Here are the key decisions announced by the Reserve Bank of India on Thursday.
Lower inflation, FCNR(B) outflows likely to influence central bank decision
Retail inflation fell to a five-month low of 4.35 per cent in September from 7.27 per cent in the year-ago period as prices of vegetables and other items declined, according to government data released on Tuesday. The moderation in Consumer Price Index-based inflation is in line with the assessment of Reserve Bank Governor Shaktikanta Das who recently projected substantial softening of retail inflation. The CPI inflation was at 5.3 per cent in August and at 7.27 per cent in September 2020.
India's economy will do well once vaccination reaches a critical mass as pent up demand, global recovery and easy financial conditions will boost activities, RBI's Monetary Policy Committee (MPC) member Ashima Goyal said on Tuesday.
The main reason was that CPI inflation would likely remain below 4 per cent till July.
The government has no plan to print currency notes to tide over the current economic crisis triggered by the outbreak of COVID-19 pandemic, Finance Minister Nirmala Sitharaman informed Parliament on Monday. To a question on whether there is any plan to print currency to tide over the crisis, the finance minister said, "No Sir". Many economists and experts have suggested to the government to print more currency notes to tide over the difficult economic situation with a view to support the economy ravaged by the spread of COVID-19, and protect jobs.
Most central banks across the world have around 5-7 years of tenure for the governor and deputy governors.
A V Rajwade wonders if the Modi sarkar is pursuing price stability at the cost of potential social instability in both rural and urban India.
India needs foreign exchange buffer reserves to insulate itself from exchange rate volatility as we have "no friends" for swap lines and Japan was the only country that helped during the taper tantrum in 2013, former RBI Governor Raghuram Rajan said on Tuesday. Participating in a virtual event organised by economic think tank NCAER, Rajan said during the taper tantrum in 2013, India asked for swap lines, and only country who helped was Japan. "We need this (foreign exchange) reserve buffer to insulate ourselves because we have no friends.
Sentiments were also bearish largely in tandem with a sell-off in global markets as US Treasury yields surged to multi-year highs on robust economic data and comments from the Federal Reserve, sparking fears of accelerating inflation, brokers said.
Declining vegetable prices brought down the retail inflation to a 15-month low of 4.59 per cent in December and within the comfort zone of the Reserve Bank, government data showed on Tuesday. It is for the first time during the current fiscal that the Consumer Price Index (CPI) based inflation print is below 6 per cent or in the RBI's target range of 2 to 6 per cent. The central bank factors in the CPI-based inflation while arriving at its monetary policy. The inflation in December 2020 came down from 6.93 per cent in November, mainly on account of 10.41 per cent decline in vegetable prices over the year-ago period.
The six-member monetary policy committee voted 5:1 for the decision, with only Ravindra Dholakia voting for a 0.25 per cent reduction in rates.
Industry players said they were indeed seeing a serious fall in capacity usage, though some sectors were seeming to prevent further fall in the overall capacity utilisation.
Mizoram Chief Minister Lal Thanhawla is likely to contest the November 25 Assembly polls from Serchhip constituency from where he has won five times and also from Hrangturzo, Congress sources have said.
investors will look to the new governor to continue the banking sector clean-up with the same urgency as Mr Rajan, who was targeting fully cleaned-up and provisioned balance sheets by March 2017
'If there is an RBI majority in the committee, there is no question of a veto.'
The RBI has set up a panel to review ATM charges, and fees levied by banks.
Retail inflation crossed the RBI's comfort level and rose to 5.21 per cent in December on increase in prices of food items.
The economic growth is likely to moderate to 6.1 per cent, slowest in over seven quarters, from 6.6 per cent last year same period.
RBI governor is seen succeeding International Monetary Fund (IMF) chief executive officer, Christine Lagarde, next year.
The National Stadium, set to host the Opening and Closing Ceremonies, is one of the venues that has been successfully secured for 2021.
