Tag: RBi policy

RBI likely to act on liquidity issue in today’s policy, says Arvind Virmani

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

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Investors are keeping a close eye on the Reserve Bank of India’s monetary policy decision later today.

All the respondents polled by CNBC-TV18 were unanimous in their expectation of RBI leaving the repo rate unchanged at 6.50 percent in the fifth bi-monthly monetary policy.

To get a sense of what the policy outcome would mean for the economy and markets, CNBC-TV18 spoke with former Chief Economic Advisor Arvind Virmani, economist and author Surjit Bhalla and Indranil Sen Gupta, chief economist of Bank of America Merill Lynch.

“It might not be a status quo from the RBI in this policy because there is too much that has happened but the question remains on how much they move,” Bhalla said.

“So if the policy is exactly the same as before then it would be a major disappointment to most people. So, I don’t think they will commit that mistake of retaining status quo on all fronts,” he said, adding that they have several options of changing their stance of calibrated tightening.

Virmani said the market is expecting a standstill and as far as repo rate is concerned, he is of the same view. “However, I would give a 50-50 chance of change in stance – from calibrated tightening to neutral. There is 50 percent chance of standing still and 50 percent chance of going down.”

According to Virmani, “The RBI is likely to act on issue like liquidity because there is a general liquidity problem in the market. So, I would expect the general liquidity to ease.”

Meanwhile, Sen Gupta said, “We think you need about Rs 1.63 trillion of OMO in the March quarter.”

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

Minority govt is a key risk for the Indian stock market, says Ridham Desai of Morgan Stanley

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

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India’s growth is picking up and the setbacks due to demonetisation, higher oil prices or weaker currency have mostly played out: That’s the view coming in from Ridham Desai, Managing Director at Morgan Stanley India.

“Growth in India was picking up and now for several quarters the revenue growth has been high and the Q2 revenue growth was at a 4-year high and will accelerate further in Q3,” Desai told CNBC-TV18 on the sidelines of their 17th Annual Asia Pacific Summit in Singapore.

“However, margins were not so good so far because of setbacks due to demonetisation, GST implementation, some idiosyncratic factors, then higher oil prices, weaker currency etc but all that is now settling and we are heading into a start of a new earnings cycle,” Desai said on Wednesday.

Desai expects domestic earnings growth to improve from hereon. “We have now come to the moment where the headline earnings growth for Nifty or Sensex will show robust numbers led largely by domestic companies and corporate banks. So we should be ready for some solid earnings growth in the coming quarters,” he said.

“Emerging market currencies, bonds, equities, are all looking good and in that context India also should be doing quite well over the course of the next few months,” said Desai.

With regards to the elections and its impact on their India outlook, he said, “Elections are hard to judge ahead and there are surprises expected in outcomes but it will clearly be a source of volatility.”

“The key risk for the Indian market is that we get a minority government and the market gives off some of its gain. However, a minority government is not necessarily a risk to the economy but does present risk to stock prices,” said Desai.

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 Monetary Policy: Retaining the status quo will benefit the banking sector

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

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Today’s Reserve Bank of India (RBI) announcement comes as a pleasant surprise in as much as the market had been factoring in a hike. The arguments put forth centres around benign consumer price index (CPI) inflation.

They have also stated that the international financial markets remain volatile, with significant depreciation in all emerging marketing economy (EME) currencies partly impacted by firm US inflation figures reflecting tightening labour market and elevated energy prices.

Inflation is projected at 4  percent in the second quarter of this fiscal, rising marginally in the range of 3.9–4.5 in H2. Further going upto 4.8 percent in Q1 2019–20 lower than earlier projections. The calibrated tightening stance indicates close monitoring of the inflation which augurs well for the economy.

RBI maintaining the economic growth projection at 7.4 percent repose confidence in the overall fundamentals of the economy.

RBI also proposes to take steps to encourage long-term foreign portfolio investments by means of a voluntary retention route which could avoid the volatility on account of huge forex flows.

