Akshaya Tritiya is considered one of the foremost sacred days of the year...
Akshaya Tritiya is considered one of the foremost sacred days of the year...
The RBI has reduced its interest rates by 25 basis points to 7.25%, with inflation and global commodity prices moving in a favourable direction...
The RBI Cuts Interest Rates To Boost Growth, As Expected
The Reserve Bank of India (RBI) has today reduced its interest rates by 25 basis points to 7.25%, in line with expectations, with inflation and global commodity prices moving in a favourable direction.
In March, annual inflation based on the Wholesale Price Index (WPI) came in at 5.96%, the slowest rate in years, down from 6.84% a month earlier. Food prices were at the heart of the slowdown, remaining unchanged between February and March, while fuel and power prices rose 0.36% and the price of manufactured products 0.13%. Annual consumer price inflation figures show inflation slowing to 10.4% in March from 10.9% in February.
"The moderation in WPI inflation set the scene for the RBI, where remains a tension between the competing priorities of stimulating the economy, tackling inflation and considering Indias unsustainable current account deficit, said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. "The rate cut should act as turnaround catalysts for renewed economic activity.
The World Bank revised its growth forecast for the Indian economy in 2013-2014 to 6.1%, lower than its 7% estimate six months ago. The drop came at the back of lower agricultural growth at 2% instead of the previous 2.7%, even though the country is expecting normal monsoon.
Indias growth has been slowing, and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. India received foreign direct investment (FDI) worth $1.79 billion in February 2013, a decline of about 19% due to global economic slowdown. In February 2012, the country had received FDI worth $2.21 billion.
"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 countrys balance of payments and may also impact the value of the rupee.
India's trade deficit eased to $10.32 billion in March from $13.54 billion recorded a year ago, much below the analysts expectation of a $13.50 billion deficit, as exports rose for the third straight month. Exports rose by 6.97% annually to $30.84 billion in March, while imports for the month declined 2.87% to $41.16 billion aided by a sharp fall in fuel prices.
In its March statement on the balance of payments for the third quarter on fiscal 2013, the RBI said the rise in the import bill was spurred largely by oil and gold imports. Gold has lost some of its sheen among global investors, with the price of the yellow metal down almost $224 per ounce since the beginning of 2013.
In its previous monetary policy review, on March 19, RBI had reduced the repo rate by 25 bps to 7.50% and kept CRR unchanged. Its still well above the 6% set two years ago in Sept. 2010.
Reserve Bank of India Cuts Key Interest Rate To Boost Growth
The Reserve Bank of India (RBI) today reduced its key lending rate by 0.25 basis points to 7.50%, in an attempt to boost growth as inflation remains in check, in the third cut since April last year.
While the Wholesale Price Index (WPI) rose to 6.84% in February as compared to 6.62% for the previous month, the non-food manufacturing inflation, which the RBI uses to gauge demand-driven price pressures, surprisingly came down to 3.8%, the lowest since March 2010. Manufacturing goods inflation dropped to 4.51% in February from 4.81% a month ago. Food inflation also slowed down to 11.38% during the month from 11.88% in January.
"A mantra of growth now permeates the RBIs corridors, said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. "Three rate cuts in a year shows that the RBI is in harmony with the governments attempts to revive growth.
Indian business leaders and the government have been calling for months for that cut to help the once-booming economy, forecast to see a 5% growth rate in the year to March 2013, the weakest in a decade.
The RBI set the stage for reduced rates last April when it dropped its key repurchase rate to 8.00% for the first time since March 2010. At the time of its last cut to 7.75% in Jan. This year, it also reduced the cash reserve ratio (CRR), or the money commercial banks have to retain in the form of liquid assets in proportion to their deposits, from 4.25% to 4%. The move was expected to provide $3.35 billion of extra cash for them to lend.
"Slowing economic growth is also a worry for the government as it gears up for a general election due by May 2014, said Rangar.
