the net worth and dispensing with the requirement of 10 per cent reciprocal share holding in the listed Indian companies by overseas companies.

Enhancement in limit on overseas investment by mutual funds registered with the SEBI to US$ 7 billion.

Enhancement of limit on overseas investment under the Liberalised Remittance Scheme (LRS) for resident individuals.

Interest payment of EEFC accounts to the extent of outstanding balances of US$ 1 million per exporters (temporary measure, valid up to Oct 31, 2018. Facility closed on Nov 1, 2018.

 

Reduction in the limit of outward FDI from 400 per cent to 100 per cent of net worth of Indian company, under Automatic Route.

Reduction in limit of US$ 200,000 per financial year to US$ 75,000 per financial year under Liberalized Remittance Schemes.


1 In 1931, Sweden went off the gold standard and adopted a price-level target in order to counter defl ationary pressures associated with the Great Depression (C. Berg and L. Jonung, 1999. Pioneering Price Level Targeting: The Swedish Experience 1931-1937, Journal of Monetary Economics 43, 525-51).

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