This on implementation will hopefully provide stability in the forex market. This is expected to increase long-term portfolio investments and we await the discussion paper on the same.

There has been considerable discussion on the need for an external benchmark for pricing loan and deposit products to ostensibly reflect the market rate. In the absence of a credible term, money market’s earlier attempts to have a full-fledged external benchmark related pricing has not taken off in India.

In the light of the controversies surrounding the London Inter-bank Offered Rate (LIBOR) — average of interest rates estimated by each of the leading banks in London that it would be charged were it to borrow from other banks— fixation in the International markets need for a framework to ensure a robust and credible benchmark in financial markets was inevitable.

RBIs draft regulations to introduce such a framework applicable, especially to the benchmarks issued by Financial Benchmark India Private Ltd (FBIL) would hopefully facilitate a floating rate benchmark to be used by market participants.

Overall, RBI has done well in ensuring that system liquidity is near neutral and any deficit being met through Open market operations (OMO) activity, term repos and tweaking of the FALL CRR (cash reserve ratio).

They have also suggested that for project financing, institutions/corporates should resort to long-term finance and equity rather than short-term debt to avoid liquidity problems/roll-over repricing issues. A reminder on minimal asset liability mismatch is a welcome feature.

While acknowledging the role of nonbanking financial companies (NBFC), RBI has stated about its close monitoring of the sector encouraging these institutions to go for lower gearing, especially for core investment companies that invest in downstream subsidiaries. This is welcome.

Overall retaining the status quo will benefit the banking sector with higher growth where retail growth has already shown much higher than the nominal credit growth indicating spreading out of the risk by the banking sector.

The status quo will encourage more investments and higher credit offtake in the medium to long-term. It will also not dampen the usual festive season credit pickup this quarter.

VG Kannan is CEO of Indian  Banks Association and former MD of State Bank of India.

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 Monetary Policy: Here are the key highlights

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

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The Reserve Bank of India (RBI) kept the repo rate — the rate at which it lends money to commercial banks — unchanged at 6.50 percent. The reverse repo rate was also kept unchanged at 6.25 percent.  Reverse Repo rate is the rate at which the central bank borrows money from commercial banks.

“The decision of the MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent,” said the central bank in its statement.

Here are the key takeaways

• The five out of six members in the monetary policy committee voted in favour of stance to change to ‘calibrated tightening’.
• The new ‘calibrated tightening’ stance means that there will be no rate cuts until the stance changes, according to reports.
• The GDP growth target for this financial year is kept unchanged at 7.4 percent.
• The GDP growth target for the second half of the current fiscal has been revised to 7.1-7.3 percent range from the earlier 7.3-7.4 percent.
• GDP growth for the next financial year has been predicted to 7.6 percent.
• The consumer price inflation(CPI) inflation target for the second half of this financial year has been revised between 3.9 and 4.5 percent from 4.8 percent.
• For the current financial year, the central fiscal deficit has been projected to 3.3 percent.
• The fiscal gap for the state and centre is projected at 5.9 percent.
• Oil prices remain vulnerable to further upside pressures, especially if the response of oil-producing nations to supply disruptions from geopolitical tensions is not adequate, the MPC said.
• Global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook, the central bank statement said.
• The manufacturing and services PMIs also reported an increase in input costs and selling prices in Q2, reflecting a pass-through of higher costs to clients, the statement 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 monetary policy meeting: Read the full text here

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

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The Reserve Bank of India kept the repo rate unchanged at 6.50 percent-   the rate at which it lends money to commercial banks. The reverse repo rate was also left unchanged at 6.25 percent.

The decision was consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for CPI inflation of 4 percent.

Here is the full text of MPC meeting

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:

Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 percent. Consequently, the reverse repo rate under the LAF remains at 6.25 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 percent.

