RBI Grade B Officers 22 Nov 2015 Paper

Directions (31–40) : Read the following passage carefully and answer the questions given below it. Certain words/phrases have been given in bold to help you locate them while answering some of the questions. This was supposed to be the year when monetary policy started to get back to normal. Seven years after Lehman Brothers collapsed, central banks were expected to edge away from a policy of near–zero interest rates. But now, with 2015 almost over, the Federal Reserve has yet to push up rates while other rich-world central banks are focused more on easing than on tightening. Sweden’s Riksbank extended its quantitative easing (QE) programme last month. The president of the European Central Bank, too has indicated that further easing may come in December, probably by adjusting the pace, scale or type of asset purchases in its QE regime. More than two-fifths of economists forecast that the Bank of Japan would pick up the pace of its monetary easing. Even if policy is kept unchanged, the bank plans to expand the money supply at an annual rate of ¥80 trillion ($664 billion). However, for emerging markets, on balance, slightly more emerging central banks have been tightening than cutting. But China cut interest rates in October, the sixth reduction in the last year. India unveiled a half-percentage point rate-cut in late September. The attitude of central banks reflects their worries about economic growth. The IMF just lowered its global growth forecast to 3.1% for 2015, with cuts applying to both advanced and developing economies. Inflation is also low in Europe, North
 America and Asia, giving central banks more freedom to be supportive. The benign interest–rate outlook is one reason why equities have recovered from the wobbles they suffered in August and September. The other main reason why markets have rallied is a more sanguine view of the Chinese economy. Official figures for third-quarter GDP showed growth of 6.9% and, although some have doubts about the data, it was noticeable that the IMF did not downgrade its forecast for Chinese growth in its latest global outlook. But the optimism should not be taken too far. Other market indicators still suggest, investors are worried about sluggish growth and deflation–the yield on the ten–year Treasury bond is hovering around 2%, not a level that suggests investors expect normal levels of economic growth to return any time soon. American companies are also struggling to maintain the robust profit growth they have shown since 2009. While third–quarter profits for S & P 500 companies are marginally ahead of expectations (as is usually the case), they are still likely to be 4% lower than they were a year ago; sales will probably fall by 3%. It is simply hard to keep pushing up profits when global GDP growth is subdued. The number of American companies citing a slowingglobal economy as affecting theirprofits and revenues is more than50% higher than a year ago, accordingto Thomson Reuters. The newsis no better in Europe, where thirdquarterprofits are expected to bedown 5.4% on the year, with revenuesdropping 7.9%. So the equitymarkets are caught in somethingof an awkward equilibrium. Positiveeconomic news will make theoutlook for profits more rosy butwill also mean that the Fed is morelikely to push up rates. And bad economicnews may mean a respitefrom monetary tightening but is stillbad news. This explains the ratherbumpy ride that stockmarkets havehad in 2015. The lack of profitgrowth makes it hard for marketsto surge ahead. But without higherinterest rates, or evidence thatbig economies are slipping into outrightrecession, share prices areunlikely to collapse. Central banksmay have helped stockmarkets inan era of low growth by making otherassets less attractive; the resultwas a positive shift in share valuations.But slow growth hasn’t goneaway.