ICICI Bank was the top gainer in the Sensex pack, rising around 4 per cent, followed by UltraTech Cement, Sun Pharma, Bharti Airtel, HUL, SBI, L&T, Axis Bank and IndusInd Bank. On the other hand, Reliance Industries, Bajaj Finserv, HCL Tech and HDFC were among the laggards.
RBI policy, macro data, company earnings to decide market course this week: Experts
Inflation rate during August, the data for which is yet to be released, was likely to remain at about 7 per cent, said SBI Ecowrap.
A likely easing in inflationary pressures in the forthcoming months will reopen the window for the RBI to once again prioritise growth and ease its interest rates.
Net sales growth for the quarter ended December (Q3FY20) was 4.5 per cent on a year-on-year (YoY) basis for companies that have declared their results so far, compared to an 8.4 per cent rise in the first half of the financial year. This indicates that there could be a further rise in days' sales of inventory.
While efforts are being mounted on a war footing to arrest its spread, COVID-19 will impact economic activity in India directly through domestic lockdown. The second-round effects, it said, would operate through a severe slowdown in global trade and growth.
If this turns into reality, India's gross domestic product (GDP) growth will be the lowest since 2012-13, which could severely hit job creation and income growth in the near term.
The reform priorities are clear: enhance savings, improve productivity. Just 25 basis points of moving interest rate up or down would not boost investment: Former RBI Governor Y V Reddy.
In a business friendly move, the Reserve Bank of India on Friday said that Real Time Gross Settlement System (RTGS), used for large value transactions, will be made available round-the-clock from December. In December 2019, the National Electronic Funds Transfer (NEFT) system was made available on a 24x7x365 basis. Currently, RTGS is available for customers from 7.00 am to 6.00 pm on all working days of a week, except second and fourth Saturdays of every month.
To a specific question on the change in RBI's stance from "neutral" to "accommodative", Das said it means that there will not be any rate hike from here on.
Headed by Urjit Patel, MPC for the fourth straight time kept the repo rate unchanged, at which it lends to the banks, at 6.25 per cent. The reverse repo, at which RBI borrows, will be 6 per cent.
A staunch defender of demonetisation, it would be interesting to see how he handles the government's increasing demand for more cash from the RBI, and letting some weak banks get out of prompt corrective action.
The Reserve Bank of India on Wednesday retained the economic growth projection for the current financial year at 10.5 per cent, while cautioning that the recent surge in COVID-19 infections has created uncertainty over the economic growth recovery. In its last policy review, the RBI had projected a GDP growth rate of 10.5 pc for FY'22. Taking various factors into consideration, it said, "the projection of real GDP growth for 2021-22 is retained at 10.5 per cent consisting of 26.2 per cent in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3 and 6.2 per cent in Q4."
The government had amended the RBI Act through Finance Act 2016.
With no rate cuts on the table, the other monetary policy alternative could be to reduce the width of the asymmetric policy corridor or increase in reverse repo rate when the pandemic subsides, they opined.
Amid uncertainties arising out of the second wave of COVID-19, the Reserve Bank on Thursday said that a durable revival of private consumption and investment would be critical for sustaining economic growth post-pandemic. Observing that 2020-21 has left a scar on the economy, RBI in its annual report said, "in the midst of the second wave as 2021-22 commences, pervasive despair is being lifted by cautious optimism built up by vaccination drives." The second wave of the pandemic has prompted revision of growth projections for the current fiscal and the consensus appears to be gravitating towards RBI's forecast of 10.5 per cent, the report added.
The Icfai Institute of Science and Technology announces the admissions test for its BTech programme for 2008-12.
The Reserve Bank's growth projection for next financial year is lower than 8-8.5 per cent projected by the finance ministry in the recent Economic Survey which was tabled in Parliament on January 31. Unveiling the bi-monthly policy, RBI governor Shaktikanta Das said, "Recovery in domestic economic activity is yet to be broad-based, as private consumption and contact-intensive services remain below pre-pandemic levels."