Also Read: RBI Monetary Policy: Repo, reverse repo rates unchanged at 6.50%, 6.25%

The decision of the MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth. The main considerations underlying the decision are set out in the statement below.

Assessment

2. Since the last MPC meeting in August 2018, global economic activity has remained resilient in spite of ongoing trade tensions, but is becoming uneven and the outlook is clouded by several uncertainties. Among advanced economies (AEs), the United States (US) economy appeared to have sustained pace in Q3:2018 as reflected in strong retail sales and robust industrial activity. In the Euro area, economic activity remained subdued due to overall
weak economic sentiment, weighed down mainly by political uncertainty. The Japanese economy has so far maintained the momentum of the previous quarter, buoyed by recovering industrial production and strong business optimism.

3. Economic activity in major emerging market economies (EMEs) has been facing headwinds from both global and country-specific factors. In China, industrial production growth has moderated with slowing exports and the ongoing deleveraging of the financial system weighing on growth prospects. The Russian economy has been gathering steam with the manufacturing sector turning around, and the employment scenario remaining upbeat on rising oil prices. In Brazil, economic activity is recovering from the setback in Q2, supported by improving business and consumer sentiment, though weak domestic demand and the sluggish pace of recovery in manufacturing activity point to a slow revival. The South African economy slipped into recession in Q2:2018, pulled down by the negative contribution from agriculture on account of a strong unfavourable base effect.

4. Growth in global trade is weakening as reflected in export orders and automobile production and sales. Crude oil prices eased during the first half of August on concerns of reduced demand from EMEs due mainly to the spillover from country-specific turmoil, and accentuated by rising supplies. However, prices rebounded on expectation of reduced supplies due to sanctions on Iran and falling US stockpiles. Base metal prices witnessed selling pressure in anticipation of weak demand from major economies. Gold prices continued to slide lower on a strong US dollar, though they recovered somewhat on safe-haven demand from the mid-August lows. Inflation remained firm in the US, reflecting tightening labour market and elevated energy prices, while it persisted much below the central bank’s target in Japan. In the Euro area, inflation pressures have been sustained by elevated crude prices. Inflation in many key EMEs has risen on surging crude prices and currency depreciations, caused by a firm dollar and domestic factors.

5. Global financial markets continued to be affected by monetary policy stances in major AEs, the spreading of contagion risks from specific EMEs, and geopolitical developments. Among AEs, equity markets in the US touched a new high, driven by technology stocks, while in Japan, they were boosted by the weak yen. In contrast, stock markets in the Euro area suffered losses on signs of a slowdown and budget concerns in some member states. Sharp sell-offs have occurred on waning appetite of foreign portfolio investors for EME
equities. The 10-year sovereign yield in the US has traded sideways, falling on dovish Fed guidance only to recover by end-September on robust economic data. Among other AEs, bond yields in the Euro area hardened in September on risk aversion following the sharp rise in financial market volatility in August. In contrast, bond yields in Japan moved in a narrow range, driven by the central bank’s yield curve management policy. In most EMEs, yields rose due to domestic factors and/or contagion effects from the stress in other EMEs. In
currency markets, the US dollar witnessed selling pressures since August on reduced investor expectations of rate hikes by the US Fed. However, it recovered in the last week of September on a rate hike by the Fed and strong economic data. The euro remained in bearish territory due to fiscal risks in some member countries and expectations of weak growth. EME currencies continued to depreciate against the US dollar.

6. On the domestic front, real gross domestic product (GDP) growth surged to a ninequarter high of 8.2 percent in Q1:2018-19, extending the sequential acceleration to four successive quarters. Of the constituents, gross fixed capital formation (GFCF) expanded by double digits for the second consecutive quarter, driven by the government’s focus on the road sector and affordable housing. Growth in private final consumption expenditure (PFCE) accelerated to 8.6 percent, reflecting rising rural and urban spending, supported by retail credit growth. However, government final consumption expenditure (GFCE) decelerated, largely due to a high base. The growth of exports of goods and services jumped to 12.7 percent, powered by non-oil exports on the back of strong global demand. In spite of import growth continuing to surge, high exports growth helped reduce the drag from net exports on aggregate demand.

