Tagged: RBI
India’s Policy Review: RBI Raises Rates, Says Last Time in Near Future
Article first published as India’s Policy Review: RBI Raises Rates, Says Last Time in Near Future on Blogcritics.
RBI has raised bank ratios again by 25 basis points in its November 2 policy review. It has lifted he repo rate, at which it lends to banks, to 6.25 percent and reverse repo rate, at which it absorbs excess cash from the system, to 5.25 percent. RBI has discussed global and domestic scenarios in its second review of monitory policy 2010-11.
GLOBAL ECONOMY
RBI has noted that though IMF revised upwards its forecast for world growth in its October 2010 World Economic Outlook from 4.6 to 4.8 percent, growth in advanced economies like the US and Japan has been still sluggish. Unemployment, modest income growth, lower housing wealth and tight credit were impediments for the US growth, RBI said. It noted that slowdown in industrial production and exports’ growth reflected the moderation of economic recovery in Japan.
However, the Euro region is showing signs of resilience in the aftermath of the sovereign debt crisis which
is again uneven. RBI has said the growth in the Emerging Market Economies (EMEs) continued to be strong. It has particularly pointed out that the strength of the EMEs is led by domestic demand but supported by exports, indicating that without the exports’ support, the growth could be weaker.
DOMESTIC ECONOMY
RBI says India’s growth set in second half of last fiscal year, is consolidating with Q1 growth recording at 8.8 percent. It expects normal South-West monsoon will contribute to increase in Agricultural production. RBI and Planning Commission have been telling for last one and half years that the normal monsoon will help reduce the stubborn inflation, which is proved wrong. It seems they still do not find any fresh reason for showing as pretext for high inflation.
Industrial growth has been robust but volatile with average figure of 10.6 percent during April – August 2010. Volatility suggests deceleration but momentum is continuing. Direct and indirect taxes increased over the last year.
Reserve Bank of India Beats Forecast on Rate Hike
(Article first published as Reserve Bank of India Beats Forecast on Rate Hike on Technorati.)
The Governor of Reserve Bank of India, Duvvuri Subba Rao could not allow himself lagging behind the trend of beating forecast by growth numbers of India. At the quarterly review meeting on Sept 16, 2010, the RBI raised interest rates more aggressively than expected. The RBI lifted repo rate, at which it lends to banks and other financial intermediaries, by 25 basis points to 6 percent. It also lifted reverse repo rate, at which RBI absorbs the cash from the system, by 50 basis points to 5 percent.
Inflation concerns
The deference between the repo rate and reverse repo rate is decreased from 1.25 percent to 1 percent, signalling that the central bank is committed to control the high rate of inflation. "Inflation remains the dominant concern in macroeconomic management," the central bank said in a statement released to reporters. “Monetary Policy Review: September 2010,” almost confirmed that the inflation rates have reached their peak, but cautioned it is likely to remain at unacceptably high levels for some months.
Several factors prompted the central bank to rein in the inflation, which is still nearer to the double-digit figure. Almost double the forecast growth (13.8 percent) of Industrial output in July 2010; rocket speed rise of the share markets; and robust annualized growth rate of GDP (8.8 percent) for the quarter ending with June 2010 necessitated controlling the money supply in the system.
RBI can afford to be less hawkish – BarCap
Reuters
The Reserve Bank of India will probably pause after raising interest rates for a fifth time this year in September, signalling a less hawkish stance as inflation pressures begin to ease, an economist at Barclays Capital said. The Reserve Bank of India (RBI) has increased its main lending rate by 100 basis points since mid-March to rein in high inflation. The tightening policy has cooled headline annual inflation to just under 10 percent in July, after stubbornly staying in double-digits for five months. “The RBI is no longer behind the curve as far as managing inflation or inflation expectation is concerned,” Rahul Bajoria, regional economist at Barclays Capital, said in an interview. “So from that perspective I think the RBI can possibly afford to be slightly less hawkish from here on.”
