The paper seems to be suggesting strongly that the tight target range be maintained even as the central bank is all set to miss the target range for three consecutive quarters because of the Covid crisis.
All policy planners want low interest rate, says Jaitley
Analysts at Barclays pitched for a 0.25 per cent cut to generate demand advising the central bank to throw caution to the wind.
RBI said monetary management in the current fiscal will be dominated by the challenge of moderating inflation and anchoring inflation expectations, while remaining supportive of growth impulses.
India's economic growth is now 'extremely fragile' and needs all the support that it can get, as private consumption and capital investment are yet to pick up, RBI Monetary Policy Committee (MPC) member Jayanth R Varma said on Friday. Varma further said out of the four engines of growth for the economy, exports and government spending supported the Indian economy through the pandemic, but other engines need to pick up the baton now. " I like to think in terms of the four engines of growth for the economy: exports, government spending, capital investment and private consumption. "...while exports cannot be the main driver of growth because of the global slowdown, government spending is necessarily limited by fiscal constraints," he told PTI.
RBI Governor Duvvuri Subbarao on Tuesday defended the bank's decision to keep the key policy rate unchanged saying inflation could rise to above 8 per cent in the near-term.
The government, in the forthcoming Budget, could consider levying higher tariffs on imports to check the significant decline in rupee value witnessed in the past few months, said EY Chief Policy Advisor DK Srivastava. The noted economist argued that higher import duties would curb the demand for dollars from importers and help arrest the sliding value of the rupee, which touched a historic low of 86.70 to a dollar on January 13.
The Reserve Bank of India's (RBI's) record surplus transfer to the government has raised hopes among bond traders that the government might reduce its gross borrowing for the current financial year (2024-25/FY25) by up to Rs 1 trillion. The RBI approved a dividend of Rs 2.11 trillion for the central government for 2023-24, marking an increase of roughly 141 per cent from 2022-23 (FY23). In addition, the contingency risk buffer has been raised to 6.5 per cent from the previous 6 per cent.
RBI has held its short-term lending (repo) rates unchanged at eight per cent since April 2012.
The RBI on Wednesday cautioned that while the Indian economy appears capable of weathering the deterioration in geopolitical conditions amid the ongoing Russia-Ukraine war, it faces headwinds from global spillovers from geopolitical tensions, elevated commodity prices and moderating external demand. The RBI, however, did not tinker with the GDP growth projection made in April. It had slashed the GDP growth projection for the fiscal 2022-23 to 7.2 per cent from its earlier forecast of 7.8 per cent.
Fundraising via initial public offers (IPOs) dropped 52.2 per cent to $147.2 billion in the first eight months of calendar year 2023 (CY23), suggests a recent report by GlobalData, a London-based analytics and consulting company. At the country level, the report suggests, India topped the charts with 152 transactions worth $3.8 billion during this period, primarily due to a higher number of SME IPOs, followed by the US with 99 deals totaling $16 billion, while China ranked third with 88 transactions worth $32.3 billion. "An analysis of GlobalData's Deals Database reveals that there were 750 IPO listings registered with an aggregate deal value of $147.2 billion in the first eight months of 2023 on the stock exchanges worldwide.
While the economy seems to be on a firm growth path, the fight against inflation is not over yet. Shaktikanta Das seems to be in no hurry. After playing well through a five-year Test match, he doesn't want to get out hit wicket, observes Tamal Bandyopadhyay.
The domestic stock market may face volatility amid the monthly derivatives expiry scheduled this week, while investors would mainly await the outcome of RBI's interest rate decision on Friday, said analysts. Global market movement would also continue to drive sentiment amid a bearish trend recently following rate hikes by the US Federal Reserve and other central banks. The Reserve Bank of India (RBI) may take cues from its global counterparts to raise interest rate for the fourth time in a row to control inflation.
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 Reserve Bank on Thursday marginally revised upwards the economic growth projection for the current fiscal to 6.5 per cent, from its earlier estimate of 6.4 per cent. Unveiling the first bi-monthly monetary policy of 2023-24 fiscal, RBI Governor Shaktikanta Das said the GDP growth in the first quarter of 2023-24 is expected at 7.8 per cent.
Stock market analysts on Tuesday termed the RBI decision to hike policy rates by 0.25 per cent as in line with expectations and said they expect another hike in March review of the monetary policy.
During the fourth quarter of last fiscal, the economy had grown at a nine-year low rate of 5.3 per cent. During the entire fiscal of 2011-12, the economy grew by 6.5 per cent.
'Investors need to expect steady returns over the next one to two years with bouts of high volatility.'
The overall inflation in March fell to 5.96 per cent, much below Reserve Bank of India estimate.