7. On the supply side, growth of gross value added (GVA) at basic prices accelerated in Q1, underpinned by double-digit expansion in manufacturing activity which was robust and generalised across firm sizes. Agricultural growth also picked up, supported by robust growth in production of rice, pulses and coarse cereals alongside a sustained expansion in livestock products, forestry and fisheries. In contrast, services sector growth moderated somewhat, largely on account of a high base. Construction activity, however, maintained strong pace for the second consecutive quarter.

8. The fourth advance estimates of agricultural production for 2017-18 released in August placed foodgrains production at a high of 284.8 million tonnes, 1.9 percent higher than the third advance estimates (released in May 2018) and 3.5 percent higher than the final estimates for the previous year. The progress of the south-west monsoon has been marked by uneven spatial and temporal distribution, with an overall deficit of 9 percent in precipitation. However, the first advance estimates of production of major kharif crops for 2018-19 have placed foodgrains production at 141.6 million tonnes, 0.6 percent higher than last year’s level. The live storage in major reservoirs (as on September 27) rose to 76 percent of the full capacity, which was 17 percent higher than last year and 5 percent higher than the average of the last 10 years. This bodes well for the rabi sowing season.

9. Industrial growth, measured by the index of industrial production (IIP), accelerated in June-July 2018 on a year-on-year (y-o-y) basis, underpinned mainly by high growth in consumer durables, notably two-wheelers, readymade garments, stainless steel utensils, auto components and spares, and accessories. Growth in consumer non-durables also accelerated in July. The infrastructure and construction sector continued to show solid growth. Primary goods growth accelerated, driven by mining, electricity and petroleum
refinery products. Growth in capital goods production spiked in June, but decelerated sharply in July. The output of eight core industries growth remained strong in July, driven by coal, petroleum refinery products, steel and cement, but moderated in August. Capacity utilisation (CU) declined from 75.2 percent in Q4:2017-18 to 73.8 percent in Q1:2018-19, while seasonally adjusted CU increased by 1.8 percentage points to the long-term average of 74.9 percent. Based on the Reserve Bank’s business expectations index (BEI), the assessment for Q2:2018-19 improved, led by enhanced production, order books, exports and capacity utilisation. The August and September manufacturing purchasing managers’ index (PMI) remained in expansion zone; the September print rebounded close to the July level confirming robustness of manufacturing activity.

10. High-frequency indicators of services in July and August present a mixed picture. Indicators of rural demand, viz., growth in tractor and two-wheeler sales, slowed down. Passenger vehicle sales, an indicator of urban demand, declined possibly due to rising fuel prices. However, growth in air passenger traffic – another indicator of urban demand – remained robust. Transportation sector indicators, viz., commercial vehicle sales and port cargo, expanded at an accelerated pace. Steel consumption and cement production, indicators of construction activity, showed strong growth. The services PMI remained in
expansion zone in August and September, though it decelerated from July, with slower expansion in new business and employment.

11. Retail inflation, measured by the y-o-y change in the CPI, fell from 4.9 percent in June to 3.7 percent in August, dragged down by a decline in food inflation. Some softening of inflation in items other than food and fuel also contributed to the decline. Adjusting for the estimated impact of an increase in house rent allowance (HRA) for central government employees, headline inflation was at 3.4 percent.

12. Inflation in the food and beverages group declined sharply in the absence of seasonal uptick in prices of fruits and vegetables. Of the three key vegetables, the prices of tomatoes declined due to strong mandi arrivals, while those of onions and potatoes remained muted. Continued deflation in prices of pulses and sugar accentuated the decline in food inflation. Inflation in other items of food – cereals, meat and fish, milk, spices and non-alcoholic
beverages – remained benign.

