Reserve Bank of India Holds Interest Rates for Third Meeting in Inflation Fight

IndusView, Tuesday 5 August 2013 (London): The Reserve Bank of India (RBI) today left its benchmark lending rate unchanged at 8%, resisting calls from the country's businessmen and policy makers to cut interest rates to help revive economic growth.

The Indian central bank kept its overnight lending rate steady at 8% for its third policy meeting in a row. The decision was in line with the expectations of most economists polled by The Wall Street Journal. Only one out of 15 analysts surveyed expected a quarter-percentage point cut to 7.75%, with the rest of them predicting no change.

"It is appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged," said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “Getting inflation under control is the best way to encourage sustainable long-term growth.”

India's economy expanded 4.7% in the year ended March, the second consecutive year where the gross domestic product has risen less than 5%. India hasn't had two successive years of below-5% growth since the late 80s.

India's economy has been showing some encouraging signs recently. May industrial production picked up to 4.7% year-over-year, up from 3.4% the previous month. Business confidence increased in June, hitting a 17-month high.

The RBI has been focusing on the consumer-price inflation rate, which has fallen more than expected in recent months. The increase in consumer prices has cooled from an average of 10% in 2013 to 7.3% in June, the slowest rise since the central bank started measuring consumer price index (CPI) in January 2012.

High oil prices have a crippling effect as they push up the prices of food and other commodities because of the increased transportation costs. Vegetable prices rose 9% while fruit prices rose nearly 21% year on year in June, when monsoon was 48% below average, although rainfall improved in July, the second month of the monsoon season.

India's heavy reliance on imported oil—especially from Iraq, which accounts for about 13% of its imports — makes the country more vulnerable than most to conflicts in the Middle East.

The weather is another source of concern, with the lower-than-normal rains from the monsoon—which runs from June through September — likely to reduce the supply of grains and vegetables and push up prices. Most of the country's farmlands depend on rainwater for irrigation.

“Sentiment on domestic economic activity appears to be reviving, with data suggesting a firming up of industrial growth and exports,” said Rangar. “Economic reforms announced by the new government of Narendra Modi should create a congenial setting for a steady improvement in domestic demand and supply.”

SECOND QUARTER GDP AT 7.9%

India’s economy grew at its fastest rate in 18 months in the quarter through September, smashing expectations and adding pressure to bring forward an interest rate rise and cut stimulus spending as inflation mounts.

Asia’s third-largest economy grew 7.9% in the past quarter from a year earlier, far above forecasts of 6.3%, but growth was expected to slow this quarter when the impact of a weak monsoon would be seen on crops.

The expansion was driven by government spending, manufacturing, services, and a better-than-forecast farming output, sending bond yields and swap rates higher as investors bet on a rise in rates and the finance minister said growth could hit 7% in the fiscal year ending in March 2010.

“This data could be a green light for the Reserve Bank of India to hike rates, and there are greater chances of this by end of the calendar year,” said Robert Prior-Wandesforde, senior Asia economist at HSBC in Singapore.

“The exit from the fiscal stimulus by the government may also be earlier post the GDP data.”
Prior to the data, most economists had predicted a rate rise sometime between January and April 2010.

In the June quarter, India’s economy grew 6.1% from a year earlier, and Prior-Wandesforde said that by his calculation the last quarter’s growth was the sharpest on a quarter-by-quarter basis since quarterly data began in 1996.

Manufacturing output grew 9.2% in the quarter as consumers bought more cars and other goods.

Larger neighbour China, which along with India is helping to pull the global economy out of its worst recession in decades, clocked growth of 8.9% during the same quarter.

MINT

ECONOMY TO GROW 6.7% THIS FISCAL

Indian economy will grow 6.7% in fiscal year 2009-10, pushed by a healthy increase in consumption even as private investment will moderate, information services provider Dun & Bradstreet (D&B) has projected.

In its Economy Outlook 2009-10, D&B said the economy will pick up in the medium to long-term when the policy responses of the government and Reserve Bank of India will come into play and the external situation will stabilise.


The Financial Express

INDIAN RUPEE STAYS MORE RESILIENT IN 2009

Even as the rupee hovers at a new lifetime low of Rs 51.1 to a dollar, did you know that the Indian currency has been among the more resilient in 2009?

Taking the recent slide into account, the Indian rupee has depreciated only by about 4.7 per cent so far in 2009. After clinging to an exasperatingly narrow range between Rs 48 and Rs 49 since the beginning of 2009, the rupee took a decisive step lower on February 17.

But many of the other Asian currencies have been weaker and have been steadily depreciating since the beginning of 2009.

The Hindu Business Line

BANKABLE INDIA

A strong economy rests on the foundation of sound financial institutions. The Indian economy’s relatively firm footing (see Issue 4 | Volume 1) in the face of turbulent global economic conditions, is also attributable to its financial institutions. While some of the global financial institutions Lehman Brothers Holdings Inc., the Federal National Mortgage Association, Wachovia Corporation, Merrill Lynch & Co., Inc. among others either had to be salvaged or simply cease to exist; 19 Indian financial institutions have made it among the Top 500 Global Financial Brands 2009, released by Brand Finance Plc, in association with U.K.'s The Banker magazine.

Among the 19 Indian financial institutions that have reported an average 35% growth in interest income and a higher 42% jump in net profit for the quarter ended December 2008, 13 new entrants in the Top 500 list this year are state-run organizations highlighting prudential banking norms efficiently steered by the country’s central bank, The Reserve Bank of India (RBI).

However, RBI disappointed the industry by falling short of announcing in its Credit Policy on January 27, any move toward a lower interest regime to boost demand, which was widely expected as an appropriate method to stem the economic downturn. The expectation of further rate cuts was bolstered by the RBI’s own assessment of inflation going down to 3% by March 2009 from the current 6% and a peak of 13% in August 2008.
The government did offer reasons to cheer as it announced cuts in prices of petroleum products twice in the last two months, a decision which will further help contain inflation and lubricate the wheels of the economy.

India set to mint money for neighbours

During the second half of British rule, till 1928, India would get its currency notes printed at UK's Thomas De La Rue Giori, one of the world's largest financial printers then. Some 80 years down the line, India is exploring the possibility of minting money for some of its neighbours, and that too, on a regular basis. The Indian government has recently received requests from undisclosed neighbouring countries to print their currency notes.

The Economic Times
http://economictimes.indiatimes.com/Economy/
India_to_mint_money_for_neighbours/articleshow/2651190.cms