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Monetary Policy
Monetary Policy
Sensex crosses 17k level to 10-wk high
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$8.5 bn Vedanta-Cairn deal gets cabinet nod
RBI asks govt to free diesel prices
IMF lowers world growth outlook
Reliance buyback to open on Feb 1
RIL’s KG-D6 output may fall further
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RBI’s liquidity measures may soften interest rates
Cash reserve ratio cut by 0.5%, key rates kept on hold Sanjeev Sharma/TNS
New Delhi, January 24 In its monetary policy review today, the RBI injected Rs 32,000 crore into the system by lowering the cash reserve ratio (CRR) by 50 basis points from 6 per cent to 5.5 per cent but kept the key rates unchanged citing inflationary concerns, high fiscal deficit and policy and administrative uncertainty. After several weeks the rupee appreciated to less than Rs 50 for a US dollar, indicating foreign inflows have increased. The cut in the CRR will leave more money with the banks to lend and is expected to lower their cost of funds and is seen as a signal that interest rates after having been hiked 13 times in the last year and a half have peaked and will now come down gradually. Shyam Srinivasan, managing director & CEO of Federal Bank, said as the RBI had kept the policy signaling rate (repo rate) unchanged, commercial banks may not tinker with their respective base rates in the immediate future and would prefer to wait for further signals from the central bank. In his monetary policy review, RBI governor D. Subba Rao stressed growth had decelerated and the policy was now trying to address liquidity, growth and inflation. He said interest rates had peaked and future rate actions would be towards lowering them. “Policy uncertainty is impacting growth and interest rate management”, he added. However, the timing and magnitude of the interest rate cut would depend on the government disciplining its expenditure, the RBI said. Though there has been a sharp fall in inflation and there were several demands of rate cuts especially from industry, RBI has refused to relent and does not seem convinced with the sustainability of the drop in inflation numbers and the impact of rupee depreciation and non pass through of hike in fuel prices. The RBI lowered growth projection for 2011-12 to 7% from 7.6% in view of the global slowdown and domestic policy constraints. Seshagiri Rao, joint managing director & group CFO of JSW Steel, said: “When there are tight liquidity conditions forcing banks to borrow Rs 1.5 lakh crore under the LAF window, the 0.5% CRR cut is very timely in infusing liquidity in the banking system. It’s also very essential to cut key policy rates to boost market sentiment and revive the investment cycle".
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No immediate change in home, auto loan EMIs
Mumbai, January 24 After the Reserve Bank unveiled the third quarterly review of the monetary policy, several bankers said that they may not go in for rate cut immediately. However, a few like Oriental Bank of Commerce executive director S.C. Sinha said the CRR cut would "definitely lead to reduction in interest rates." Chairman of the PM’s Economic Advisory Council and former RBI governor C. Rangarajan said that as the primary injection of Rs 32,000 crore liquidity (through CRR cut to 5.5% from 6%) would have a multiplier effect, the interest rates would soften. "The improvement in liquidity condition will automatically have effect on the interest rates. It would lead to softening of interest rates," he said. CRR is the percentage of bank deposit that lenders have to keep with the RBI. The new rate would be effective from January 28. Since March 2010, the retail and corporate loans have become expensive for the borrowers but the fixed deposit holders had benefited from the 375 basis point hike in the short-term lending rate by the RBI. Canara Bank executive director A.K. Gupta said banks would now get much-needed liquidity. "Probably, interest rates may not fall immediately," he said, adding, the banks will however will have more cash at their disposal. Concerned over the upside risk on inflation, the Reserve Bank, however, kept key rates unchanged. It opted to keep the repo rate, at which it lends to the banks, unchanged at 8.5%, compelled by the worsening global economic outlook and decelerating domestic growth. The central bank itself said that "CRR is the most effective instrument ... the reduction can also be viewed as a reinforcement of the guidance that future rate actions will be towards lowering them." — PTI
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Sensex crosses 17k level to 10-wk high
Mumbai/New Delhi, Jan 24 The Sensex crossed the 17,000 mark before easing a bit to close the day 244 points up as investors cheered the RBI’s move to cut CRR to infuse liquidity into the system. The 30-scrip index crossed the crucial 17k mark before ending 244.04 points up at 16,995.77. The 50-issue NSE index Nifty regained the crucial 5,100 level, adding 81.10 points and closed at 5,127.35. Banks led the gains with SBI up 5.2%, while ICICI Bank gained 3.7%. HDFC Bank closed 1% higher. Capital goods and banking and interest-sensitive stocks supported the rally. RIL, L&T and Hindalco also made strong gains. — Agencies |
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$8.5 bn Vedanta-Cairn deal gets cabinet nod
