However, it may still not change its stance on the policy rate as inflationary pressures are coming from high commodity prices.
Sensex and Nifty lost about 3.0 per cent to end the day at nearly 2-week lows.
Waking up to the rising inflationary pressure on day-to-day life of their staff, a majority of Indian companies plan to dole out double-digit hike in the employee salaries and bonuses this fiscal, a survey has found.
RBI in its mid-year review of the monetary policy is expected to raise its key interest rate by 25 basis point to contain inflation which is hovering near the double-digit mark.
Auto makers, who enjoyed a record-breaking sales run over recent months, are now bracing themselves for upheaval, led primarily by changing government policies and rising inflationary pressures.
After two months of buying, foreign portfolio investors (FPIs) have turned net sellers in October by pulling out Rs 12,278 crore from Indian markets. As per depositories data, FPIs took out Rs 13,550 crore from equities but invested Rs 1,272 crore in the debt segment during October 1-29. The total net outflow stood at Rs 12,278 crore during the period under review.
Central banks in India, China and South Korea are closely monitoring the emerging inflationary pressures on their economies and hikes in interest rates could be expected across the Asia-Pacific region after Australia raised key interest rates.
India is poised to be the fastest-growing major economy in the world and an engine of global growth despite global headwinds, says leading industrialist and Aditya Birla Group Chairman Kumar Mangalam Birla. The economic activity in India has witnessed a sharp recovery to pre-pandemic levels on the back of a rapid and widespread rollout of the vaccination programme, Birla said in the latest annual report of UltraTech Cement Ltd. "A strong digital ecosystem, fiscal and monetary policy and various government schemes helped small and medium enterprises and the worst affected sections of the population to survive while reviving demand and bringing the economy back on track," said Birla while addressing UltraTech's shareholders.
The International Monetary Fund (IMF) warned on Tuesday that India's general government debt (comprising both central and state government debt) could exceed 100 per cent of gross domestic product (GDP) in the medium term. It also cautioned that long-term debt sustainability risks are high due to the significant investment required to meet India's climate change mitigation targets. The Indian government, however, disagreed, arguing that risks from sovereign debt are extremely limited as it is predominantly denominated in domestic currency.
Rajan, a professor at the University of Chicago, said if the money raised by the government was not spent, it could result in inflationary pressures, pushing up real interest rates. The problem could get aggravated if foreign capital flows rose, said Rajan, who was in Mumbai to deliver a lecture.
Debt overhang, unsold inventory and lacklustre investor interest could force developers to cut prices.
With inflation rising at its fastest rate, the Union government was prompted to reduce import duties on edible oils even as Reserve Bank of India is expected to bring in tighter monetary policies to combat the rising inflation rate. In an effort to temper price rises, the government has already cut import duties on edible oils and banned the export of pulses and most types of rice.
He, however, also felt that inflation has peaked and would begin falling and be lower than the 5.5 per cent projected by RBI for this fiscal.
Reserve Bank of India Governor Y V Reddy on Tuesday admitted that inflation in India's food prices is much higher than the country's 'tolerance limit' necessitating a comprehensive review of the situation. In response to another question on whether from a monetary policy standpoint he was going to be taking actions to try to counter food price inflation, Reddy said in terms of monetary policy actions they will be governed by lot more desegregated analysis of the situation.
The economic slowdown and the accompanying moderation in the pace of revenue growth has adversely hit the financial health of governments, both Union as well as states, in the financial year 2008-09, according to the Reserve Bank of India's quarterly review of the economy.
If credit is not going to flow in response to a policy rate cut, while inflationary pressures, as well as expectations, may be stoked, a rate cut may not be appropriate at this point
India is beginning to experience its own version of the subprime crisis as banks tighten lending procedures to curb rising delinquencies, particularly in small unsecured personal loans. India's financial system has so far been spared much of the pain of the global subprime crisis because of the relatively small size of its banks and their conservative investment focus overseas.
India's inflation trajectory in the coming months will be influenced more by the geo-political situation due to the war in Europe and its impact on supply chains and commodity prices. However, the country is better placed than most to "weather the storm" and achieve growth of close to 8 per cent in the current fiscal year, the finance ministry said in its latest monthly economic report on Thursday. "Through the channel of imports, elevated global crude and edible oil prices now have a significant impact on India's inflation outlook. "Government measures to keep the prices of these commodities in check, along with the recent hike in policy rates by the RBI, are expected to temper inflationary pressures in the economy," the monthly economic report for April, drafted by the finance ministry's economic division, said.
