The Tribune, Chandigarh, India

	RBI holds rates as inflation, growth outlook worsens Lowers FY13 GDP forecast to 6.5% from 7.3% Mumbai, July 31 The Reserve Bank of India left interest rates unchanged on Tuesday for the second straight review, showing that bringing down stubbornly high inflation is its top priority even as economic conditions deteriorate. Underlining its policy dilemma as it faces pressure to reduce rates, the RBI cut its economic growth forecast for the fiscal year to March 2013, while at the same time raising its inflation forecast. The RBI left its policy repo rate at 8% and cash reserve ratio for banks at 4.75%. The CRR is the share of deposits banks must keep with the RBI. "In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth," governor Duvvuri Subbarao wrote in the monetary policy review. The RBI's primary focus remains inflation control, he added. The central bank's hard line on rates sits in contrast to many other central banks that are easing credit conditions to try to bolster economies feeling the impact of the eurozone debt crisis. The stance maintains pressure on the government to rein-in populist subsidy spending and take other steps to bolster an economy growing at its weakest pace in almost a decade as companies hold back on investment and a creaking infrastructure stunts growth as it adds to business costs and so fuels inflation. A Reuters poll of 20 economists last week showed all but one expected the RBI to hold rates steady. Many economists expected the central bank to resume cutting rates only in the second half of the fiscal year, and modestly at that. Weaker-than-normal monsoon rains in India this summer complicate monetary policy. Higher food prices are beyond the reach of monetary policy, but can fuel inflationary expectations and tempt the government to spend more on subsidies. "Given the inflationary risks and pressures, which I don't see going away, we will continue to see high inflation in the rest of the year," said Abheek Barua, chief economist at HDFC Bank in New Delhi. "In the foreseeable policy horizon, I don’t see the RBI cutting rates," he said. MARKET DOUBTS: Wholesale price inflation remained above 7% in June and consumer price inflation was 10%. India’s growth slowed to a nine-year low of 5.3% in the March quarter. On Tuesday, the RBI cut its economic growth outlook for the fiscal year that ends in March to 6.5%, from the 7.3% assumption made in April, putting its outlook closer to that of many private-sector economists. It also raised its headline inflation projection for March 2013 to 7% from 6.5% in its April review, further denting market hopes for policy easing in the near term. — Reuters
	RBI chief sees scope to cut interest rates this fiscal Tribune News Service Mumbai, July 31 The Reserve Bank of India may cut interest rates this year, governor Duvvuri Subbarao told reporters here Tuesday after presenting the central bank’s policy review. “Well, I see some scope, but I can’t say when,” he said. The central bank has so far been pressing the government to undertake economic reforms in order to reduce fiscal deficit before the central bank can consider cutting rates. However, Subbarao sounded cautious and said even the fiscal measures taken by the government might not allow the RBI to ease monetary policy. On Monday the RBI had warned that the weak monsoon across the country could result in inflationary pressures on the economy. Subbarao’s statement that there was a scope to reduce rates cheered the markets somewhat with the BSE Sensex closing 92 points higher. According to various analysts, the RBI may cut rates around Diwali should the government deliver on economic reforms and inflation remains under control. Admitting that the economic groXwth has slowed down, Subbarao said the monetary policy alone should not be blamed. “There are several factors responsible for the growth slowdown, the monetary policy stance is only one of them. There is sufficient liquidity in the system. Real interest rates continue to be lower than what they were in the pre-crisis period,” he added.
	Industry, borrowers dismayed Ruchika M. Khanna/TNS Chandigarh, July 31 The Reserve Bank of India has disappointed industry and retail borrowers in the region by leaving the key interest rates unchanged. With the RBI’s focus being mainly to tame the growing inflation, the recession hit industry, which was hoping for a cut in the lending rate, has been left high and dry. At a time when industry claims it is going through its worst crisis because of a general economic slowdown, they were expecting some relief to come their way by way of a cut in lending rates, which would help them avail more credit. But while they have given a thumbs down to the credit policy, market analysts say the RBI governor has taken a step in the right direction. Dinesh Thakkar, chairman & MD of Angel Broking, said the RBI’s stance is clearly focused on inflation control. “Acknowledging the weak environment, the central bank reduced its GDP growth outlook to 6.5% and raised the inflation estimate to 7% for the current fiscal. This suggests low possibility of rate cuts in the near future. But the RBI’s stance doesn’t come as a surprise to markets At this point, with the risk of food inflation looming on the one hand and fiscal deficit on the other, the RBI needs to anchor inflationary expectations by keeping rates unchanged,” he said. Arvind Chari, fund manager, Quantum Asset Management Co, said a lower statutory liquidity ratio would lead to lower incremental demand from banks for government bonds. “An SLR cut indicates two things — the RBI expects system liquidity to be comfortable in the coming months, thus assuring banks that they need not hold excess SLR in a large measure. Currently the system holds 29% SLR, which is about 6% in excess. The other factor is that a cut in SLR would free up the deposits for banks to lend more to productive sectors. Given that loan deposit ratios are high and deposit growth is slack; a cut in SLR would help banks in extending credit despite high loan deposit ratios. Given the RBI can’t support growth by cutting rates at this point of time due to the uncertainty in food and oil prices; easing SLR and providing liquidity is about the right choice,” he added. However, industry is not amused. A. L. Aggarwal, general secretary of the Haryana Chamber of Commerce & Industry, said the chamber had been expecting some relief from the RBI, especially at a time when industry was going through one of its worst crisis. “The chamber registers its disappointment as the RBI has again announced no repo rate cut. The interest rate being charged by banks from micro small & medium enterprises for term loans and working capital loans are high (between 13.5% to 15%), which are exorbitant. This has rendered most MSMEs unviable. The economy will further decelerate if no rate cuts are announced immediately,” he said.
