RBI to Launch Software Driven Rate Cuts
21 July 2013
Mumbai: RBI is reaching for the skies. And its preferred mode is technology.
In a first in entire world, the central bank is embarking on a system that will fine-tune the interest rates automatically - without any human supervision.
“This will be done by a state-of-the-art algorithmic software that will scan millions of parameters of domestic economy and global economy, and announce the rate changes accordingly.” Informed Dr. Duvvuri Subbarao today at a packed press conference in Mumbai. “For example, every time the Federal Reserve cuts the rate by 25 basis points, the software will cut the rate by the same margin. Every time the Fed cuts the rate by 50 basis points, the software will cut the rate by the same margin. Similarly, every time the Fed raises the rate by 25 basis points or 50 basis points, the software will raise the rate by the same margin.”
That means it is some sort of “copy and paste” system? Asked Funnynomics correspondent.
“Not really…the similarities are limited to Fed. When it comes to European Exchange Rate Mechanism, the approach will be slightly different. Every time the EU cuts the rate by 50 basis points, the software will cut the rate by 25 basis points. Every time the EU cuts the rate by 25 basis points, the software will not cut the rate but issue a statement saying “we are closely watching the situation.”
But what about the specifics of the Indian economy? Would they at all be looked at? Asked Funnynomics correspondent.
“Sure. The software will also monitor the domestic parameters. Every time inflation rate goes up by 1%, the rates will be increased by 25 basis points. Every time the industry shouts that the higher rates are killing the growth, the rate will be slashed by 25 basis points. Every time the WPI falls down by 0.5%, it will reduce the rate by 25 basis points.”
“Similarly every time the GDP growth goes up by 200 basis points the rate will be cut by 25 basis points. Every time the industry captains cry out fall in car sales and home sales, the rate will be automatically cut by 25 basis points. If the number of newspaper articles demanding rate cut rises a lot, the cut will be automatically by 50 basis points.”
“And last but not the least the software will also monitor industry demands and lobbying efforts by vested interests (generally euphemised as stake-holders). Every time lenders and corporates lobby for lower interest rates to ease the pressure on the economy that's slowing down, squeezing profitability and pulling down tax revenues, the rate will be automatically cut by 25 basis points. Every time the politicians join the lobbying efforts, the rate cut will be 50 basis points.”
Markets cheered the move, as they always do when they listen anything new from the RBI. Bellwether BSE Sensex climbed up by 0.7%.
CNBC TV 18 called it “a remarkable stroke of genius”.
Echoing the sentiment, the chief economist of a leading bank said the dependence on this kind of software means the RBI will now have to deploy additional funds to ensure uninterrupted power supply to at least one computer within the headquarters. “With the rupee already having hit 60 mark, these are the times to save money, not to increase the spend.”
Mark Mobius said in an interview from Singapore “It is clear the economy would be in much efficient hands when the decisions are taken by computers” but the market observers were undecided whether the celebrated fund manager was praising or casting a satire.
However former finance minister Yashwant Sinha was explicitly critical of the move. He said there was nothing new in this. “This is what the RBI had been doing during UPA 1 and UPA II; every time Fed cuts the rate, RBI cuts, every time Fed raises the rate, RBI raises too…this "copy and paste" job can be done by any computer literate adolescent.”
Mamata Banerjee too was critical, although for a different reason. The firebrand chief minister of West Bengal said rates should be brought to zero to help lower the interest burden on the states. “You don’t need software for that; you need political will.”
The event management companies however were not happy. Feroz Loudspeakerwalla, a prominent gadget provider said automatic rate fine-tuning was definitely bad for his business. “I used to make a neat packet by managing the rate announcement events...now I will lose the opportunity to rent out my wares.”
Meanwhile, just before going to press, Funnynomics learned of a development that may undo the whole RBI effort. Rumours were rife around Fort area in Mumbai that several prominent business houses have come together to pump money into a software that would algorithmically manipulate the RBI software to get the rate-cuts as per their own wish. “If they can do it; we can do it.” Said a spokesperson on condition of anonymity.
(Disclaimer: This news report is pure fiction, a produce of fertile imagination, and none of the people, organisations, NGO, politicians, office bearers, or government officials mentioned on this page have anything to do with this topic, subject or report. Entire fabrication is meant for simple fun.)
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