The week’s most dramatic news was the end to the epic, ten-year manhunt for the world’s most wanted terrorist. On Monday American forces in choppers attacked Osama bin Laden’s lair in Abbottabad, Pakistan. They killed Bin Laden and then whisked away his body to be buried at sea.
Reaction to bin Laden’s death was swift. In India the ministry of external affairs called it historic and lost no time in urging the world to go after Pakistan-based terror. The US meanwhile said it would investigate bin Laden’s connections to Pakistan.
The Reserve Bank’s bigger-than-expected rate hikes are likely to make loans more expensive and slow down growth. On Tuesday it took a hawkish stance, increasing key policy rates by a full 50 basis points. The repo, which is the rate at which it lends to banks, is now at 7.25%. And the reverse repo, the rate at which it absorbs excess liquidity, is at 6.25%. The Reserve Bank has already hiked its rates eight times in the last fiscal.
Meanwhile, RBI governor D. Subbarao said the repo would now be the main policy rate. He added that the reverse repo would now always be kept 100 basis points below the repo.
The Reserve Bank has also reset the targets for India’s economy. Projected inflation for the fiscal ending in March 2012 is now 6% with an upward bias. And the economy is expected to grow a mere 8% during the period.
RBI also increased the savings account deposit rate for the first time in 19 years. It’s up 50 basis points to 4%. The increase is likely to be popular with bank customers because their savings rates will go up. But banks could see their margins come under pressure.
The Reserve Bank also accepted a key recommendation of the Malegam committee on micro-finance. The maximum interest rate micro-lenders can charge is now 26%. And they can only lend to people who earn Rs60,000 or less a year.
Bharti Airtel has announced some of its poorest earnings yet. India’s biggest telecom company reported a 31.5% drop in fourth quarter profits to Rs1,400 crore. The fall occurred despite a 51% revenue growth to Rs16,266 crore.
A number of factors ate into Airtel’s profits. The company has spent a lot of money on introducing 3G and data services and then there’s the expensive re-branding exercise. But the major factor hurting Airtel is its African business. Losses from the continent were at Rs416 crore in the fourth quarter.