The new rates, effective Wednesday, is the third reduction by SBI in this financial year having cut the rates by 5 bps each in April and May, while its home loan rates has come down by 20 bps during this period.
In twin blows to Indian economic revival, higher food prices drove retail inflation to a five-month high of 7.4 per cent while factory output fell for the first time in 18 months. The second consecutive month of rise in consumer price index (CPI)-based inflation will add to the pressure on the Reserve Bank of India (RBI) to again raise interest rates to tame high prices. Inflation has been above the targeted zone for the ninth month in a row and as per statute, the RBI will now have to explain to the government in writing why it failed to keep prices below 6 per cent.
The Reserve Bank is working on a phased implementation strategy for its own digital currency and is in the process of launching it in wholesale and retail segments in the near future, RBI Deputy Governor T Rabi Sankar said on Thursday. He said the idea of Central Bank Digital Currency (CBDC) is ripe, and many central banks in the world are working towards it. Sankar further said CBDC is needed to protect consumers from the "frightening level of volatility" seen in some of the virtual currencies which have no sovereign backing.
The Reserve Bank on Tuesday said growth is expected to fall below 5 per cent in 2013-14 in absence of pick-up in manufacturing sector, but likely to recover to 5.5 per cent in the next financial year.
After consumer price index jumped the 6.3-per cent mark in May and wholesale inflation set a record of 12.94 per cent, house economists at Swiss brokerage UBS Securities have warned that the country is facing more upside risks on the inflation front that is set to averaging at 5 per cent for the year. Rising prices of edible oils and protein rich items pushed retail inflation to a six-month high of 6.3 per cent in May, breaching the comfort level of the Reserve Bank and thus rendering reduction in interest rates a difficult proposition in the near term. Led by petrol price, that has crossed the Rs 100-mark in many states, wholesale inflation too accelerated to a record 12.94 per cent in May. While crude oil has crossed $70 a barrel on account of rising prices of crude oil and manufactured goods due to spike in commodities, and the low base of last year due to the lockdown.
Finance Minister Nirmala Sitharaman has said the recent interest rate hike by the Reserve Bank was not surprising for her but the timing was, asserting that the rising cost of funds will not impact the government's planned infrastructure investments. For the first time since August 2018, RBI had on May 4 delivered a blunt 40 basis points increase in key repo rate to 4.40 per cent, and also hiked the cash reserve ratio by 50 basis points to 4.5 per cent after an unscheduled meeting of the rate setting panel, citing increased inflation pressures following the Ukraine war and the resultant spike in crude oil prices. Retail inflation printed at 6.9 per cent in March and the April reading is forecast to top 7.7 per cent.
'Credit expansion is probably the quickest way to get the economy going again.' 'Easy credit is like a shot of nitro in a race car: In timely, small, quick, doses it can give a tremendous boost but carried to extreme it can destroy the engine,' points out S Muralidharan, former managing director, BNP Paribas.
With a sole mandate of inflation targeting, RBI wears many hats.
The trade gap was $11.66 billion in December 2015 while in September 2015 it stood at $10.16 billion
RBI declines to accede to plea, upheld by Padmanabhan panel, for priority sector tag; feels move would dilute claims of those needing it more.
Rate cuts are unlikely to be aggressive, in our view.
If the new governor can think out of the box even as he signals that he can bat for the RBI cadre and respect its institutional memory, that will go a long way in getting out of the current impasse.
The Indian equity market is likely to remain under pressure and rangebound over the next few months. This comes as global central banks, led by the US Federal Reserve look at a possibility of hiking rates aggressively to tame inflation. Back home, the Reserve Bank of India, too, remains data dependent in its endeavour to keep inflation in check and pursue an aggressive monetary policy stance.
Banks argued that loans of most lenders are funded primarily by retail deposits and not from the wholesale market as was the practice abroad
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.
Costlier vegetables slowly pushed retail inflation, which had remained well within the Reserve Bank's comfortable level of 4 per cent during most part of 2019, peaked to more than three-year high of 5.54 per cent in November.
Potato, a daily consumable vegetable, witnessed maximum inflationary pressure at 60.58 per cent
During the month, inflation in vegetables shot up to 35.99 per cent, as against 26.10 per cent in October. Likewise, the prices of cereals and eggs grew at a faster pace of 3.71 per cent.
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.
A fall in the rupee could boost exports. But the flip side of the equation is that a weaker rupee could stoke some inflation
Costlier vegetables and eggs pushed up retail inflation to a nearly six-and-a-half year high of 7.61 per cent in October, keeping it significantly above the comfort zone of the Reserve Bank.
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's services sector activity moderated further in January as new business rose at a noticeably slower rate amid the escalation of the pandemic, reintroduction of restrictions and inflationary pressures, a monthly survey said on Thursday. The seasonally adjusted India Services Business Activity Index fell to 51.5 in January, down from 55.5 in December, pointing to the slowest rate of expansion in the current six-month sequence of growth. For the sixth straight month, the services sector witnessed an expansion in output.
Managing Brexit, inflation and banking reforms, along with the political environment, will be tough.
'The rising cost of construction, the cost of doing business, high compliance, and inflation/interest rates going up have already reduced returns to single digits.'
It would be beneficial for the economy to hold on to high interest rates till inflation numbers are under control.
Reserve Bank of India Governor Shaktikanta Das tells Anup Roy, Raghu Mohan and Niraj Bhatt that it is time for banks to lower interest rates and start lending to cash-starved finance companies after due credit appraisal and proper risk assessment.
The headline seasonally adjusted Nikkei India Composite PMI Output Index, that maps both the manufacturing and services sectors, rose from 53.3 in June to 54.1 in July.
Some say the MPC will raise the rate, while others are of the view that there is already de facto interest rate tightening through rising bond yields, which might prompt the central bank to go for a pause.
Barry Eichengreen, professor of economics and political science, University of California, Berkeley, analyzes the transparency of the Reserve Bank of India, the growth rate of the Indian economy and why he feels globalisation can never be rolled back.
'There are deeper, underlying, forces at work and we need institutional arrangements to guard against them.'
Currency scarcity weighed on manufacturing performance where growth of new work flows slowed
The Reserve Bank of India is expected to announce a slew of measures to bring vibrancy into the debt market as part of its mid-term review of the annual monetary policy.
The size of the hole in today's banking crisis appears to be roughly 10 per cent of GDP.
The wider Nifty hit a low of 10,033.35 before finishing at 10,044.10, down 74.15 points or 0.73 per cent.
Rajan said the process of dialogue with the government did not reach a stage where he could have agreed to stay on
RBI could opt for a 'deep cut' after winning inflation war, say experts.
'If Urjit Patel had resigned after the five-state elections results people would have taken a different view. So this was the right time for him to resign.' 'He rightly resigned as he felt the differences with the government were not getting settled.'
The Reserve Bank of India has set up an experts committee to implement Basel II accord by 2006 to strengthen the financial health of banks by adopting globally accepted norms for capital adequacy.
The Financial Stability and Development Council meeting on Tuesday started with an air of tension in the room. An official present described the participants' body language as "tetchy". However, once presentations and discussions begun, the mood considerably eased.
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