There is a consensus among analysts and economists that the Indian central bank will pare its projection for the economy’s growth in fiscal 2012 when it announces its second-quarter review of monetary policy on Tuesday, but not too many of them want the Reserve Bank of India (RBI) to raise its policy rate yet again, even though the wholesale price inflation continues to remain high, way beyond RBI’s comfort level.
The growth projection will probably be cut to 7.5% from 8%, and none, including Union finance minister Pranab Mukherjee, will be surprised by that. In fact, at the economic editors’ conference last week in Delhi, Mukherjee himself admitted that the growth projection outlined in the February budget would be difficult to achieve. There were also hints that the government will find it extremely challenging to meet the fiscal deficit target— 4.6% of gross domestic product. (Click here to read full column)
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Setting the stage for RBI | ( Graphic )
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Rate hike will be a mistake
Frustrated by the lack of support from fiscal policy and belatedly recognizing that persistent inflationary pressures are as much a demand pull as a structural food inflation story, the Reserve Bank of India (RBI) has delivered a steady diet of interest rate increases this year to bring inflation under control.
But the economy now stands at a crossroads, with the risks to growth and inflation evolving rapidly. The euro zone debt crisis and renewed fears over the health of the US economy have soured the external environment while a swathe of indicators signal the domestic economy is slowing rapidly. Inflation, for now at least, however, remains uncomfortably elevated, with the September wholesale price data still hovering close to double-digit territory. (Click here to read full column)
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A different BRIIC in the wall?
Brazil and Indonesia, members of the motley crew of BRIIC countries (Brazil, Russia, India, Indonesia, and China), have recently seen their central banks cut policy rates. Consequently, there is some speculation that others may follow suit, including the Reserve Bank of India (RBI). However, this perspective, it would seem, is based heavily on a follow-thy-neighbour assumption and not on country-specific considerations.
Taking an India-centric perspective, there is no need to cut rates but rather a need to tighten. Why? Simple. The inflation problem in India is more severe and, except for maybe Indonesia, the economy is more domestically oriented, leaving it somewhat more insulated against adverse global economic spillovers. While RBI is getting closer to the end of the tightening cycle, we do not think they are quite done yet. Here is why. (Click here to read full column)
Leif Eskesen, chief economist HSBC (India and Asean)
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Rising rates cause for high inflation
This commentary is being written at a time when we are faced with the prospect of lower growth, persistent inflation, higher interest rates and a weak rupee.
Our anti-inflationary policy in the recent months has been based on the belief that price shocks may start from the supply side, but these cannot persist in the absence of a rise in demand scenario. Consequently, the Reserve Bank of India (RBI) feels there is a need to cool down the demand side of the economy. A series of 12 rate hikes since March 2010 is indicative of this belief. Nonetheless, inflation in Wholesale Price Index on a year-on-year basis during the first half of fiscal 2012 was 9.6%. (Click here to read full column)
Siddhartha Roy is Economic advisor, Tata group
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RBI may hold fire after 25 bps hike
The task before the Reserve Bank of India (RBI) as it prepares to unveil the second quarter review of monetary policy is tricky. Headline wholesale price inflation (WPI) continues to be sticky, close to double-digit levels in provisional terms. Although manufacturing and core WPI inflation have moderated in sequential terms, year-on-year, or y-o-y, figures continue to rule well above RBI’s medium-term targets.
On the other hand, some growth indicators have started worsening at a faster pace than was initially anticipated by RBI and the government. Though industrial production data appears to be riddled with inconsistencies, the trend in manufacturing output growth is indisputably slower. (Click here to read full column)
A. Prasanna is the chief economist at ICICI Securities Primary Dealership Ltd
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Reuters Poll | RBI rate hike on the cards, say analysts
Mumbai: The Reserve Bank of India (RBI) is widely expected to deliver one final interest rate increase at its policy review next week and then pause until the end of the fiscal year in March, a Reuters poll of 30 economists showed.
A file photo of RBI governor Duvvuri Subbarao. Photo: Bloomberg
Of those polled, 17 expect the RBI to increase the key lending rate by 25 basis points on 25 October, while 13 expect it to hold the rate.
The median forecast is roughly in line with estimates in a smaller poll conducted immediately after the RBI raised rates in mid-September and indicated more was to follow. Since then, global and domestic indicators have pointed to weakening economic conditions. (Click here to read full story)
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Slowdown fear grips industry as RBI policy meeting looms
Dinesh Unnikrishnan & Joel Rebello
Mumbai: A growing uneasiness is palpable among Indian companies, individual borrowers and even commercial lenders as the central bank may increase its policy rates, the 13th such hike since March 2010, to rein in a persistently high inflation in the world’s second-fastest growing major economy.
Firms are resisting RBI action, arguing that it could further damage the already weak investor sentiment, create a roadblock for ongoing projects and stymie job creation. Bankers, too, are against any further increase because it could hurt their margins and result in more bad loans in the industry, already burdened with multiple loan recasts and slow loan growth. (Click here to read full story)
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Balancing growth and inflation
The perception in the market before the 25 October monetary policy of the Reserve Bank of India (RBI) is that we are very close to the peak of the rate hiking cycle, although the possibility of another rate hike next week cannot be ruled out. Apart from the rate decision, we will also be looking for any subtle or explicit change in the guiding principles of monetary policy because the economic cycle is changing. There are always multiple considerations that go into framing monetary policy, but in our view, belief in three hypotheses has prompted RBI to adopt a more hawkish policy stance in FY12. (Click here to read full column)
Samiran Chakraborty is head of research, Standard Chartered India