13. Inflation in the fuel and light group continued to rise on the back of a significant increase in liquefied petroleum gas prices, tracking international product prices. Kerosene prices rose as oil marketing companies reduced subsidies in a calibrated manner. While remaining elevated, CPI inflation excluding food and fuel moderated due to softening in inflation in housing; pan, tobacco and intoxicants; personal care; and transportation.

14. While the September round of the Reserve Bank’s survey of households reported a sharp uptick of 50 basis points in three-month ahead inflation expectations over the last round, one-year ahead expectations moderated by 30 basis points. Inflation expectations for both input prices and selling prices of manufacturing firms, polled by the Reserve Bank’s industrial outlook survey, firmed up in Q2:2018-19. The manufacturing and services PMIs also reported an increase in input costs and selling prices in Q2, reflecting a pass-through of
higher costs to clients. On the other hand, growth in wages in the rural and organised manufacturing sectors remained contained.

15. Systemic liquidity alternated between surplus and deficit during August-September 2018, reflecting the combined impact of expansion of currency in circulation, Reserve Bank’s forex operations and movements in government cash balances. From a daily net average surplus of ₹ 201 billion during August 1-19, 2018, liquidity moved into deficit during August 20-30. After turning into surplus during August 31-September 10 due to increased government spending, the system again moved into deficit during September 11-29 on the back of an increase in government cash balances and Reserve Bank’s forex interventions. Based on an assessment of the evolving liquidity conditions, the Reserve Bank conducted two open market purchase operations in the second half of September to inject ₹ 200 billion of durable liquidity. LAF operations absorbed, on a daily net average basis, ₹ 30 billion in August, but injected ₹406 billion in September. The weighted average call rate (WACR), on an average, traded below the repo rate by 15 basis points (bps) in August and by 4 bps in September.

16. Exports maintained double digit growth in July and August 2018, driven mainly by petroleum products (which benefitted from elevated crude oil prices), engineering goods, gems and jewellery, drugs and pharmaceuticals, and chemicals. However, imports grew faster than exports, reflecting not only a higher oil import bill, but also higher imports of gold, coal, electronic goods and machinery. This led to a widening of the trade deficit to US$ 35.3 billion in July-August 2018 from US$ 24.6 billion a year ago over and above the expansion in Q1:2018-19. However, higher net services receipts and private transfer receipts helped contain the current account deficit to 2.4 percent of GDP in Q1:2018-19 from 2.5 percent a year ago. On the financing side, net foreign direct investment (FDI) flows improved in April-July 2018. By contrast, foreign portfolio investors have been net sellers in both the equity and debt segments so far on a cumulative basis in 2018-19 due to higher US interest rates, risk-off sentiment in EMEs and escalation of trade wars. India’s foreign exchange reserves were at US$ 400.5 billion on September 28, 2018.

Outlook

17. In the third bi-monthly resolution of August 2018, CPI inflation was projected at 4.6 percent in Q2:2018-19, 4.8 percent in H2 and 5.0 percent in Q1:2019-20, with risks evenly balanced. Excluding the HRA impact, CPI inflation was projected at 4.4 percent in Q2:2018 – 19, 4.7-4.8 percent in H2 and 5.0 percent in Q1:2019-20. Actual inflation outcomes, especially in August, were below projections as the expected seasonal increase in food prices did not materialise and inflation excluding food and fuel moderated.

