Saturday, October 27, 2012

Dengue Vs Malaria

Comparison of Dengue Vs Malaria

Crisis in Mali

  • Mali is one of the few west African countries to have experienced democracy and relative social stability. Stability of the country got disturbed since early 2012.
  • Disturbances started from Northern Mali region as a aftermath of Libran Civil War. Capital and seat of govt. is in south Mali. Capital City is Bamako.
  • Ethnic Groups in Northern Mali
    • MLNA – Movement for the Liberation of Azawad is an ethnic group of Tuaregs, indigenous people of North Mali. They are secular group.
    • Ansar Dine & MOJWA - Movement for Oneness and Jihad in West Africa (MOJWA) are allies backed by Al Qaeda. They wanted to implement Sharia Law in North Africa.
    • Because of differences b/w the two they fought the Battle of Gao . They defeated MLNA and started implementing sharia law in Northern mali. In this process they destroyed World Heritage site — the Sidi Yahia mosque — and several ancient tombs at Timbuktu.
    • Regions of Mali 

  • Political Transition in Mali


  • Critical Analysis of Mali Crisis
    • Is Mali crisis heading for another Somalia like situation? International Community and especially AU should intervene as soon as possible.Al Qaeda is determined to make Mali their safe haven and hence rebel militant forces backed by them should be weeded out as soon as possible. Recently UNSC approved 3000 strong ECOWAS force intervention in Mali. 
    • New civilian govt. formed has not been successful in gaining confidence of the people. Mali Military is in disarray (Mar'12 coup 'de'tat) and hence careful thinking will be required by international community about what should be done post-intervention. Hence any rushed military intervention without first stabilizing the regime in the south could disturb the precarious northern dynamics and have disastrous consequences. Hence Mali must attempt to coordinate its actions with its neighbours.
    •  Algeria is one of the big countries neighbouring Mali, but it has till now maintained a hesitant approach to intervene in Mali’s internal crisis, suspecting a crisis in its own country as a spill over effect. However, Algeria’s sustained, cooperative, and sincere engagement in Mali is necessary. Algeria always wanted recognition as a regional leader. Algiers should employ its military and counter-terrorism capabilities and intervene in Mali crisis, and stablize Sahel-Sahara region.
  • India and Mali Relations
    • India-Mali are NAM members
    • India has an embassy in Mali and vice versa.
    • Mali President visited India in Jan 2012
    • Bilateral agreements
      • India extended Line of Credit for $100 Million to fund power transmission project connecting Bamako (Capital of Mali) with Sikasso.
      • Co-operation in Geology and Mineral Resources
    • Trade: Total $77 Million. Trade Surplus with Mali. India mainly imports raw cotton (Mali is second largest producer of cotton after Egypt in Africa) ; Mali imports electric transmission equipments, pharma/drugs, processed cotton fabrics.
Anecdote: While returning from office yesterday, I happened to notice that the Mali embassy is near my home in Safdarjung Enclave !! :)                     

      Monetary Policy Transmission & RBI


      Aim of any monetary policy is to achieve growth with price and financial stability.

      Monetary policy framework in India has undergone a major shift, particularly with the adoption of liquidity adjustment facility (LAF) as the operating procedure of monetary policy.
      See more details on LAF framework in my blog article here  (Click it)

      As a result, since the beginning of the 2000s, change in policy interest rate has occupied the central role in signaling the stance of monetary policy. However its important how these signals are transmitted through the financial system and the economy and how businesses and households react.

      Monetary policy transmission is a process through which monetary policy decisions affect the economy in general and the price level in particular.

      Major monetary policy transmission channels are:
      > Interest Rate Channel
      > Exchange Rate Channel
      > Credit Channel
      Other monetary transmission channels are asset price channel, base rate channel etc.  .

      With the short-term interest rates emerging as the predominant instrument of monetary signals worldwide, the interest rate channel is the key channel of monetary transmission.

