Tag: RBI Monetary Policy

RBI may hike rates after four and a half years… but…

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

It’s not difficult to make the case for a rate hike this time. Many of the upside risks that Governor Urjit Patel mentioned in his minutes have been materializing; rising crude prices, a high likelihood of increase in minimum support prices for crops, and an even higher likelihood of fiscal slippages.

There’s more. The 5% depreciation of the rupee year-to-date comes in the wake of many EM (emerging market) currencies slipping. Even if Argentina and Turkey are extreme examples, Indonesia’s double rate hike has raised the expectation that India, the other country with a current account deficit should do likewise.

A majority of the economists in CNBC TV18’s Monetary Policy Committee have asked for a rate hike looking at the sheer rise in core inflation, i.e. inflation excluding food and fuel. Core inflation jumping to 5.92% in April versus 4.9% five months ago in November raises the possibility of headline inflation following suit .

This once the mandarins of North Block will not object , though for different reasons. There the concern is that rising crude prices along with a depreciating rupee will make the landed price of crude too high for the consumer thus warranting an excise cut, which can unbalance the fiscal math. Hence the plea from North Bloc may be for a hike and no against one, so that a strong rupee keeps fuel prices manageable.

It is this chorus to one side that makes one fear that the RBI may land a hawkish hike, which could be a policy mis-step. Here’s why:
Firstly, the depreciation of the rupee is a good weakness. For the better part of 2017 the rupee was over valued by 21% in REER (real effective exchange rate) terms, and even after the depreciation of 2018 is overvalued by 15%. This overvaluation may partly be even responsible for the weak export growth and the rising current account deficit (CAD). Indian exports may be recovering with the GST disruption calming down, but they could still do with a weaker rupee. More importantly, the weaker rupee may be hurting domestic competitors from steel to engineering to consumer goods. Expensive petrol and diesel, will in fact introduce some optimizing of consumption.

Unfortunately a strong rupee is being seen in India as a strength and the government may well be targeted if the rupee touches 70, when that is exactly what the country probably needs. A rate hike may strengthen the rupee and benefit the wrong guys: the carry traders, the hot money FPIs. A strong rupee may hurt more than help India at this point.

Secondly, and may be more importantly, bond yields in India are already pricing in may be 3 rate hikes. Yields have moved up by about 130-140 basis points in 2018 alone. Near semi-sovereign PSUs like Nabard, NHB and SIDBI aren’t able to raise money given the free fall in bond prices.The bond market is completely moribund and the rise in credit offtake may be more replacement demand.
The psyche of the market is why buy now, when anyway one may have to provide for MTM (mark-to-market) losses in a few days. This fear can get exacerbated by a hawkish tone and won’t really help much needed growth.
The growth argument too as, most economists point out is overstated. The 7.7% GDP is more because of government spending and agriculture firing. Net of agri and public administration, growth actually slowed in the Jan-March quarter, from year ago levels, which was itself a weak quarter.

The hike, if any on June 6, will be coming after a four-and-a-half year gap. It will most certainly have some impact on the quality of some of the more aggressive loans lent by non-bank finance companies in the past year. An accident or two can’t be ruled out. Most banks have also raised lending rates last week. This too can have its impact on growth especially on MSME loans.

The RBI perhaps has to change from neutral to a tighter stance or hike rates, but need it do both? May be this once a hawkish pause or a dovish hike will serve better than a hawkish hike.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Petrol rates down for 6th day running, diesel falls 15 paise after pause on June 3

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

What are the current prices? (as on June 4, 2018)

The fuel prices fell for the sixth consecutive day  by 15 paise to Rs 85.77 per litre and diesel price, also cut by 15 paise, to Rs 73.43 per litre in Mumbai – after a pause on Sunday.

In Delhi, petrol per litre on Monday costs Rs 77.96, down from Rs 78.11 on Sunday. The diesel price in the national capital on Monday costs Rs 68.97 per litre, down from Rs 69.11 on Sunday.

What has been the trend so far in the fuel price cut?

State-run oil marketing firms marginally lowered petrol prices for the fifth consecutive day on Sunday under the dynamic pricing regime although the rates continue to rule at unprecedented levels following the resumption of daily price changes after a 20-day suspension of the system last month owing to the Karnataka elections.

As per prices announced, prices fell around nine paise in the four metro cities, while diesel prices remained unchanged over Saturday.

In Delhi, petrol per litre on Sunday cost Rs 78.11, down from Rs 78.20 on Saturday.

Similarly, in Mumbai and Kolkata, petrol prices were at Rs 85.92 and Rs 80.75 a litre respectively, while in Chennai petrol fell by ten paise on Sunday to Rs 81.09 per litre.

Diesel prices, however, remained unchanged on Sunday. In Delhi, Kolkata, Mumbai and Chennai, the fuel sold for Rs 69.11, Rs 71.66, Rs 73.58 and Rs 72.97 per litre, respectively.

Lower global crude oil cost, along with a strengthened rupee, has pulled down the prices of transportation fuels since May 30.

On Saturday, Brent crude oil prices slipped to around $76 per barrel from $77 a barrel as global supply concerns eased. A decline in global crude oil prices in turn lessen the cost of refined products like gasoline or petrol.