Finance Minister P Chidambaram unveiled a 16% surge in spending in the 2013-2014 budget, ahead of 2014 elections but imposed taxes on the rich and large firms to fill in a revenue gap and trim its deficit. The government also announced plans to continue with rolling back fuel subsidies, taxes on income of high net worth individuals and on some luxury items as well as a modest asset sales program to reduce its growing current account deficit.
"The Finance Minister has to steer the country away from the danger of being the first BRIC country to lose investment grade status via a credit downgrade, said Rangar. "He has a challenging task of revving a growth engine, that sputtered under his predecessor, with the fuel of more foreign capital.
The RBI opened the door last Thursday (March 14) to foreign institutional investors (FIIs) using investments in corporate and government bonds as collateral in the futures and options segment of stock exchanges. It also said it was permitting FIIs to use their investments in corporate bonds as collateral in the cash segment of the stock market. The move is expected to improve liquidity in the derivative market.
In 2012, Foreign Institutional investments (FII) totaled $10 billion and the country attracted $27.3 billion worth of Foreign Direct investments (FDI).
Reserve Bank of India Cuts Rates To Boost Growth, Emulating China
Borrowing a leaf or two from Chinese policy makers to spur economic growth, the Reserve Bank of India (RBI) decided to reduce its key interest rate to 7.75% from 8% for the first time in nine months as well as reduce the amount of cash Indian banks must set aside as reserves.
Indias central bank reduced the cash reserve ratio (CRR), or the money commercial banks have to retain in the form of liquid assets in proportion to their deposits, from 4.25% to 4%. The move is expected to provide $3.35 billion of extra cash for them to lend. Last November, China cut the amount of cash that banks must set aside as reserves for the first time since 2008. Its key interest rate was dropped more than 50 basis points last year to 6% from 2011. Its GDP forecast is now at 8.1% for 2013 compared with 7.7% in 2012.
The RBI lowered the growth projection for the current fiscal to 5.5% from 5.6% projected earlier. It has also cut the growth forecast for the next financial year to 6.5% from 6.6%. The International Monetary Fund (IMF) lowered its projections for Indias economic growth to 4.5% for the 2012 calendar year from its earlier estimate of 4.9%. The RBIs last cut on April 17, 2012 by 50 basis points, in an effort to boost growth, has yet to show results.
"Spurring growth in is back on the central banks agenda that had been obsessed with fighting inflation and controlling prices for the past two years, said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. "The rate cut and other reforms should act as turnaround catalysts as India hopes to emulate China whose growth is back on track as a result of its central banks policies.
The RBI said that it has limited room for easing monetary policy to support growth as it is worried about the wide fiscal and current account gaps, on top of a likelihood that inflation may not ease significantly next fiscal year.
Inflation based on wholesale prices declined marginally to 7.18% in December even though rates of food items like rice, wheat, pulses and potato showed a rise. It is still, however, above the RBI's 5%-6% target. Indias inflation rate last month compares with 6.5% in Brazil, 6.1% in Russia and Chinas 4.1%.
The Wholesale Price Index (WPI) was 7.24% in November and 7.32% in October. Industrial output growth rate had contracted by 0.1% in November, from a robust 8.3% in October.
"The rate cut was much needed as the economic growth is moderating and the industrial production is decelerating, said Rangar. Government data released January 11 showed that Indias industrial production contracted 0.1% from a year earlier in November, the sixth time it has shrunk in nine months.
Notwithstanding the challenges on macroeconomic front, Indian business owners confidence witnessed an improvement for the second consecutive quarter, owing to the government's reforms push and easing inflation, says research firm Dun & Bradstreet.
For the first quarter of this calendar year, the Dun & Bradstreet Composite Business Optimism Index stood at 146.8, registering an increase of 4.3% compared to 140.8 in the fourth quarter of last year. On a year-on-year basis, however, the optimism for the coming three months still represent a decline of 6% compared to corresponding quarter last year.
The government has recently taken a number of reform initiatives such as opening the multi-brand retail and aviation sectors to foreign direct investment (FDI), hiking diesel prices and capping the number of subsidized liquefied petroleum gas (LPG) cylinders. It also decided to raise the FDI cap in insurance to 49% from 26%.