18. Going forward, the inflation outlook is expected to be influenced by several factors. First, food inflation has remained unusually benign, which imparts a downward bias to its trajectory in the second half of the year. Inflation in key food items such as pulses, edible oils, sugar, fruits and vegetables remains exceptionally soft at this juncture. The risk to food inflation from spatially and temporally uneven rainfall is also mitigated, as confirmed by the first advance estimates that have placed production of major kharif crops for 2018-19 higher than last year’s record. An estimate of the impact of an increase in minimum support prices (MSPs) announced in July has been factored in the baseline projections. Secondly, the price of the Indian basket of crude oil has increased sharply, by US$ 13 a barrel, since the last resolution. Thirdly, international financial markets remained volatile with EME currencies depreciating significantly. Finally, the HRA effect came off its peak in June and is dissipating gradually on expected lines. Taking all these factors into consideration, inflation is projected at 4.0 percent in Q2:2018-19, 3.9-4.5 percent in H2 and 4.8 percent in Q1:2019-20, with risks somewhat to the upside (Chart 1). Excluding the HRA impact, CPI inflation is projected at 3.7 percent in Q2:2018-19, 3.8 – 4.5 percent in H2 and 4.8 percent in Q1:2019-20.

19. Turning to the growth outlook, the GDP print of Q1:2018-19 was significantly higher than that projected in the August resolution. Private consumption has remained robust and is likely to be sustained even as the recent rise in oil prices may have a bearing on disposable incomes. Improving capacity utilisation, larger FDI inflows and increased financial resources to the corporate sector augur well for investment activity. However, both global and domestic financial conditions have tightened, which may dampen investment activity. Rising crude oil prices and other input costs may also drag down investment activity by denting profit margins of corporates. This adverse impact will be alleviated to the extent corporates are able to pass on increases in their input costs. Uncertainty surrounds the outlook for exports. Tailwinds from the recent depreciation of the rupee could be muted by the slowing down of global trade and the escalating tariff war. Based on an overall assessment, GDP growth projection for 2018-19 is retained at 7.4 percent as in the August resolution (7.4 percent in Q2 and 7.1-7.3 percent in H2), with risks broadly balanced; the path in the August resolution was 7.5 percent in Q2:2018-19 and 7.3-7.4 percent in H2. GDP growth for Q1:2019-20 is now projected marginally lower at 7.4 percent as against 7.5 percent in the August resolution, mainly due to the strong base effect.

20. While the projections of inflation for 2018-19 and Q1:2019-20 have been revised downwards from the August resolution, its trajectory is projected to rise above the August 2018 print. The outlook is clouded with several uncertainties. First, the government announced in September measures aimed at ensuring remunerative prices to farmers for their produce, although uncertainty continues about their exact impact on food prices. Secondly, oil prices remain vulnerable to further upside pressures, especially if the response of oil-producing nations to supply disruptions from geopolitical tensions is not adequate. The recent excise duty cuts on petrol and diesel will moderate retail inflation. Thirdly, volatility in global financial markets continues to impart uncertainty to the inflation outlook. Fourthly, a sharp rise in input costs, combined with rising pricing power, poses the risk of higher pass through to retail prices for both goods and services. Firms covered under the Reserve Bank’s industrial outlook survey report firming of input costs in Q2:2018-19 and Q3. However, global commodity prices other than oil have moderated, which should mitigate the adverse influence on input costs. Fifthly, should there be fiscal slippage at the centre and/or state levels, it will have a bearing on the inflation outlook, besides heightening market volatility and crowding out private sector investment. Finally, the staggered impact of HRA revision by the state governments may push up headline inflation. While the MPC will look through the statistical impact of HRA revisions, there is need to be watchful for any second-round effects on inflation. The inflation outlook calls for a close vigil over the next few months, especially because the output gap has virtually closed and several upside risks persist.

21. Against this backdrop, the MPC decided to keep the policy repo rate unchanged. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 percent on a durable basis.

22. The MPC notes that global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook. It is, therefore, imperative to further strengthen domestic macroeconomic fundamentals.

23. Regarding the policy repo rate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of keeping the policy repo rate unchanged. Dr. Chetan Ghate voted for an increase in the policy rate by 25 bps.

24. Regarding the stance, Dr. Pami Dua, Dr. Chetan Ghate, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of changing the stance to calibrated tightening. Dr. Ravindra H. Dholakia voted to keep the neutral stance unchanged. The minutes of the MPC’s meeting will be published by October 19, 2018.

