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.
Reserve Bank of India (RBI) on Friday kept the benchmark interest rate unchanged at 4 per cent and decided to continue with its accommodative stance despite rising inflation. This is the 11th time in a row that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained the status quo. RBI had last revised its policy repo rate or the short-term lending rate on May 22, 2020 in an off-policy cycle to perk up demand by cutting the interest rate to a historic low.
Chief Economic Advisor (CEA) V Anantha Nageswaran on Tuesday said India is not defending the rupee and the Reserve Bank of India is taking necessary steps to ensure that the movement of the rupee is gradual and in line with market trends. Nageswaran further said that the rupee is being managed in a manner that reflects the fundamentals of the economy. "India is not defending the rupee... I don't think Indian fundamentals are such that we need to defend the rupee. "The rupee can take care of itself," he said at an event in New Delhi.
'The Indian economy and the Indian financial sector today remain resilient and much better placed.'
Prices of food items like cereals, pulses, and edible oils rose or remained steady in May, a Reserve Bank of India (RBI) report said, indicating there could be another higher inflation print. However, it observed that the Monetary Policy Committee's (MPC's) surprise move to increase interest rates bodes well for its credibility. The RBI's monthly State of the Economy report, released on Tuesday, citing high frequency food price data from the Ministry of Consumer Affairs for the period May 1-12, said the increase in the prices of cereals was primarily because of the surge in wheat prices.
After three consecutive years of infusing huge funds, foreign portfolio investors retreated from the Indian equity markets in a big way in 2022 with the highest-ever yearly net outflow of nearly Rs 1.21 lakh crore. The huge outflow, which surpasses by a big margin the previous record of Rs 53,000 crore net withdrawal in 2008, came amid aggressive rate hikes by central banks globally but 2023 is expected to be better on positivity about overall macroeconomic trends in India, experts said. Apart from global monetary tightening, volatile crude, rising commodity prices along with Russia and Ukraine conflict led to an exodus of foreign money in 2022.
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.
Uncertainty is emerging as the only certainty, said RBI Governor Shaktikanta Das as he emphasised on continued policy support at the December MPC meet during which members expressed concerns over spread of the Omicron variant of coronavirus, as per the minutes of the rate-setting panel released on Wednesday. After three days of deliberations, the six members of the Monetary Policy Committee (MPC) on December 8 unanimously voted for status quo on policy rates for the ninth consecutive time. At the meeting, the RBI Governor said risks stalking the global economy have amplified with rapid spread of the virus mutations, including the Omicron variant, leading to countries scrambling for restrictions.
Global gold demand has seen a year-on-year decline of 8 per cent during the April-June period to 948.4 tonnes and going ahead further monetary tightening and continued dollar strength may pose headwinds, says a report. According to the WGC Gold Demand Trends Q2 2022 report, the total gold demand during the second quarter of 2021 stood at 1,031.8 tonnes. The year-on-year demand was affected by increase in gold electronic traded funds (ETFs) outflow, decline in Central banks buying and lower demand from the technology segment, the report said.
Days after the government said the Reserve Bank will introduce a digital currency in 2022-23, Governor Shaktikanta Das on Thursday said the central bank does not want to rush and is carefully examining all aspects before introduction of the Central Bank Digital Currency (CBDC). He, however, declined to give any timeline for the launch of the CBDC. In her Budget 2022-23 speech, Finance Minister Nirmala Sitharaman had announced that the RBI will introduce a digital currency in the next financial year beginning April 2022 to boost the digital economy and for more efficient currency management.
Overseas investors have pulled out a net Rs 1,14,855.97 crore from the Indian markets in the current year so far, amid heightened geopolitical tensions and inflation concerns. Foreign portfolio investors have sold domestic equities worth Rs 48,261.65 crore so far this month, taking the year-to-date tally this year to a massive Rs 114,855.97 crore, according to depositories data. The exodus of foreign investors was largely owing to inflationary pressures and deepening global macroeconomic conditions following the Russia-Ukraine war, experts said.
BSE benchmark Sensex plummeted over 388 points to close at 58,576.37 on Tuesday, tracking weakness in index majors Wipro, RIL and Bharti Airtel amid a weak trend in global markets. Investors also remained cautious ahead of crucial macroeconomic data announcements -- industrial production for February and inflation rate for March -- post trading hours. The Sensex declined 388.20 points or 0.66 per cent to settle at 58,576.37. During the day, the benchmark tanked 666 points or 1.12 per cent to 58,298.57.