	SLR cut may help slash lending rates: Bankers Mumbai, July 31 The Reserve Bank of India has done a balancing act amid weak economic conditions by increasing liquidity that can help bankers cut lending rates, and at the same time let it continue with its nearly three-year-old fight against inflation, top lenders said Tuesday. They hinted at a marginal reduction in lending rates following today's cut in the statutory liquidity ratio (SLR) — the amount of deposits that have to be invested in government bonds and other liquid assets. The central bank reduced the SLR by 1% at the quarterly monetary policy review on Tuesday morning. India’s largest lender, State Bank of India, hinted at lowering lending rates to retail customers. "The one percentage point cut in SLR will release an additional Rs 10,000 crore for SBI. That coupled with Rs 6,500 crore released through the reduction in export refinance, may lead the bank to cut lending rates in retail," SBI chairman Pratip Chaudhuri told reporters at the customary post-policy press briefing at the RBI headquarters. “It’s always better to deploy money at 10.50% return than the 7.5% average that the SLR gives, he added. He further said the bank's asset liability committee will meet either on Tuesday or Wednesday to take a call on both the base rate as well as whether to cut spreads in select retail products. — PTI
	Sensex rises for 3rd day; lags Asian indexes in July Mumbai, July 31 The BSE Sensex and Nifty rose on Tuesday for a third consecutive session as software services exporters such as Tata Consultancy gained on continued hopes for monetary stimulus from global central banks. Fuel retailers such as Hindustan Petroleum Corp also rose after the oil ministry demanded the finance ministry to compensate these companies for losses sustained in the April-June quarter for selling fuel at cheaper rates. Banking shares ended mixed. The Reserve Bank of India sought to improve liquidity by cutting the proportion of securities that lenders must hold, but the action was offset as the central bank also raised its inflation outlook, casting doubt about the future timing and scope of interest rate cuts. "Expectations of future policy action are likely to get further back ended given the sticky inflation and monsoon concerns," said Sandeep Nanda, CIO of Bharti AXA Life Insurance. The 30-share BSE Sensex rose 0.54% to 17,236.18 points, while the 50-share Nifty gained 0.56% to end at 5,229 points. Indian shares fell for the month, with the BSE index ending down 1.1%, reversing the strong gains seen in June. The monthly falls lagged the 3.6 percent gain in the MSCI Asia-Pacific index excluding Japan. The optimism last month over potential policy reforms has been replaced in July by concerns the government would struggle to implement fiscal measures given disagreements among ruling coalition parties. Weaker-than-expected rains during the monsoon season are also raising worries about inflation. The drought threatening the country could make it harder for the government to raise subsidised fuel prices, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, told Reuters. The government is soon expected to name home minister Palaniappan Chidambaram as the new finance minister, and he will need to reassure markets the government is serious about reducing its fiscal deficit and boosting growth. — Reuters
	Gold climbs Rs 220, silver Rs 1k on festive demand New Delhi, July 31 Both gold and silver rose in the bullion market here today on buying by stockists and jewellery makers for the coming festive season amid a firm global trend. While gold spurted by Rs 220 to Rs 30,520 per 10 grams, silver shot up by Rs 1,000 to Rs 54,000 per kg on increased offtake by jewellers and industrial units. Silver coins followed suit and rose by Rs 1,500 to Rs 63,500 for buying and Rs 64,500 for selling of 100 pieces. Traders said sentiment turned bullish on buying by stockists and jewellers for the coming festival and wedding season. A firming trend in the global markets also influenced the sentiment. In London, gold rose by US $1.30 to $1,623.20 an ounce and silver by 0.25% to $28.25 an ounce. In India, gold of 99.9% and 99.5% purity surged Rs 220 each to Rs 30,520 and Rs 30,320 per 10 grams, respectively. Sovereign followed suit and rose by Rs 50 to Rs 24,500 per 8 grams. — PTI