Rising rates have also weighed on factory output, which rose at its slowest pace in 13 months in June at 7.1 percent from a year earlier. Exports grew an annual 30 percent in June, slower than 35 percent rise in May. Still, the RBI has forecast the economy will expand 8.5 percent in 2010/11 from 7.4 percent last year and the fastest pace among major economies after China. Bajoria reiterated the bank’s forecast for another 25 basis points increase in key rates by the RBI when it reviews policy on Sept. 16. “The market has fairly priced in both policy rate hike and liquidity constraints. Once the RBI has given its intention that repo rate will be the operating rate, I don’t think market is panicking on the liquidity situation,” he said. Continue reading
RBI plans limited new bank licences
Reuters |
The Reserve Bank of India (RBI) on Wednesday said it intends to grant a limited number of new bank licences, a move that was earlier flagged by the government to expand the geographic reach of the sector. The RBI, in a discussion paper on the subject of entry of new banks, has invited comments on the minimum capital requirements as well as promoters shareholding in new banks. The RBI also initiated discussion on foreign shareholding in new banks, whether industrial and business houses could be allowed to set up banks and if finance companies should be allowed to convert into banks or set up a bank. The central bank highlighted the pros and cons and the past international experience on all the parameters on which it has invited the comments.
On Tuesday, junior finance minister Namo Narain Meena told lawmakers 18 foreign banks have approached the central bank for opening their maiden branches or representative office. Finance Minister Pranab Mukherjee had, in the budget for 2010/11, announced the intention to grant additional banking licences to private sector players to expand coverage. The RBI’s previous guidelines on new bank licences released in January 2001 were “cautious in nature,” the central bank said. Continue reading
RBI policy mopping excess liquidity – Mukherjee
RBI policy mopping excess liquidity – Mukherjee | Reuters
The Reserve Bank of India’s (RBI) “appropriate monetary policy” is absorbing excess liquidity and helping efforts to tame inflation, the finance minister told parliament on Wednesday. Pranab Mukherjee, responding to an opposition-sponsored debate on inflation, also said rising prices were a cost of rapid expansion of Asia’s third-largest economy. “If I want to compromise with growth rate of 5 percent, or 5.5 percent, if I want to compromise with my export growth, if I want to do that, I can surely control the inflation,” he said. Wholesale price index, India’s most closely watched inflation measure, have risen more than 10 percent from a year earlier for the past five months. The index rose 10.55 percent in June and is expected to record a double-digit rise in July.
Spiralling prices have led to street protests against the Congress party-led government, and the opposition parties have accused it of not doing enough to control prices. “Appropriate monetary policy is mopping up excess liquidity,” Mukherjee said. “We have ensured the excess liquidity in the market has been mopped … The Reserve Bank is keeping its eye constantly on that.” The RBI has said it will manage liquidity to ensure an excess does not prevent policy signals from being transmitted to the monetary system. Continue reading
INDUSTRY VIEW: RBI raises key rates
MSN News | Reuters | 27/07/2010
The Reserve Bank of India on Tuesday raised interest rates more forcefully than expected in the face of inflation that has held stubbornly above 10 per cent for the past five months. The RBI lifted the repo rate, at which it lends to banks, by 25 basis points to 5.75 per cent, in line with expectations, but raised the reverse repo rate, at which it absorbs excess cash from the system, by 50 basis points to 4.50 per cent. Following are the views of industry officials to the policy.
PRAMOD MENON, CHIEF FINANCIAL OFFICER, JSW ENERGY
"The rate hike is well warranted and there should not be any problem until the rate of economic growth continues to be robust. There will be a slight impact on interest rates, but I believe, everybody is prepared for it."
SANTOSH SINGHI, CFO, AMTEK AUTO LTD
"The rates will firm up. This may lead to a liquidity crunch in domestic market in the coming months as many large projects are still rupee-funded. I do not think the OEMs (original equipment makers) will accept an increase in component prices because of a rise in rates. The only way we can compensate is increasing our volumes and scale of operations".
