Tagged #RBI

20/09/2013

RBI Governor Repo Rate Hike Disappoints India Inc

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IndusView, Friday 20 September 2013 (London): India’s central bank Governor Raghuram Rajan today raised the benchmark interest rate by a quarter point to 7.5%, the first increase since 2011.

The move came as a surprise to most economists, who were widely expecting the Reserve Bank of India (RBI) to leave the rate unchanged. The cash reserve ratio was left unchanged.

Mr. Rajan, a 50-year-old former International Monetary Fund chief economist, is determined to build the bank’s inflation-fighting credentials, with the bump in borrowing costs coming amid the weakest economic growth since 2009. Rajan acted even after the Federal Reserve’s decision two days ago to maintain U.S. monetary stimulus eased pressure on the rupee, which has tumbled since May.

“ Given that growth in the economy is at a low point, business confidence is weak and the investment cycle has come to a grinding halt, I expected the new RBI governor to initiate measures that would enthuse the market participants, boost investor sentiment and bring confidence back in the economy” said Rangar. “A repo rate cut was needed to facilitate industrial production process and to gain in the international markets by enhancing exports scenario.”

To ease liquidity, the marginal standing facility rate, at which banks borrow from the RBI, was cut to 9.5% from 10.25% and the minimum daily maintenance of the cash reserve ratio was lowered to 95%.

The RBI's decision surprised the stock markets and the benchmark S&P BSE Sensex ended 383 points lower.

India Inc expressed its disappointment, as a rate cut by the bank would have helped ameliorate sentiments as businesses are struggling under a tight liquidity crunch due to high cost of capital.

“The government needed to be more proactive and just showed that fighting inflation is its core priority,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “So far, all the actions taken have been to contain a crisis and not to prevent it”.

International investors have withdrawn nearly $12 billion in shares and debt from India's markets since the beginning of June.

India's economic growth rate slipped to a decade low of 5% in 2012-2013 on account of poor performance of farm, manufacturing and mining sectors. It is projected to rise to 5.7% in the 2013 fiscal year and firm to 6.5% and 6.7% in 2014 and 2015, respectively.

Policymakers have consistently struggled to come up with steps that can convince markets they can stabilize the rupee and attract funds into the country despite extraordinary measures last month by the central bank to drain liquidity and action to curb gold imports and cut India's huge oil import bill.

 

30/07/2013

The RBI Holds Key Interest Rate for Q1 2013-14 Review

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IndusView, Tuesday 30 July 2013 (London): The Reserve Bank of India (RBI) has today kept its key interest rate steady at 7.25%, in line with expectations, due to continued concern with high current account deficit (CAD).

The wholesale price index, India's main inflation gauge, rose 4.86% in June, compared with 4.70% in May. Consumer inflation, which gives more weight to food prices than wholesale data, accelerated to 9.87% in June from 9.31% in the previous month.

The Indian rupee plunged to fresh record low of 61.21 earlier this month, against the US dollar, in trade on sustained dollar demand in the local market.

"A weak rupee exposes the country to external shocks, given the fact that India is largely dependent upon capital inflows to fund its important current account deficit,” said Bundeep Singh Rangar, Chairman of London-based IndusView. "The rupee has fallen about 10% against the dollar since early May, which is pushing up import costs and could feed price pressures in the coming months.”

India’s CAD hit a record $87.8 billion or 4.8% of the gross domestic product (GDP) last fiscal, up from $78.2 billion or 4.2% in the year before.

With crude oil price in the vicinity of $100 or more to a barrel, the government is hoping that a 10%-12% easing of crude oil prices will help the reducing the burden on the CAD. India imported crude oil worth $140 billion in 2011-12. India imports nearly 70% of its crude oil requirement, which has a direct impact on the rising CAD. The RBI has cut its main lending rate by three quarters of a percentage point in 2013. Industry lobby groups and the government want it to bring the rate further down to support economic growth that slowed to its weakest pace in a decade at 5% in the fiscal year ended on March 31.

"The priority for monetary policy now is to restore stability in the currency market so that macro-financial conditions remain supportive of growth,” said Rangar. " This strategy can succeed only if reinforced by structural reforms to reduce the CAD and step up savings and investment”.

Overseas investors have pulled out more than $754 million from the Indian debt market in the first week of this month amid concerns over depreciating rupee.

To check imports of non-essential goods that are adding to the already rising Current Account Deficit (CAD), the government has constituted a committee to be headed by Rajat Bhrargav, joint secretary (Budget) in the Ministry of Finance. The committee has been mandated to look into non-essential items in India’s import list so that these could be pruned to ease India’s CAD. Non-essential goods comprise luxury cars, cosmetics, certain exotic foods and beverages, gold, silver and foreign alcohol, among others.


17/06/2013

RBI Holds Key Interest Rate Due to Inflationary Risks

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IndusView, Monday 17 June 2013 (London): The Reserve Bank of India (RBI) has today kept its key interest rate steady at 7.25%, in line with expectations, due to continued concern with inflation.

<>The Wholesale Price Index, India's most closely watched inflation gauge, dropped to 4.7% in May on an annual basis, down nearly two-tenths of a percentage point from its 4.89% level in April. The broadly based wholesale price inflation reading, the lowest since late 2009, was well below market forecasts of a 4.9% rise.

"Cutting the key lending rate could create further devalue the Rupee, increase the costs of imports and put inflationary pressure,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. "Inflation remains a roadblock for policymakers struggling to breathe life into Asia's third-largest economy, and is a major factor in the declining popularity of Prime Minister Manmohan Singh's government.”

India's economic growth rate slipped to a decade low of 5% in 2012-2013 on account of poor performance of farm, manufacturing and mining sectors. It is projected to rise to 5.7% in the 2013 fiscal year and firm to 6.5% and 6.7% in 2014 and 2015, respectively.

GDP growth in South Asia as whole slipped to 4.8% in 2012, mainly reflecting a continued deceleration in India, slower growth in Sri Lanka and Bangladesh, and sluggish growth in Pakistan and Nepal. Regional GDP growth is projected to pick up to 5.2% in 2013, before accelerating to 6% and 6.4% in 2014 and 2015, in line with strengthening external demand, normal monsoons and a gradual pickup in investment spending.

"There is a need to further improve the business environment. Reforms in the last one year are welcome, but more needs to be done in order to build foreign investors confidence,” said Rangar. "Decline in foreign investments could put pressure on the country’s balance of payments and also impact the value of the rupee.”

Media in India are expressing concerns over a sharp depreciation in the value of the rupee against the dollar. The rupee struck a lifetime-low of 57.98 to the dollar earlier in the week has sparked fears inflation could resurge as a key problem in India, which buys 80% of its crude oil from abroad. Earlier today, the rupee was at 57.72 to the dollar versus its previous close of 57.5150.

Production at factories, utilities and mines rose 2% from a year earlier after a revised 3.4% gain in March while Consumer prices climbed 9.31% in May from a year earlier. Gold and oil imports contributed to the $32.6 billion shortfall in the current account for the last quarter of 2012.

The Indian government is considering removing the FDI (Foreign Direct investment) cap on the telecom sector and raising the limit in defense in order to seek more foreign investment and boost the rupee value. Overseas investors would be able to own all of a telecoms company, up from 74% currently, with the ceiling in defense rising to 49% from 26%.

The RBI has cut its policy repo rate by 75 basis points in 2013 to 7.25% but has warned of "little space" for further easing citing inflationary risks.