      1) Interest Rate Channel:
      Policy rates of any Central bank targets the short term nominal interest rates. This then has cascading effect as follows:

      short term nominal interest rate --> long term nominal interest rate --> long term real interest rates

      Higher real interest rates affect spending and investment behaviour of individuals as well as firms. By reducing disposable income, higher real interest rates depress current consumption. At the same time, higher real interest rates encourage current savings.Similarly, an increase in interest rates reduces profits of the firms. This makes fresh investments less attractive. Overall, consumption and investment declines which contracts output. This, in turn, pulls prices downwards.

      RBI has increasingly been using interest rate channel in its monetary policy. 

      (Note: This is the keynesian IS-LM curve theory )

      2) Exchange Rate Channel
      The transmission of monetary policy through interest rates has secondary impact on exchange rates. Higher interest rates make domestic financial assets attractive and this induces an appreciation of the domestic currency. This has both a direct and indirect effect on prices. Appreciation of the exchange rate lowers domestic prices of imports (the direct effect). At the same time, appreciation of the domestic currency adversely affects the external competitiveness of the economy. This leads to a reduction in net exports and, hence, in aggregate demand and output leading to a decline in prices (the indirect effect).

      Both the direct and indirect effects work in the same direction, i.e., reduce prices (lowering inflation).

      3) Credit Channel
      Again, rise in interest rate lowers profitability of firms. This makes them more difficult to obtain credit, thereby lowering investment and ultimately aggregate demand of the economy.

      See image below:

       Monetary Transmission

      Thursday, October 4, 2012

      Liquidity Adjustment Framework of RBI


      For effective implementation of monetary policy(which is a long term plan), it needs support of a robust operating framework (day to day management).
      An operating framework is defined as day-to-day management of monetary conditions consistent with the overall stance of monetary policy. It involves
      (i) defining an operational target interest rate
      (ii) setting a policy rate which could influence the operational target
      (iii) setting the width of corridor for short-term market interest rates
      (iv) conducting liquidity operations to keep the operational target interest rate stable within the corridor
      (v) signalling of policy intentions.

      This operating framework is also called Liquidity Adjustment Framework = LAF !!

      In the annual monetary policy 2011-12, RBI had made changes in the operating framework of monetary policy. Earlier it was both reverse repo rate and repo rate which changed (along with CRR, SLR depending on the situation). But RBI then decided to adopt a new one rate framework with a corridor like seen in other central banks(US/UK/European to be precise).
      New operating framework is:
      (i) There will be only one variable rate, which is the repo rate, which will be defined by RBI. This will be the policy rate. All other rates will be calculated based on this rate.
      (ii) Reverse repo rate will be 100 bps (or 1%) below repo rate. Thus this will be the floor of the corridor(we mentioned above).
      (iii) A new rate called – Marginal Standing Facility (MSF) was introduced, which is 100 bps above Repo rate.

      So the new operating framework is as follows:
      LAF FRAMEWORK

      Now, these operating framework helps banks in day to day management of liquidity conditions. RBI has “range of instruments” to address liquidity deficit concerns as shown in picture below:
      Note: SCBs = Scheduled Commercial Banks
      Liquidity
      So the liquidity management approaches (shown above) have involved making a distinction between the monetary stance and the liquidity stance of RBI. So if you see CRR and SLR are monetary policy measures to control liquidity conditions of banks and others are "liquidity control measures".

      Corollaries:
      1.  Resorting to MSF frequently by any bank will raise alarm bells with RBI. First of all MSF rates are highest (See LAF corridor above) and it is supposed to meet overnight liquidity needs. This would signal RBI that there is something fishy with the banks "book" !!
      2. Lowering SLR by RBI, will lower the demand for government securities which in turn might lead to some fiscal discipline on part of Govt.
      3. RBI may not resort to excessive OMOs (though its their most preferred method), because OMOs (i.e. bonds) give lower yields.
      4. CRR lowering is the ultimate resort when nothing else works.