The Indian rupee has also strengthened, easing the pressure on fuel prices. On a weekly basis, it appreciated by 72 paise to close at 67.06 against the US dollar from its previous week’s close of 67.78 per greenback.

The recent surge in the prices of key transportation fuels was attributed to a rise in crude oil cost, which rose till last week, and the high excise duties levied on the fuel in the country.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Banks hike rates ahead of RBI policy

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

India’s top three banks in terms of lending, State Bank of India, ICICI Bank and Punjab National Bank have increased their marginal cost of lending rates (MCLR) by 10 basis points, with effect from June 1, 2018, ahead of the Reserve Bank of India (RBI) policy meeting.

SBI has raised it’s one-year MCLR to 8.25%, from 8.15%, while ICICI Bank’s one-year MCLR stands at 8.40% from the earlier 8.30%.

Punjab National Bank’s MCLR also increased to 8.40% from the previous 8.30%.

Kotak Mahindra Bank also raised its one-year MCLR by 20 basis points to 8.90%

Also read: Bank of India joins big lenders in raising lending rates

HDFC Bank has increased its retail prime lending rates (RPLR) by 10 basis points to 16.45%, the bank said in a statement on Friday, adding that it will be put to effect from June 2, 2018.

The RPLR is the basis on which the bank’s adjustable rate home loans are benchmarked. HDFC Bank’s effective rate for housing loans upto Rs 30 lakh stands at 8.55%.

HDFC is the second bank after the State Bank of India to raise its rates.

RBI is expected to raise its interest rates on the back of India’s annual consumer price inflation, which accelerated in April to 4.58%, above the central bank’s target of 4% for the sixth month in a row, after easing in each of the three previous months.

“As global market turmoil takes its toll, we are changing our RBI policy rate call from an extended pause to a 25 basis point hike at the August meeting,” said Kunal Kundu, India economist at Societe Generale, adding that the RBI may announce a change in policy stance during the June meeting and follow that up with a hike in August.

“It’s going to be a close call. Our view was that they will hike by August by Reserve Bank of India (RBI). So at this point of time, we are varying around to hike in June policy itself”, A Prasanna, Chief Economist at I-Sec PD said.

With India importing 80% of its fuel needs and government spending increasing before national elections next year, which will likely add to price pressures, expectations have firmed for the RBI to move away from a neutral stance in the next meeting.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US job growth accelerates, unemployment rate drops to 3.8%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

US job growth accelerated in May and the unemployment rate dropped to an 18-year low of 3.8%, pointing to rapidly tightening labor market conditions, which could stir concerns about inflation.

The closely watched employment report on Friday also showed wages rising solidly last month, cementing expectations that the Federal Reserve will raise interest rates in June.

Nonfarm payrolls increased by 223,000 jobs last month, the Labor Department said. Data for March and April was revised to show the economy creating 15,000 more jobs than previously reported. Economists blamed bad weather for the slowdown in job growth over those two months.

Average hourly earnings rose eight cents, or 0.3% last month after edging up 0.1% in April. That lifted the annual increase in average hourly earnings to 2.7% from 2.6% in April.

The one-tenth of a percentage point drop in the unemployment rate pushed it to a level last seen in April 2000. The jobless rate is now at the Fed’s forecast of 3.8% by the end of this year.

The strong employment report added to a string of solid economic data, including consumer spending and industrial production, that have suggested economic growth accelerated early in the second quarter after slowing at the beginning of the year.

The strong economy against the backdrop of a $1.5 trillion income tax cut package and increased government spending could fan price pressures. Inflation is running just below the Fed’s 2.0% target.

Monthly job gains have averaged about 179,000 over the last three months, more than the roughly 120,000 needed to keep up with growth in the working-age population.

Economists polled by Reuters had forecast nonfarm payrolls increased by 188,000 jobs last month and the unemployment rate unchanged at 3.9%.

The US central bank increased borrowing costs in March and forecast at least two more rate hikes for this year.

But much depends on financial market conditions, which have tightened in recent days following a political crisis in Italy and renewed fears of a trade war after the Trump administration imposed tariffs on steel and aluminum imports from Canada, Mexico and the European Union.

Slack Remains

Though the labor market is viewed as being close to or at full employment, there is still some slack remaining. Some economists argue that the unemployment rate is overstating the strength of the jobs market.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, fell to 62.7% last month from 62.8% in April. It has declined for three straight months.

Job gains in May were across all sectors. Construction payrolls increased by 25,000 jobs in May after rising by 21,000 jobs in April. Construction employment fell in March for the first time in eight months.

Manufacturers added another 18,000 jobs last month on top of the 25,000 created in April. Government payrolls increased by 5,000, reversing April’s 3,000 drop.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Q4 corporate scorecard: India Inc puts up a dismal show

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

As the earnings season for corporate India nears its end, the results reveal subdued performance during the fourth quarter of FY18.

According to a recent report released by CARE Ratings, the financials of 1,377 companies, which have declared results as on May 29, 2018, shows the net sales growth slowing down to 9.1% during Q4 FY18 from 11.4% growth during the same quarter last year.