25. The next meeting of the MPC is scheduled from December 3 to 5, 2018.

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

Market correction offers opportunity to make good returns over 12-18 months: Enam Holdings

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

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Sridhar Sivaram, investment director at Enam Holdings, spoke to CNBC-TV18 about the selloff in domestic stocks and trading cues for investors.

“One cannot tell if it is a bear market or bull market correction but the opportunity right now is very interesting. There are many companies with good cash flows, good earnings potentials. Moreover, the prices have corrected significantly. So one can look at staggered purchase over 1-2 month with a potential of making good returns over next 12-18 months despite election uncertainties, ” said Sivaram

“If you ignore the election noise there is money to be made,” he said.
Talking about the impact of global macros like higher interest rates, higher crude prices etc on emerging markets, Sivaram said, “In overall scheme of things EMs are in a tough spot but they have been similar situation earlier.”

With regards to the RBI monetary policy, Sivaram said, “25 basis points hike would be in-line with expectations. The mandate of RBI is to manage inflation within the band.”

Talking about the correction in oil market companies and government’s decision on excise duty cut, he said,” One need not make too much out of the correction in these stocks because it is not a large part of the market and they are smaller in terms of market cap as well. It will however have a sentimental impact.”

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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 Monetary Policy: Citizen’s MPC votes 3-2 for a pause

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

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The Reserve Bank of India (RBI) will probably keep interest rates unchanged on Wednesday and provide guidance on keeping inflation in check.

Softening of inflation expected in July going up to November, due to the base effect and lower oil prices, may allow the central bank monetary policy committee (MPC) to prevent raising rates.

The RBI’s MPC meeting for the third bi-monthly monetary policy review for 2018-19 started on July 31, and the resolution of the MPC will be announced after 2.30pm on August 1.

A majority of the economists in Citizen’s MPC expect no change in interest rates this time.

“So far I do not think there is really any compelling reason why anything has to be done further at the stage. There are too many imponderables particularly on the global front,” Pronab Sen, Former Advisor at Planning Commission said.

According to the economists, there has been some tightening of financial conditions in the last nine months and the global growth outlook is also turning more negative, which could result in slight moderation in inflation data going ahead.

“So the current growth numbers may not sustain over the next 12 months and that itself might mean some moderation in core inflation … this should be sufficient for MPC to wait and watch to see how things pan out,” Nomura’s chief India economist Sonal Varma said.

On the global front, all the economists cited trade wars and crude oil prices as some of the key worries for the MPC.

“I believe that the external sector is actually a matter of concern,” said Soumya Kanti Ghosh, chief economic advisor at State Bank of India.

According to Ghosh, US is possibly going to hit a growth of 4 percent whereas the European Central Bank could actually end tightening towards the end of this year. Meanwhile the talks of Chinese central bank possibly wanting yuan to gradually depreciate are serious issues resulting in a policy conundrum back home.

“I think the US possibly is also veering towards a less of aggressive rate hikes in 2019 even though September rate hike could be a possibility. So taking all these factors on the table, my sense is that exports are unlikely to push up domestic growth to a significant extent and domestic demand as of now doesn’t look entirely promising,” said Ghosh.

With regards to the fiscal slippages, Samiran Chakraborty, chief economist at Citibank, said it has been a worry for the central bank for some time now.

The central bank in its February assessment said that the fiscal slippage as indicated in the Union Budget 2018 could impinge on the inflation outlook.

“It is a bit too much for the MPC to take a call on how much slippage would be there and to what extent that will get transmitted into an inflation impulse,” said Chakrabarty.

POLICY EXPECTATIONS

Ghosh: Pause.

Chakraborty: Pause.

Sen: Pause.

Chinoy: Hike of 25 basis points.

Varma: Hike of 25 basis points.