VIRENDRA MHAISKAR, CMD, IRB INFRASTRUCTURE DEVELOPERS
"In our case we have tied up the funds with a fixed rate for next three years, anticipating the tightening. We won’t be impacted at all. For the infrastructure (sector), it’s a counter-productive move on a long-term basis if the interest rates are hiked for the growth sector."
RUPEN PATEL, MANAGING DIRECTOR, PATEL ENGINEERING
"RBI has increased reverse repo by 50 basis points and repo rate by 25 basis points. CRR has remained unchanged at 6 per cent. Market anticipated much more tightening than what has been announced. As such we feel no negative impact on our sector for the action taken by RBI."
RBI may need to get more aggressive
Reuters | Fri Jul 23, 2010 | 10:53am IST
Inflation in India has spread beyond food and fuel prices and is becoming entrenched; meaning the Reserve Bank of India (RBI) may have little choice but to tighten policy more aggressively than now expected. A majority of economists polled by Reuters this week expect the RBI to raise interest rates by 25 basis points for a fourth time since March in its quarterly review on July 27. Most also expect the central bank to notch up rates by just another quarter point before the end of the year, given a tightening of market liquidity in recent weeks and uncertainty about the strength of global recovery. However, trends in broad money growth, the credit-deposit ratio and rising imports suggest inflationary pressures are likely to remain and may pose a bigger challenge later on, calling for a more aggressive action.
PACE OF IMPORT GROWTH MAY WIDEN TRADE GAP FURTHER
With India expected to grow more than 8 percent this year and next, imports are expected to pick up. Since export growth is weak, rising imports threaten to push up the trade deficit up substantially, in turn widening the current account deficit, which reached $13 billion in the January-March quarter, its biggest since 1981. A more decisive monetary tightening to curb domestic demand would help keep India’s external imbalances in check.
RESERVE MONEY GROWTH THREATENS TO PUSH INFLATION HIGHER
Reserve money has been rising rapidly in recent months. Before the financial crisis, reserve money consistently led broad money growth, the central bank’s key monetary gauge. Between 2000 and 2007 the annual change in reserve money had a 0.6 correlation with the year-on-year change in M3. That dropped to 0.4 for the ‘2000-2010’
Plan panel: need to target 5 pct inflation
Reuters | Thu Mar 25, 2010 | 5:08pm IST
India should aim for annual inflation at 5 percent and try to lower this for economic growth to benefit the broader population, the Planning Commission said in an internal document. "Price stability is imperative for realising inclusive economic growth," according to the draft paper, circulated as part of a review of the economy, and obtained by Reuters. Wholesale price inflation was almost 10 percent in February, sparking off street protests and last week prompted the central bank to raise interest rates ahead of a scheduled policy review in April. "In order to achieve price stability, we need to target a headline rate of inflation for both CPI (consumer price inflation) and WPI indices of 5 percent and then progressively lower. This … is quite within the realm of possibilities."
The document needs final approval by the National Development Council, which is headed by Prime Minister Manmohan Singh. The Reserve Bank of India does not follow a policy of targeting inflation like some other central banks, but analysts say it sees inflation of around 5 percent as being in its comfort zone. Governor Duvvuri Subbarao has said the country cannot target inflation as the transmission of monetary policy is muted and it is difficult for monetary policy to attack supply-side driven inflation. WPI averaged an annual 5.5 percent in the period between 2007/08 and 2009/10. CPI, which was at 16.2 percent in January, has averaged 9.3 percent in the three years to 2009/10.
Slow credit growth to limit India tightening
Reuters | Mumbai | Fri Jan 15, 2010 | 4:01pm IST
Demand for bank loans in India is coming back to life but because loan growth is sluggish, the central bank will take time to tighten monetary policy in spite of a pick-up in inflation. As growth in Asia’s third-largest economy gathers speed after the downturn, the central bank’s desire to raise interest rates may be limited by how well demand for financing is picking up. Credit growth will be the data to watch and that is why the central bank is likely to raise bank reserves requirements as a first step on Jan. 29, rather than lift interest rates and run the risk of snuffing out what signs of demand there are.
China’s loan growth is believed to have risen sharply in January, pushing authorities to act sooner than expected. The Chinese central bank said on Tuesday it will lift bank reserve requirements for the first time since June 2008 — a move most analysts say will have little impact on growth or earnings. India’s banks are liquid enough to cope with higher reserve requirements and have pledged to keep lending rates on hold for a couple of months regardless of what the central bank does. “The credit side is an important reason why the tightening will not be aggressive,” Continue reading
RBI says focus on managing inflation and growth
Reuters | Mumbai | Tue Dec 29, 2009 | 4:08pm IST
India’s monetary policy focus is shifting to managing recovery and containing inflation from fostering growth after the global downturn, a deputy governor at the Reserve Bank of India (RBI) said. Shyamala Gopinath said rising food prices were fuelling concerns that they might lead to broader price pressures and the policy challenge was to address the supply-side constraints. Her comments, which reinforced market expectations of monetary tightening in January, helped push the 10-year benchmark bond yield up 5 basis points on Tuesday to 7.69 percent. It had closed at 7.68 percent on Thursday. Financial markets were closed on Friday and Monday for holidays.
“The near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on containment of inflation,” Gopinath said in a speech delivered in Bangalore on Monday and released by the central bank on Tuesday. “Since supply shocks take time to taper off, there is a risk that high Continue reading
PM adviser: RBI may tighten in Dec – report
Wed Dec 16, 2009 11:09am IST
The Reserve Bank of India (RBI) may tighten monetary policy in December as inflation could rise to near 7 percent in March, the prime minister’s economic adviser, C. Rangarajan, was quoted as saying by http://www.expressindia.com, citing a news agency report. “By the end of December, they can review the situation and take action… it could come by end of December depending how the prices have behaved in December,” Rangarajan was quoted as saying. “By the end of March 2010, it (inflation) could be close to seven per cent,” he said. “Usually there is a seasonal decline… but certainly it appears that inflation by end of March will be higher than what has been projected earlier by the RBI,” Rangarajan was quoted as saying.
Economists expect the central bank to take measures to tighten liquidity, such as increasing banks’ reserve requirements, before raising interest rates. Annual wholesale price inflation jumped to 4.78 percent in November from 1.34 per cent in October, exceeding forecasts and adding to expectations the RBI would look to exit its loose monetary policy stance sooner rather than later.
India’s Output Surges, Policy Tightening More Likely
Bloomberg | Kartik Goyal | October 12, 2009 | 04:17 EDT
Emerging_India
India’s industrial production rose the most in 22 months, suggesting the central bank may have scope to make an early exit from emergency stimulus measures. Output at factories, utilities and mines jumped 10.4 percent in August from a year earlier after gaining a revised 7.2 percent in July, the statistics agency said in New Delhi today. Economists were expecting a 9.7 percent increase. Manufacturing across Asia is showing signs of recovery, prompting policy makers to consider when they can begin to withdraw the monetary and fiscal stimulus initiated to protect their economies from the global recession. Central bank Governor Duvvuri Subbarao last week said India may need to act ahead of advanced economies due to “incipient” inflation pressures. “With doubts over the durability of India’s upswing fading all the time, and inflation pressures already high, policy rates look certain to move up soon,” said Kevin Grice, an economist at Capital Economics Ltd. in London. “We still expect a first hike in January but the possibility of a first move at the Oct. 27 monetary policy meeting now looks close to a 50:50 call.” Benchmark 10-year bonds declined, pushing yields to the highest in a month. The yield on the most-traded 6.90 percent note due 2019 added one basis point, or 0.01 percentage point, to 7.36 percent. The rupee was little changed, trading at 46.595 a dollar at 12:30 p.m. Continue reading
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