The Reserve Bank's rate setting panel on Thursday met to finalise a report for the government on why it failed to keep retail inflation below the target of 6 per cent for three consecutive quarters since January this year, said sources. The report will be presented to the government as per the Reserve Bank of India Act, they added. The six-member Monetary Policy Committee (MPC) is headed by Governor Shaktikanta Das.
The study points out that for the determination of growth and investment at the macroeconomic level, the real interest rate is more relevant, even though the nominal interest rate is important for investment planning at the firm level.
Fitch Ratings on Thursday retained India's growth forecast for the current fiscal at 6.3 per cent citing economic resilience despite tighter monetary policy and exports weakness, but upped year-end inflation projection on El Nino threat. The Indian economy grew 7.8 per cent in the April-June quarter of current fiscal on strong services sector activity and robust demand. "The Indian economy continues to show resilience despite tighter monetary policy and weakness in exports, with growth outpacing other countries in the region," Fitch said, while projecting 6.3 per cent growth for current fiscal (April-March), and 6.5 per cent for next fiscal.
RBI is scheduled to announce the annual credit policy on May 3.
The International Monetary Fund (IMF) on Tuesday lowered India's economic growth projection for the current fiscal to 5.9 per cent from 6.1 per cent earlier. Yet India will continue to be the fastest-growing economy in the world. In its annual World Economic Outlook, IMF also lowered the forecast for 2024-25 fiscal (April 2024 to March 2025) to 6.3 per cent from the 6.8 per cent it had predicted in January this year. The growth rate of 5.9 per cent in the 2023-24 fiscal compares to an estimated 6.8 per cent in the previous year.
Maintaining 4 per cent inflation is appropriate for India as targeting a lower rate could impart deflationary bias to the monetary policy, said a Reserve Bank paper. Under the current dispensation, the RBI has been mandated by the government to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side. The paper, authored by RBI Deputy Governor Michael Debabrata Patra and another official Harendra Kumar Behera, has found a steady decline in trend inflation to 4.1-4.3 per cent since 2014.
The dollar index was down 0.01 per cent at 95.86 against a basket of six currencies in early trade
Wholesale price-based inflation remained in the negative territory for the fifth straight month in August at (-)0.52 per cent, but prices of food articles and fuel showed an uptick. The wholesale price index (WPI) based inflation rate has been in the negative since April and was (-)1.36 per cent in July. In August last year it was 12.48 per cent. Inflation in food articles remained in double digit at 10.60 per cent in August, lower than 14.25 per cent in July.
Wholesale inflation rate declined marginally to 0.2 per cent in February compared to 0.27 per cent in the preceding month despite a slight uptick in the food basket. The Wholesale Price Index (WPI)-based inflation was in the negative zone from April to October and had turned positive in November at 0.26 per cent. The inflation in February 2023 was 3.85 per cent.
Reserve Bank deputy governor KC Chakrabarty on Monday said the chances of interest rate hikes by the central bank is always there as policy measures depend on the changing economic scenario.
According to the financial services major, the recent decline in inflation, driven largely by food prices, gives the RBI room to pause monetary tightening.
The Reserve Bank of India's (RBI's) caution on inflation, highlighted during the recent monetary policy meeting, may put investors' faith in fast moving consumer goods (FMCG) stocks to test, analysts said. They, however, believe FMCG stocks may ride through this near-term investor anxiety as related companies are, typically, well-equipped to handle inflation due to their pricing power and steady demand for essential goods.
The RBI's Review is completely at odds with its actions.
To minimise risk, invest in a debt fund whose duration matches your investment timeframe.
'Even if there is a third wave or a fourth wave, it is hard to see the economy will suffer like that (during the first wave).'
Auto stocks will be in focus
Stock markets will be driven by quarterly earnings by index majors, global trends and the RBI's interest rate decision this week after digesting news on budget proposals and US Federal policy outcome, say analysts. The trading activity of foreign investors and the movement of global oil benchmark Brent crude would also dictate trends in equities. "On the domestic front, the MPC (Monetary Policy Committee) meeting is scheduled from February 6-8.
Analysts and economists say that it is too early to expect anything dramatic on the interest rate regime despite the recent reform measures.
Less-than-expected rainfall and a poor spatial distribution, experts say, can rekindle fears of a rise in food and fuel inflation that can have an impact on the RBI's monetary policy. The fear of less than optimal rainfall due to El Nino this year, analysts believe, is the biggest short-term risk for the markets, which they said has not been fully priced in yet by them. Monsoon set over Kerala on June 08, a week later than its scheduled date.
'Higher interest rates make gold less attractive as it doesn't generate yield.' 'However, with rates set to fall, the tables are turning for gold.'
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