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RBI’s rate increase upsets Modi’s election year budget maths

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

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The central bank’s first interest rate rise since Prime Minister Narendra Modi came to power could not have come at a worse time for a government grappling with spending constraints, voter discontent in the rural heartlands and rising oil prices.

The rate increase, the first in more than four years, is likely to be followed by one or two more this year, economists predict, pushing up overall borrowing costs for the government and companies alike.

Higher interest rates are likely to make it tougher for the government to borrow from the market and hurt a recent pick-up in the economy, while dampening revenue collection and burning a bigger hole in the government’s fiscal deficit than the budgeted target of 3.3 percent of gross domestic product (GDP).

For Modi that represents a double whammy, as he looks to step up spending to woo disgruntled voters ahead of a general election next year without spooking skittish foreign investors. The fiscal maths are getting challenging on rising fuel prices, a weakening rupee and subdued investments.

“This could be the worst year for us, as budget calculations are under stress,” a senior finance ministry official, who declined to be named, told Reuters, adding there was a worry of at least one more rate hike by December.

“The rising crude oil prices are already giving sleepless nights as the government may have to cut tax on fuel products sooner rather than later,” the official added.

India’s economy grew at 7.7 percent in the first three months of the year, the fastest pace in nearly two years. That would be an impressive clip for most countries, but more is needed to create enough new jobs for the 1 million young people entering the country’s workforce each month.

FEELING THE PRESSURE

The government’s spending plans have already been threatened by setbacks to flagship reforms.

An estimated $1.2 billion-$1.5 billion Air India privatisation plan flopped when the stake it was selling in the flag carrier failed to attract a single bid by last week’s deadline, putting at risk its 800 billion rupees ($11.93 billion) divestment target.

Meanwhile, the sovereign 10-year bond yield has risen by 60 basis points since start of the fiscal year in April, and is near a three-year high due to a lack of investors. Similarly top-rated corporates, including National Bank for Agriculture and Rural Development, Small Industries Development Bank of India and National Housing Bank, have deferred their bond issuance plans due to a lack of buyers.

To top this, foreign holders have sold a net $4.3 billion of Indian debt so far this year as investors have grown wary of emerging economies facing twin fiscal and current account deficits and higher inflation that could pose overheating risks.

The stock market has held up so far, but some analysts caution that concerns over a loosening of fiscal discipline ahead of the election could trigger equity outflows as well.

The Reserve Bank of India (RBI) raised its key repo rate on Wednesday by 25 basis points to 6.25 percent – the first change since a cut of the same size in August last year – as higher oil prices, a sharp fall in the rupee and potential stronger consumer spending threatened to spur inflation beyond its 4 percent medium term target.

“The rate hike will push up the government’s interest financing cost and add to the fiscal deficit pressure on one hand,” said Soumya Kanti Ghosh, chief economist at State Bank of India. “And on the other hand, the nascent recovery in growth on the back of consumption demand will also slow down as retail lending rates will go up sooner than later.”

MODI’S ELECTION BUGLE

After a setback at a by-election in India’s most populous state last week showed Modi’s waning popularity in the countryside, where most Indians still live, the government has stepped up its so-called populist spending to please the voters.

Already the government has unveiled a support package for sugar farmers to put a floor under prices that could cost about 40 billion rupees ($597 million) outside the budget.

Further measures, including loan waivers to farmers by regional governments, higher minimum purchase prices for grains, fuel subsidies to prevent pump prices from rising sharply and higher than budgeted rural wage payouts could blow a big hole in the fiscal deficit.

That could set up the RBI for a face-off with the government and also prompt further rate increases after it warned in its monetary policy statement that moving away from the fiscal deficit roadmap could push up inflation risks.

“India’s combined fiscal deficit is already quite high and since this is an election year, both state and central governments are coming up with populist spending steps which will push up the fiscal deficit and add to inflation pressures,” said A Prasanna, chief economist at ICICI Securities Primary Dealership. “This increases the probability of further rate hikes.”

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