Macroeconomic data, the pace of vaccination and global trends would be the major drivers for the domestic equity markets this week, analysts said. Besides, the progress of monsoon will also be monitored. "This week marks the beginning of the new month also, so participants will be eyeing the high-frequency indicators like auto sales and manufacturing PMI during the week. "Besides, the progress of monsoon will also remain on their radar.
Observing that there is liquidity overhand of Rs 13 lakh crore in the system, RBI Governor Shaktikanta Das said on Friday that the exceptional measures undertaken during pandemic will be dealt in sync with macroeconomic developments to preserve financial stability. Since the onset of the pandemic, the Reserve Bank has maintained ample surplus liquidity to support a speedy and durable economic recovery, he said while announcing the outcome of the Monetary Policy Committee (MPC) meeting. The level of surplus liquidity in the banking system increased further during September 2021, with absorption under fixed rate reverse repo, variable rate reverse repo (VRRR) of 14 days and fine-tuning operations under the liquidity adjustment facility (LAF) averaging Rs 9 lakh crore per day as against Rs 7 lakh crore during June to August 2021, he said.
Markets this week would be guided by the ongoing quarterly earnings, macroeconomic data announcement and global trends, analysts said. The government will release industrial production data for June and inflation data for July this week. The RBI has revised its retail inflation forecast to 5.7 per cent, up from the earlier 5.1 per cent due to price pressure on account of supply constraints and high crude oil prices.
Domestic equity markets are likely to see volatility in a range-bound trade this week amid geopolitical worries and growing expectations of a sharp hike in interest rates, analysts said. Global trends, inflation data and the last batch of quarterly earnings will drive the markets this week, they said. Besides, the rupee movement, FII investment pattern and Brent crude trends would also be watched by investors.
The government is likely to introduce a bill on crypto currencies during the winter session of Parliament beginning November 29, amid concerns over such currencies being allegedly used for luring investors with misleading claims and for funding terror activities, sources said on Monday. Currently, there are no particular regulations or any ban on use of crypto currencies in the country. Against this backdrop, Prime Minister Narendra Modi, on Saturday, held a meeting on the crypto currencies with senior officials and indications are that strong regulatory steps could be taken to deal with the issue.
Upbeat high-frequency indicators and consumer confidence show that Indian economy continues to forge ahead, emerging out of shackles of pandemic, said an article on the state of economy published in RBI Bulletin on Wednesday. The recovery is spearheaded by an uptick in private investment through November-December alongside a turnaround in bank credit offtake and high capex from the government sector (Centre and states). In conjunction, the employment situation has brightened, said the article written by RBI officials.
The US Fed interest rate decision, domestic macroeconomic data announcements and ongoing quarterly earnings are some of the major factors that will drive the stock markets in a holiday-shortened week, analysts said. Besides, monthly auto sales numbers and the LIC IPO will also remain in focus, they added. Equity markets will remain closed on Tuesday for Id-Ul-Fitr (Ramzan Id). "The market is likely to kick off this week on a sombre note after a sharp fall in the US market then the focus will shift to the outcome of the US FOMC meeting, which is crucial amid record inflation and growth worries.
All-out efforts are needed to mitigate the adverse impact of the Covid-19 pandemic, and the RBI will use any instrument necessary to revive growth and preserve financial stability, according to the minutes of the central bank's policy meeting.
India's current account deficit is expected to deteriorate in the current fiscal on account of costlier imports and tepid merchandise exports, according to the Finance Ministry's monthly economic review. The review released on Thursday by the ministry also said that global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket. For the present, it said, "their global prices have softened, as fears of recession have dampened prices somewhat. This would weaken inflationary pressures in India and rein in inflation."
Currently, there is no regulation or any ban on the use of cryptocurrencies in the country.
Inflation data and global trends would be the major driving factors for the equity markets this week which after a record-breaking run took a breather in recent trades, analysts said. The overall market sentiment remains positive, supported by improving economic data and earnings but higher valuations can trigger bouts of profit booking, they said further. During the last week, which the 30-share BSE benchmark rose by 175.12 points or 0.30 per cent.
