RBI likely to go for another rate hike in September, say experts

"While the RBI will continue on its anti-inflationary stance, adverse global environment suggests that it might become less aggressive..." global research firm Macquarie economist Tanvee Gupta Jain opined

New Delhi: The Reserve Bank of India (RBI) is likely to continue with its tight monetary policy stance to fight inflation and effect another hike in key interest rates in September, even though the global economic environment is on a downslide, reports PTI.

However, while the RBI is likely to go for another interest rate hike at its next mid-quarterly policy review on 16th September, it will not be very aggressive, the experts said.

According to global research firm Macquarie economist Tanvee Gupta Jain, "While the RBI will continue on its anti-inflationary stance, adverse global environment suggests that it might become less aggressive..."

Global investment banking major Morgan Stanley also thinks, "The RBI will continue with its anti-inflationary stance with one more 25 basis points hike in order to anchor inflation expectations decisively, barring a further deterioration in the growth outlook."

The RBI, at its last review meet in July, raised the repo (borrowing) rate by 50 basis points to 8% and the reverse repo (lending) rate by 50 basis points to 7%.

The apex bank has hiked the key policy rates 11 times since March 2010 to curb inflation, which has been hovering above the 9% mark since December last year.

Headline inflation stood at an eight-month low of 9.22% in July. However, this was much above the RBI's 'comfort zone' of around 5%.

Despite several interest rate increases, the rising discretionary income of the middle class is likely to exert upward pressure on inflation, say experts.

In its Economic Outlook for 2011-12, the Prime Minister's Economic Advisory Committee (PMEAC) had projected inflation to remain high at around 9% till October, before moderating to around 6.5% by March 2012.

Notwithstanding the adverse global economic scenario, better-than-expected June factory output data is likely to prompt the central bank to go for another round of rate hikes.

The Index of Industrial Production (IIP) grew by 8.8% in June 2011, compared to 7.4% in the corresponding period last year.

However, recent negative global developments like the sovereign debt crisis in Europe and increasing concerns that the US economy may slip into recession after its long-term debt rating was lowered a notch to AA+ by Standard & Poor's are expected to eventually affect the Indian economy to some extent, the experts believe.


Jaya voices objections on GST Bill to PM

Accusing the Centre of trying to 'bulldoze' the Constitution (115th Amendment) Bill, 2011 through Parliament, TN chief minister Jayalalithaa said in a letter to the prime minister that this piece of legislation "encroaches upon the powers vested with the states by the Constitution"

Chennai: Tamil Nadu chief minister Jayalalithaa today voiced her opposition to the proposed Goods and Services Tax (GST) Bill to prime minister Manmohan Singh, asserting it encroached on state powers and was like entering an 'unknown territory' fraught with risk and uncertainty, reports PTI.

She also appealed to non-Congress chief ministers to oppose the 'clandestine and sinister' attempt, as the states would be 'trapped in a bottomless pit'.

Accusing the Centre of trying to 'bulldoze' the Constitution (115th Amendment) Bill, 2011, now before the Parliamentary Standing Committee on Finance, through Parliament, she said in a letter to Mr Singh that this piece of legislation "encroaches upon the powers vested with the states by the Constitution".

Noting that sales tax was the only major buoyant source of revenue on which the states could depend, she said any tax reform measure driven by the Centre should neither reduce the revenue flow from this source, nor should it adversely affect the fiscal autonomy of the states.

"Approval of this Amendment Bill by any of the states will amount to entering into an unknown territory fraught with risk and uncertainty," she said.

Ms Jayalalithaa said before the Centre pushes through the Bill in the Parliament, it is necessary that the consultative process among all states and the Centre is taken forward to come to a broad understanding on the framework of the proposed GST.

Expressing concern over the proposed GST Council and the GST Dispute Settlement Authority, Ms Jayalalithaa said, "This means the states virtually lose their authority to fix tax rates, which is unconstitutional and not acceptable in a federal set-up."

She said implementing GST with two rates initially and converging them to a single rate later is not workable.

"In states like Tamil Nadu, where the tax neutral rate is as high as 17%, this will lead to a huge loss, i.e., more than Rs5,000 crore per annum. Any proposal of GST structure will have to address these concerns," she said.

"The manner in which the government of India is undertaking the implementation of GST amounts to interfering with the fiscal autonomy of the states, thereby having the potential to jeopardise the federal framework of distribution of fiscal powers between the states and the Union," she said.

She asked the prime minister to continue the consultative process to arrive at a broad consensus on the issue.

In separate letters to all non-Congress chief ministers, Ms Jayalalithaa reminded that the sales tax/VAT was the only major source of revenue for the states, while the Centre has many sources of income.

"The government of India is attempting to stealthily encroach upon even this single buoyant source of revenue for the state governments in the name of indirect tax reforms," she said.


Real estate sales slip by over 30% in Mumbai; still major developers refuse to budge on prices

Troubled by higher cost of funds and increased construction and labour costs, developers are still hoping for higher prices

Recent reports suggest that the downtrend in the Mumbai realty sector continues. In July, sales registrations were down 31% y-o-y to 5,047 levels. However, prices have not shown any significant decline as builders seem to be holding the rates up in the hope of further price appreciation.

"Some local or small realtors may consider giving discounts, because they don't have holding power," said an analyst, "but big builders either freeze or raise their prices as a response to the situation."

Apart from Oberoi Realty's new project at Goregaon, all big players have seen less than enthusiastic response for new launches and are recording lower sales, according to the brokerage house Prabhudas Lilladher.

Adding to the woes has been the repeated rate hikes by the Reserve Bank of India (RBI). "The double whammy for developers continues with borrowing costs on the rise, along with worsening buyer affordability," the brokerage has said in a report. On the other hand, lease registrations have continued to climb upwards by 19% y-o-y to 9,645, and rates have come down from an all-time high in the previous month.

Liases Foras, the realty research firm, says prices in Mumbai have increased by around 5% from the preceding quarter, compared to a large 17% increase in the National Capital Region (NCR). Mumbai has about 108 million square feet of unsold stock that could take up to 40 months to sell.

In the beginning of August, it was reported that property sales in the city had hit a 30-month low. Over the past two years sales in the Mumbai Metropolitan Region (MMR) have dropped by a huge 60%.

The realty sector has been facing difficulties in sourcing funds and is now paying extraordinarily high rates to borrow money. Added to this are higher construction and labour costs that have made it even more difficult for developers.

"The problem arises when investors/brokers hoard units," said a representative of a realty firm who requested anonymity. "By the time the property is purchased by the end-user the price has been inflated considerably."

In contrast, Hyderabad and Pune have performed well, according to data by Liases Foras. Both cities have shown healthy sales. While Hyderabad saw some price corrections, prices have gone up 7% in Pune.




5 years ago

This sector needs regulation. Prices have skyrocketed in Mumbai in the last 7 years. This sector needs an overhaul like the Microfinance sector . But with most of the companies acting as front ends to Politician's the much needed transperency will have to wait.
How the cartel of builders , politicians & brokers manage to hold on to the high prices is still a mystery.


Sachin Purohit

In Reply to ramchandran 5 years ago

It is no mystery. The ultimate stakeholders in this business - the politicians, as rightly identified by you - have very deep pockets.


In Reply to Sachin Purohit 5 years ago

Banks which lend to this sector must start reporting NPAs due to their lending. Is the RBI Governor listening ????

Shama Zaidi

5 years ago

no study has been done on the percentage which represents bribes paid in the amount being chrged by builders for their products. accorrding to some people it is as high as 50% in some cases.


5 years ago

refusal to lower rates has nothing to do with - higher cost of funds and increased construction and labour costs.....it is more to do with "hoarding" and the ability of builders to withstand the lowewr sales these people have made tonnes of ,money in the last decade...

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