New Delhi, January 24 Fresh approval was necessitated in view of the home ministry pointing to alleged global and domestic "transgressions" by the Vedanta group. While giving security clearance to Vedanta's purchase of a majority stake in Cairn India, the home ministry had on November 25 pointed to eight instances of the mining group or its affiliates being involved in cases of default of payment, human rights violations or environmental damage. The sources said the oil ministry approached the CCEA "to bring on record" the transgressions pointed out by the home ministry. The material provided by the ministry of home affairs has no bearing whatsoever on the security aspects, the oil ministry had stated. The sources added the CCEA concurred with this view. The planned sale of a 40% stake held by Cairn Energy Plc in Cairn India to Vedanta was first considered by the CCEA in April last year and approved in June, 2011, with certain preconditions. Cairn and Vedanta complied with all the preconditions and concluded the transaction last month. — PTI |
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RBI asks govt to free diesel prices
Mumbai, January 24 "Particularly, as the food subsidy bill is expected to rise, it will be prudent to fully deregulate diesel prices to contain both aggregate demand and the trade deficit," the RBI said in its third quarterly monetary policy review. While petrol prices are market-linked, the government decides the rates of LPG, kerosene and diesel, which usually results in a large budgetary expenditure on subsidies. The central bank further said the current levels of domestic prices of petroleum products do not reflect international prices. "Petroleum product prices have also not been revised in response to crude oil prices, contributing to both fiscal slippages and suppressed inflation. Revision in domestic administered prices will add to inflationary pressures, although such revisions are necessary to maintain the balance between supply and demand," the RBI said. According to the financial stability report (or FSR) of the RBI released earlier, the December trade deficit gap for the year would broaden from $155 billion to $160 billion, a significant rise from $104.4 billion in the previous year. It is estimated that the higher expenditure on petroleum subsidy could drive up the fiscal deficit by around 0.8 percentage points of the GDP for 2011-12. — PTI |
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IMF lowers world growth outlook
Washington, D.C., Jan 24 The IMF chopped its 2012 forecast for global growth to 3.3% from 4% just 3 months ago, saying the outlook had deteriorated in most regions. It projected world growth would strengthen to 3.9% in 2013. It added economic activity was decelerating but not collapsing. However, it warned global growth could come in about 2 percentage points below its already soft forecast. — Reuters |
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Reliance buyback to open on Feb 1
New Delhi, January 24 Reliance, India's biggest company by market value, said late last week it will spend up to $2.1 billion to buy back shares at a maximum price of Rs 870 each, or about 10% premium over its current share price, as it looks to prop up its underperforming shares. It will buy back up to 120 million shares, or 3.7% of outstanding equity. Its controlling shareholders, who own 44.7% of the equity, will not participate in the offer. The Reliance stock fell 2.7% on Monday after the energy major posted its first drop in quarterly profit in more than two years. By 0423 GMT on Tuesday, the stock was up 1.8% at Rs 85.45. Reliance Industries’ market value tumbled 35% in 2011, mainly because of worries that falling output from its offshore gas fields would hurt its long-term growth. The stock underperformed the main Mumbai market, which fell nearly 25% in the same period. The share buyback is expected to increase shareholder value by reducing the number of shares and increasing earnings per share, Reliance said. This is the company's first share buyback since 2005 and the biggest ever in India. Citigroup and Bank of America-Merrill Lynch are the managers for the buyback offer. — Reuters |
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RIL’s KG-D6 output may fall further
New Delhi, January 24 "It (Reliance Industries) are currently producing between 38 and 39 million standard cubic metres per day... This may drop further this year as all the oil and gas fields witness natural decline," DGH director general SK Srivastava told reporters here. RIL has seen KG-D6 output fall from 61.5 mmscmd achieved in March 2010 to less than 39 mmscmd, instead of raising it to about 70 mmscmd target for this fiscal and 80 mmsmcd by April. "The operator (RIL) has now got an experienced partner (BP). Is is doing studies in tandem. By the end of the year, the will come up with solutions to arrest the fall in production," Srivastava said. RIL, which has so far drilled and completed only 18 out of the 22 planned wells by April, 2011 and 31 by April 2012, blames the fall in output to reservoir not behaving in the previously predicted fashion, fall in pressure in wells and water and sand ingress. It wants to do more studies before drilling more wells. Five of the 18 wells on Dhirubhai-1 and 3 gas fields in KG-DWN-98/3 or KG-D6 block, have ceased due to high water and sand ingress. Besides, one out of the six wells on the MA oil field in the same block has also closed due to the same issues. BP Plc had in February last year announced buying 30% stake in RIL’s 23 blocks including KG-D6. — PTI |
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YES Bank Q3 net jumps 33% Wipro launches SprintHR Airtel online prepaid recharge
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Consumers of home and auto loans may not get immediate relief in their equated monthly installments (EMIs) but the Reserve Bank of India infused more liquidity into the system, signaling that interest rate cuts may follow — a move that saw a rally in the stock markets.
The Bombay Stock Exchange benchmark Sensex rose 1.46% on Tuesday to its highest close in ten weeks, after the RBI signalled a policy shift towards reviving growth, boosting appetite for stocks in Asia's third largest economy.