The Monetary Policy Committee (MPC) may go for a hike of up to 0.25 per cent in the reverse repo rate at which the RBI absorbs excess liquidity and leave the repo rate at which it lends, to narrow the policy rate corridor, a British brokerage said on Thursday. "Growth concerns amid spread of the Omicron variant and relatively benign inflation out-turns provide the RBI with enough room to maintain its growth-supportive monetary policies," analysts at Barclays said, ahead of the resolution announcement next week. The RBI will hike the reverse repo rate by 0.20-0.25 per cent, given its liquidity management actions, it said.
The fear of an economic slowdown has led to increased attention on interest rates movements all over the world.
Enumerating a few steps that India could take to become even more competitive, US Treasury Secretary Henry M Paulson Jr said it could reduce needs for financial institutions to hold substantial amount of deposits in government debts which limits the scope of banks for taking greater exposure to certain priority sector.
The Reserve Bank on Tuesday increased a key statutory deposit ratio for banks to 25 per cent but the move is not expected to push interest rates up. RBI left other key policy rates and ratios unchanged. Due to this, it is unlikely that banks will banks hike their auto, home and education loan rates in the near term.
The inflation target has been hiked to to 6.5 per cent from 5 per cent. The FY10 GDP target is unchanged at 6 per cent.
The Reserve Bank is likely to hike interest rates marginally in the fourth quarter of this fiscal to give a signal to the market, a top financial sector expert said.
Annual food inflation fell marginally to 9.53 per cent for the week ended July 24 as prices of vegetables, especially potatoes and onions, declined.
With food price inflation in double digits, the Reserve Bank is faced with the daunting task of keeping inflation in check, the bank K C Chakrabarty, deputy governor said.
The Whole Price Index inflation figure for June is slated to be released tomorrow. "The WPI forecast is 11.12 per cent for June. . .the RBI is slowly withdrawing from its low policy rates regime and the trend is going to continue, given the inflationary pressure in the economy," IEG said in its monthly bulletin.
Global rating agency Standard & Poor's on Tuesday said tight monetary policy to tame rising inflation will slow down India's growth a bit to 7.5-8 per cent in 2008 and expressed concern about the worsening fiscal situation.
The RBI in its first quarterly review of the credit policy kept the repo and reverse repo -- short-term rates at which banks lend and borrow from RBI--unchanged, retained economic growth projection at 6 per cent with an upward bias and projected inflation at around 5 per cent by March, 2010.
Banks are expecting a 25-basis-point increase in the repo rate (7.75 per cent at present) -- the central bank's short-term lending rate against government securities -- when the Reserve Bank of India announces its monetary policy on April 24.
"You may probably see some more liquidity controls like the CRR being altered again...if oil prices go beyond tolerable levels..," J&K Bank's Chairman and Chief Executive Officer, Haseeb A Drabu, told reporters on the sidelines of a seminar in Mumbai.
'The idea is to invest where there is opportunity.'
India's services sector activity expanded at the strongest pace in ten-and-a-half years in October, driven by a substantial upturn in business activity amid favourable demand conditions, a monthly survey said on Wednesday. Companies indicated that a notable pick-up in new business led to the fastest expansion in output in over a decade and as a result more jobs were created, even though business confidence remained subdued due to growing inflationary concerns. The seasonally adjusted India Services Business Activity Index rose from 55.2 in September to 58.4 in October, signalling the strongest rate of growth in ten-and-a-half years.
Expressing concern over high debt exposure of many companies in India, global rating agency Standard & Poor's on Tuesday warned India Inc that high oil prices can trigger inflationary pressures, trim corporate profits and slow down industrial activit
Individuals and corporate borrowers face the prospect of further interest rate increases, as the Reserve Bank of India battles inflation and high credit growth.
The newly-appointed Minister of State for Planning V Narayanasamy on Monday expressed confidence that prices will come under control soon following the steps taken by the Centre to contain inflationary pressure.
The country's largest lender, State Bank of India, has said that there will be no hike in lending rates in the next six months as there is surplus liquidity in the market.
The Cabinet, scheduled to meet on Thursday, may reduce petrol price by Rs 5 a litre, diesel by Rs 3 per litre and domestic LPG by Rs 25 per cylinder, giving relief to the common man and further easing inflationary pressures.
The International Monetary Fund has said India should make its financial system more efficient and hasten structural reforms to sustain high economic growth, which averaged about eight per cent in the last three years. \n