Young investors could allocate in the proportion of 70:20:10 to equity, debt and gold.
The first quarter earnings season will dictate the trend in the equity markets in this holiday-shortened week amid absence of major macroeconomic drivers, say analysts. Besides, lacklustre global markets may increase volatility in the market, they added. Equity markets would remain closed on Wednesday for Bakri-Id.
Macroeconomic management is usually a lot more comfortable with lower fiscal deficits. The sooner we get there, the better for the economy, says former Chief Economic Adviser to the Government of India Shankar Acharya.
'Valuations are very attractive, and most companies are cash-rich with strong dividend yields.'
As macroeconomic numbers continue to disappoint, reaching pre-Covid level is unlikely in FY21.
The criticism that the Reserve Bank of India was behind the curve in hiking interest rate to tame rising inflation is unfair, former RBI Governor D Subbarao said on Wednesday and asserted that it is difficult for any central bank to anticipate the future more accurately. Earlier this month, Monetary Policy Committee (MPC), the central bank's rate-setting panel, surprised the markets with a 40 basis points hike in repo rate in an off-cycle policy meeting. It was also the first rate hike after August 2018, amid spiralling inflation.
Probably 35 bps. There could be even an encore in February 2023 to take the policy rate to 6.5% before the financial year ends, predicts Tamal Bandyopadhyay.
Macroeconomic data announcement, Omicron situation and global trends will be the major driving factors for the equity market in the first week of the new year 2022, according to analysts. In what turned out to be a historic year, the Indian stock indices went past multiple milestones and the 30-share Sensex made an annual gain of 10,502.49 points or 21.99 per cent in 2021. Religare Broking Vice-President (Research) Ajit Mishra said, "This week marks the beginning of a new month and participants will be closely eyeing some crucial high-frequency data like monthly auto sales, India manufacturing PMI and India services PMI. "Besides, updates on the COVID-19 situation and performance of global markets will also be critical."
'For the common man, the economic conditions are not going to get better.'
The gross non-performing assets of banks may rise to 13.5 per cent by September 2021, from 7.5 per cent in September 2020, under the baseline scenario, according to Financial Stability Report (FSR) released by the Reserve Bank of India.
The Fed interest rate decision, domestic macroeconomic data announcements and quarterly earnings will be the major sentiment drivers for the equity market in a holiday-shortened week ahead, analysts said. Investors will also take cues from the monthly auto sales numbers to be announced on Monday. Equity markets will remain closed on Thursday for Diwali Laxmi Pujan and on Friday for Diwali Balipratipada.
RBI said aggregate demand during the year so far suggests that the shock to consumption is severe, and it will take quite some time to mend and regain the pre-COVID-19 momentum.
The Reserve Bank remains laser-focused to bring back retail inflation to 4 per cent over a period of time in a non-disruptive manner, Governor Shaktikanta Das stressed while voting for status quo in interest rates, as per minutes of the October policy meeting released on Friday. The central bank has been mandated by the government to ensure the Consumer Price Index (CPI) based inflation is at 4 per cent, with a band of 2 per cent on either side. The retail inflation, which was above 6 per cent during May and June, has started moving down and stood at 4.35 per cent in September.
These are the highlights of the seventh bi-monthly monetary policy statement for 2019-20 by the RBI amid COVID-19 pandemic:
As he projected a grim outlook for the economy, RBI Governor said that amidst this encircling gloom, agriculture and allied activities have provided a beacon of hope on the back of an increase of 3.7 per cent in foodgrains production to a new record.
Equity indices gave up early gains to close in the red for the third session on the trot on Wednesday, weighed by selling in banking and finance counters amid inflationary pressures and persistent foreign fund outflows. A weak rupee and lacklustre global cues also kept buying sentiment in check, traders said. The 30-share BSE Sensex opened on a firm footing but failed to hold on the momentum, finishing 237.44 points or 0.41 per cent lower at 58,338.93. On similar lines, the broader NSE Nifty dipped 54.65 points or 0.31 per cent to close at 17,475.65.
The seasonally adjusted India Services Business Activity Index rose from 45.4 in July to 56.7 in August, as the reopening of several establishments and increased consumer footfall boosted sales. The services sector witnessed the first expansion in output in four months and a rebound in business confidence.
