IndusView, Thursday 15 January 2015 (London):
The Reserve Bank
of India (RBI) today pared its repurchase rate by 25 basis points to 7.75% from
the current 8%, citing easing inflationary pressures.
In an announcement
before the stock markets opened for trading, the central bank said inflationary
pressures have been easing since July and the path of inflation has been below
the expected trajectory.
“Oil importing
countries like India, China, Brazil, Turkey, Indonesia and South Africa will be
the big winners as oil prices continue to weaken in 2015,” said Bundeep Singh
Rangar, Chairman on London-based consulting firm IndusView. “What is critical
is for nations to use this window to usher in fiscal and structural reforms,
which can boost long-run growth and inclusive development.”
India imports 85%
of its crude oil requirement. Net oil imports at $95 billion accounted for 21%
of India's total import bill and 64% of the trade deficit in 2014.
In
the accompanying policy statement, the RBI mentioned
that inflation momentum has significantly reduced and household
inflation expectations have eased to single digit for the first time since
September 2009.
On the
inflation outlook, the central bank said "on current policy settings,
inflation is likely to be below 6% by January 2016". In the December
policy statement the RBI had guided for a change in the monetary policy stance
in early 2015, including outside the policy review cycle, if inflation data was
supportive.
Making
a decisive push towards generating investment to see the success of his 'Make
in India' mantra, Prime Minister Narendra Modi said his government was trying
to revive the economy, and told global investors that India today was a land of
opportunities.
Mr
Rangar recently attended The Vibrant Gujarat 2015, where Prime Minister Modi
was addressing the seventh edition of the Summit. Modi laid down his
government's plan and effort to create a policy environment that is
predictable, transparent and fair.
By contrast with
India, South Korea’s central bank chief today signaled he’s unwilling to reduce
borrowing costs in response to an inflation rate pulled down in part by the
slide in oil. Governor Lee Ju Yeol said the current interest rate of 2% is “not
insufficient to support growth” and that the central bank will set future
inflation targets soon.
The rate cut
is a change in monetary policy stance and comes a few weeks earlier than
expected due to the sharp fall in commodity prices and the better-than-expected
December inflation print. Bloomberg’s Commodity Index is down nearly 28% since its 2014
peak in May, and 43% since its 2011 peak.
Rajan’s move today
will spur commercial banks to lower lending rates for borrowers, K.
Subrahmanyam, executive director at state-run Union Bank of India in Mumbai,
said in a phone interview. State Bank of India, the country’s largest bank by
assets, has left its base rate at 10 percent since November 2013.
