The Week in Review 18 March 2011

The Week in Review 18 March 2011

The Reserve Bank has increased policy rates for the eighth time since March of last year. On Thursday it raised the repo and reverse repo rates by 25 basis points each. The repo, which is the rate at which it lends to banks, is now at 6.75%. And the reverse repo, which is the rate at which it takes money from banks, is at 5.75%.

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Thursday’s hikes were widely expected by both analysts and industry. Not surprisingly, banks and other lenders do not appear to be increasing their interest rates immediately. But RBI remains hawkish in its battle against inflation, and it could hike policy rates again. On Thursday it increased its forecast for headline inflation in March-end to 8% from the earlier 7%.

The pessimistic outlook on inflation was buttressed by figures that came in on Monday. The numbers showed India’s wholesale price index rose a higher-than-expected 8.31% in February. The previous month it was 8.23%.

What’s different about the latest numbers is that they’re being driven by non-food inflation. Until recently, the Reserve Bank had been worried rising food prices would create wider inflationary pressures. But numbers that came later in the week tell a different story, with food inflation easing. The food price index rose 9.42% in the period to 5 March. The previous week it had gone up 9.52%.

In other news, Japanese insurance giant Nippon Life has come to India. It has bought a 26% stake in Reliance Life, which is the maximum FDI allowed in the industry. The deal is worth Rs3,062 crore and values Reliance Life at Ra11,500 crore. That’s much higher than typical analyst valuations for the company, which hover between Rs6,376 crore- Rs7,115 crore.

Reliance Life says Nippon’s experience will help it cope with new regulations by offering more traditional products in place of Ulips. As of December, Reliance Life was managing assets worth Rs17,000 crore.

Finally, a Nano car could ride into a hypermarket near you. Tata Motors has joined hands with retail giant Future Group to sell Nanos through its Big Bazaar stores. Tata Motors wants to make Nanos available at locations beyond the usual dealerships. Over the last month, it has managed to sell 450 vehicles through 120 Big Bazaar outlets.