The spike in food prices at the onset of the monsoon season has corroborated the Reserve Bank of India's (RBI's) view that the fight against inflation is far from over, the State of the Economy report of the central bank said. At the same time, the report said that the country is poised to become the fastest-growing major economy in the world, notwithstanding some sequential moderation in economic activity in June. Consumer Price Index (CPI)-based inflation rate increased to 4.8 per cent in June 2023, from 4.3 per cent in May, primarily on account of an increase in food inflation.
Checks on the large capital flows could be on the anvil as the Reserve Bank of India on Wednesday said its inflation target for 2007-08 hinges on a "more active" capital account management.
Though interest rates have peaked, a hike in cash reserve ratio by the Reserve Bank of India cannot be ruled out in the first quarterly review of monetary policy later this month, a top official of a foreign bank said on Monday.
The December meeting of the Reserve Bank of India's (RBI's) six-member Monetary Policy Committee (MPC) will start on Wednesday even as there is no clarity on whether Governor Shaktikanta Das, the chair of the panel, will continue in office after his term ends next week. The outcome of the meeting will be announced on Friday by Das at 10 in the morning.
The RBI has changed the way it approached supervision in the past. Having seen a couple of collapses in the NBFC sector and the near-collapse of a few banks, it is focusing on regular drills to prevent a fire from breaking out, explains Tamal Bandyopadhyay.
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.
The Reserve Bank of India on Monday said inflationary pressures because of oil and food prices are likely to continue, giving an indication that monetary policy could be tightened further when it comes for review on Tuesday.
RBI Governor D Subbarao explains the rationale for the moves announced in the second quarter review of the monetary policy in an interview with Sidhartha. Excerpts:
India Inc on Thursday expressed fear that the RBI's decision to raise key short-term rates will push up the cost of borrowing, making some of their projects unviable and hurting expansion plans.
On July 15, the Reserve Bank put in place measures to restore stability in the foreign exchange market, including raising the Marginal Standing Facility and bank rates to 10.25 per cent and restricting access by way of repos to Rs 75,000 crore (Rs 750 billion).
Bankers and other stakeholders are now almost certain that the Reserve Bank of India (RBI) will increase the key policy rate, or the repo rate, by 25 basis points (bps) on Tuesday.
Trading sentiment in the equity market this week will be guided by global trends, foreign fund movement, macroeconomic data announcements and RBI's interest rate decision, analysts said. The monthly auto sales data announcement would also be tracked by investors this week.
The policy review observed that the moderation in inflation, excluding food and fuel, that was witnessed in the first quarter of 2017-18 has "by and large, reversed".
To first take a position that the currency would be managed, and then to witness it fall, is a grave loss of credibility for any government, and for any central bank.
Retail inflation crossed the RBI's comfort level and rose to 5.21 per cent in December on increase in prices of food items.
Subir Gokarn says credit-deposit growth mismatch for a longer period could put pressure on liquidity.
The RBI left key policy rates unchanged and cut the GDP growth estimate for this fiscal to 5.5 per cent from 5.7 per cent.
The Urjit Patel committee on monetary policy framework has proposed setting up of a monetary policy committee (MPC) that will be headed by the Reserve Bank of India (RBI) governor and accountable for achieving inflation target set by it.
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.
High deposit rates may put pressure on teaser home loan rates
The RBI on Friday retained inflation forecast for FY23 at 6.7 per cent amid uncertain price trajectory on "geopolitical shocks" and on hope that inflationary pressures would ease with pick-up in kharif sowing and supply chain improvements. In its previous monetary policy review in June, it had projected retail inflation for 2022-23 at 6.7 per cent, higher from 5.7 per cent forecast in April. The six-member Monetary Policy Committee (MPC) unanimously decided to raise the benchmark repo rate by a steep 50 basis points to 5.40 per cent with immediate effect to tame inflation while supporting growth.
Foreign investors have made a strong comeback to Indian equities with a net investment of Rs 22,766 crore in the first two weeks of December driven by expectations of rate cut by the US Federal Reserve. This revival follows significant outflows in the preceding months, with Foreign Portfolio Investors (FPIs) pulling out a net Rs 21,612 crore in November and a massive Rs 94,017 crore in October -- the worst monthly outflow on record.
The Reserve Bank on Friday retained the GDP forecast for the current financial year at 9.5 per cent and flagged global semiconductor shortages, elevated commodity prices and potential global financial market volatility as downside risks to economic growth. In his address after the three-day meeting of the rate-setting panel, RBI Governor Shaktikanta Das said recovery in aggregate demand gathered pace in August-September, and it is reflected in high-frequency indicators, like railway freight traffic; port cargo; cement production; electricity demand; e-way bills; GST and toll collections. "The ebbing of infections, together with improving consumer confidence, has been supporting private consumption," he said, and added the pent-up demand and the festival season should give further fillip to urban demand in the second half of the financial year.
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.
In terms of magnitude of rate cuts, Morgan Stanley expects 50-100 basis points of policy rate cuts in 2015, depending on the inflation trajectory, which in turn will be dependent on the trend in commodity prices, fiscal deficit and rural wage growth.
The reverse repo ceiling was imposed in March when liquidity in the banking system was tight and the overnight call rate had touched a peak of 80 per cent.
As COVID-19 infections spike in the country resulting in restrictions in various states and impacting the fragile recovery, many economists are expecting RBI to delay the policy normalisation move, which is expected in the February review. The country has reported a single-day rise of 58,097 new Covid-19 cases as of Wednesday morning--the highest in around 199 days -- of which 2,135 are Omicron cases and later in the day, the first confirmed Omicron-related death has also been reported. Maharashtra recorded the maximum number of 653 Omicron cases followed by Delhi at 464, Kerala 185, Rajasthan 174, Gujarat 154 and Tamil Nadu 121 cases, taking the total tally of cases to 3,50,18,358.
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Industry's demand for a reduction in the repo rate, currently 8 per cent, has gained momentum after wholesale and retail inflation eased in February.
Analysts expect RBI to restore 100-bp corridor in Tuesday's policy review.
Pressure has been mounting on the Reserve Bank of India to cut interest rates in the wake of declining retail inflation and the need to fuel growth momentum. However, the RBI will have to do a tightrope walk as globally interest rates are inching upwards.
Retail inflation eased to an 11-month low of 4.83 per cent in April as prices of some kitchen items declined though overall food basket firmed up marginally, according to a government data released on Monday. The Consumer Price Index (CPI)-based retail inflation was 4.85 per cent in March. It was 4.7 per cent in April 2023.
The central bank will appear vacuous if it holds fire next week following its ultra hawkish guidance at the last monetary policy review.
The Reserve Bank of India on Friday decided to leave benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance as the economy faces heat of the second Covid wave.
RBI has pegged the GVA growth of 7.6 per cent for the current fiscal and 7.9 per cent the year after
Many analysts argue with limited space for a fiscal stimulus, the burden of lifting growth lies squarely on monetary policy.
Commercial papers, certificates of deposit also dry up
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.
The Reserve Bank is unlikely to lower the interest rates.
Hawkish tone likely to guard rupee from further slide
GDP growth of 7.7 per cent in the first half of this fiscal has "left sceptics gasping and woefully behind the curve", an RBI article said on Wednesday. It also stressed the buildup in the growth momentum is likely to be sustained. The article on the state of the economy published in the Reserve Bank's December Bulletin on Wednesday also said CPI-based retail inflation is expected to ease to 4.6 per cent in the first three quarters of 2024-25 from 5.6 per cent in November.
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