The same set of companies registered even sharper decline in profits. The aggregate net profits of these companies declined by 53.4% during the quarter as compared to 30.7% growth in Q4 FY17.

However, these aggregate results are skewed by the poor performance of banking sector, but even after excluding the banking and financial services sector, the results doesn’t paint a rosy picture.

Net sales growth for these companies barring banking, financial services and insurance (BFSI) sector, companies were down to 10% during Q4 FY18, as compared to 13.1% growth in Q4 FY17.

Though, in terms of profits, the aggregate performance of these companies witnessed a sharp improvement and increased by 29.3% from a marginal decline of about 3.1% registered in Q4 FY17.

Even the overall results for FY18 are not very encouraging. According to the report, the sample of 1,256 companies analysed, registered a 10.9% growth in net sales in FY18 against 6.4% in the previous fiscal. The net profits witnessed de-growth of 11% compared to 20% growth, a year before.

Excluding BFSI, the growth in sales was higher at 11.8% compared with 7% during same period last year and growth in net profits remained stagnant at 15% during FY18.

Winners

Despite dismal performance overall, there is a silver lining in this results season. Sectors such as automobile, capital goods and cement did pretty well.

CARE Ratings report said despite went through various regulatory changes in the recent past such as BS-III vehicles ban, GST implementation and rate revisions, the auto sector has still managed to post healthy sales during FY18.

Other sectors such as cement, mining & minerals also performed better. Cement sector was benefited by increased infrastructure spending. “Road projects under ‘Bharatmala’, metro and smart projects have led to sharp demand for cement industry,” said the report.

Laggards

The performance of the banking sector was the major reason behind dragging down the overall performance of India Inc. Most of the state-owned banks along with some private ones, with heavy corporate lending exposure reported a higher non-performing assets and, therefore, greater provisioning led to higher losses in the sector.

Apart from banks, sectors such as telecom, pharmaceuticals reported stress during FY18. The pharma sector witnessed only marginal increase in sales growth, but the net profits registered decline of over 21% during FY18 mostly on back of increased competition and price erosion in the US generic market during the quarter.

The telecom Industry was affected by ongoing intense competition among the telecom players leading to double-digit decline in the sales growth during FY18.

“In addition to this, the Interconnection Usage Charges (IUC) was reduced to 6 paise per minute from 14 paise per minute in September 2017, and International Termination Charges (ITC) was cut to 30 paise per minute from 53 paise per minute in January 2018, which also impacted the industry’s performance during FY18,” the report said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI seen turning hawkish in June, raising rates in August, Reuters poll suggests

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The Reserve Bank of India (RBI) will hike rates in August on concerns that already above-target inflation will climb further, according to economists in a Reuters poll, in contrast to a survey just a month ago which saw an increase only in the second half of 2019.

That dramatic shift in expectations was driven by India’s annual consumer price inflation accelerating in April to 4.58 percent, above the central bank’s target of 4 percent for the sixth month in a row, after easing in each of the three previous months.

The May 24-30 poll of nearly 60 economists showed the RBI will hike its repo rate by 25 basis points to 6.25 percent in August.

While the median suggests the RBI will keep rates on hold when it meets on June 6, about 40 percent of the economists polled expected a hike next week.

“As global market turmoil takes its toll, we are changing our RBI policy rate call from an extended pause to a 25 basis point hike at the August meeting,” said Kunal Kundu, India economist at Societe Generale.

“The RBI may announce a change in policy stance during the June meeting and follow that up with a hike in August.”

Kundu said that while RBI‘s inflation expectation has been “erring on the side of hawkishness, with actual inflation mostly relatively underwhelming, the latest inflation data, though not too high, raise the prospect of a rate hike.”

The inflation rate increased due to higher domestic food costs and crude oil prices, which hit $80.50 a barrel on May 17, their highest since November 2014.

With India importing 80 percent of its fuel needs and government spending increasing before national elections next year – which will likely add to price pressures – expectations have firmed for the RBI to move away from a neutral stance next week.

Out of 42 economists who answered an extra question, 24 said they expect the central bank to change its monetary policy stance to a tightening bias in June. More than 35 percent anticipated that in August.

Just last month, a majority said the RBI would turn hawkish by December.

Currently, the RBI estimates consumer inflation of 4.7-5.1 percent in April-September before dipping to 4.4 percent for the remainder of this fiscal year.

A total of 19 out of 31 economists who answered another question said the RBI would revise inflation projections up. Eleven said it would be unchanged and one said it would be revised down.

“The RBI cut its inflation forecasts based on the weakness of observed inflation the first couple of months of the year, so it was not premature to cut the forecasts,” said Shilan Shah, senior India economist at Capital Economics.

“It did note some upside risks to the inflation outlook, some of which have come to fruition. So it is likely that forecasts will now be revised up.”

The first three months of 2018 likely saw the fastest economic expansion since July-September 2016. Data for the latest quarter will be announced later on Thursday.

More than 80 percent of the 30 economists who answered an extra question said the RBI would keep its growth projections for 2018/19 unchanged. Two predicted an upgrade and three said it would be revised lower.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow