RBI may hike key policy rates by 25 bps tomorrow: Analysts

In its annual policy document for 2011-12 released last month, the RBI had said that inflation control would be its primary focus in the near future, even as it agreed that the high rate of price rise would impact the country’s growth story

New Delhi: With inflation hovering much above the comfort zone, the Reserve Bank of India (RBI) may raise key policy rates by 25 basis points (bps) in its first mid-quarterly review of the credit policy for FY11-12 tomorrow, reports PTI.

“I think the RBI would take one more small step to curb inflationary expectations. The market is expecting a 25 basis points increase,” Indian Overseas Bank chairman and managing director M Narendra told PTI.

One thing is certain, inflation is beyond the comfort level and the RBI has already expressed its concern on many occasions, he said.

In its annual policy document for 2011-12 released last month, the RBI had said that inflation control would be its primary focus in the near future, even as it agreed that the high rate of price rise would impact the country’s growth story.

“Given the inflation condition, the general consensus is that RBI would raise rates by 25 basis points,” said Punjab & Sind Bank executive director PK Anand.

For the month ended May, inflation moved up to 9.06% from 8.66% in the previous month, mainly on account of a rise in the price of manufactured products.

According to IDBI Bank executive director RK Bansal, rising inflation numbers have raised the expectations of a rate hike by the RBI.

“My feeling is that the central bank could further raise rate by 25 basis points,” Mr Bansal said.

The RBI has hiked key policy rates nine times since March 2010 and is likely to continue with its tight monetary policy stance to tame inflation, which is edging toward double digits.

The central bank, in its annual policy, had accepted that inflation would remain a matter of major concern in the next few months on account of high global commodity prices, particularly of crude.

Analysts feel that repeated rate hikes have led to dwindling investment, which is turn has led to a slowdown in economic expansion.

During the January-March quarter, gross domestic product (GDP) expanded by only 7.8%, the slowest pace of growth in five quarters.

At the same time, factory output—as measured by the Index of Industrial Production (IIP)—grew by only 6.3% in April, as against 13.1% in the corresponding period last fiscal.

However, the central bank’s priority would be to check price rise, analysts said.

According to IndusInd Bank executive vice-president Moses Harding, headline inflation shooting past the 8.5%-9% tolerance zone in May has set off alarm bells. There is now extreme pressure on the RBI to continue with its rate hike actions and maintain the repo rate as the operative policy rate for an extended period of time.

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30% stake sale in 23 RIL gas blocks to BP gets govt nod

While giving the unconditional NOC, the home ministry asked if Reliance could not have offered the stake to state-owned gas utility GAIL India or any other PSU

New Delhi: The home ministry has given unconditional approval to Reliance Industries (RIL) for the sale of a 30% stake in 23 oil and gas properties, including the Mukesh Ambani-led firm's showpiece KG-D6 block, to UK's BP Plc for $7.2 billion, reports PTI.

The home ministry, which was asked by the petroleum ministry to give security clearance to India's biggest foreign direct investment, gave its no-objection certificate (NOC) on 1st June, a top oil ministry official said here today.

While giving the NOC, the home ministry asked if Reliance could not have offered the stake to state-owned gas utility GAIL India or any other PSU.

RIL brought in BP to leverage Europe's second biggest firm's expertise in producing oil and gas from deep-sea areas.

RIL has been facing sub-surface technical problems at its eastern offshore KG-D6 fields, where production has fallen from 61.5 million metric standard cubic metres per day (mmscmd) to about 48 mmscmd, instead of rising to the planned 69 mmscmd.

The Indian petroleum major hopes BP will help fix the reservoir issues and rapidly raise output to the peak of 80 mmscmd.

The official said no Indian company-private or public sector-has deep-sea expertise and a gas marketing company like GAIL could not have added any value to KG-D6 or other blocks of Reliance.

Oil and Natural Gas Corporation (ONGC), the nation's largest state explorer, is in fact struggling to put together a viable development plan for discoveries it has made in a block adjacent to KG-D6 in the Krishna-Godavari basin. ONGC itself has been seeking partners for that block and had shortlisted BP as a potential ally.

The official said the home ministry has also asked if oil and gas can be exported. "That is ridiculous to even think. Production Sharing Contract (PSC) bars export of oil outside India and the Supreme Court has upheld the government's absolute powers to decide users of natural gas. So while India is energy deficit, no government can even think of exporting gas."

"There is no way that BP can take oil and gas produced from Reliance blocks to the UK," he added.

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Is the ‘emerging’ markets story over?

Analysts are now going bearish on them.

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