RBI rate hike to bring inflation down to comfortable level: FM

Pranab Mukherjee hopes inflation reduces soon, leaving scope for growth in second half of fiscal

New Delhi: Union finance minister Pranab Mukherjee today said that the interest rate hike by the Reserve Bank of India (RBI) will help moderate inflation to a comfortable level without hurting growth.

“I am hopeful that the measures taken (by RBI) would get us back to a more comfortable inflation situation earlier rather than later... while (leaving) scope for growth to pick up in the second half of the year,” Mr Mukherjee told journalists.

The RBI today hiked interest rates by 25 basis points at its mid-quarter policy review which will make credit for business and retail loans costlier. This is the 12th time since March 2010 that the Bank has hiked rates in its continuing effort to curb inflation, PTI reports.

“Today's step is consistent with the RBI's monetary stance for the first half of 2011-12 and overall concern on growth sustainability in the medium term,” Mr Mukherjee said.

The RBI said in a statement after its review meeting that inflation would continue to be the guiding factor on deciding monetary policy and it projected a March-end inflation of 7%.

According to the central bank, inflation would cool only in the later part of the financial year. Overall inflation was 9.78% in August, up from 9.22% in July, which is way above the central bank’s comfort level of 4% to 4.5%.

In the context of mixed data on the state of the economy, Mr Mukherjee said headline inflation, which is above 9% over the past 12 months, continues to be a matter of concern.

“There are signs of growth (getting) affected by monetary tightening in recent days,” he said.

Industrial production fell to a 21-month low of 3.3% in July. The country’s GDP growth also slipped to an 18-month low of 7.7% in the April-June period.




5 years ago

The Interest Rate is still behind the curve vis-a-vis inflation. This is because RBI is too gently dealing with the problem, almost timidly, for fear of miffing the Corporates. The Corporate and Industry barons will be more than happy to work with free money or subsidized money. If they want to show their management prowess, let them first give proper dues to labor and to invested money (deposited in banks).
Money without adequate interest is losing its value whether paid to the labor or to the investor.

Strike at Suzuki Powertrain, Suzuki Motorcycle called off

Meanwhile, Maruti Suzuki said its Manesar plant will resume production on Sunday as it expects engines and components supplies to normalise after the end of strike at Suzuki Powertrain India

Gurgaon: Workers at three factories operated by two different subsidiaries of Suzuki Motor Corporation in India called off their two-day-long strike this morning after an agreement was reached with the management of the companies, reports PTI.

On Wednesday, workers at Suzuki Powertrain India and Suzuki Motorcycle India Pvt Ltd went on strike in support of their colleagues at Maruti Suzuki India’s (MSI) Manesar plant, who have been locked in a standoff with management authorities since 29th August.

Workers from Suzuki Castings—a part of Suzuki Powertrain India—who are affiliated to the Suzuki Powertrain India Employees Union, had also joined the strike.

“We have reached an agreement with the management and they have agreed to consider our demands sympathetically,” Suzuki Powertrain India Employees Union president Sube Singh Yadav told PTI.

Production resumed at the plant this morning and workers at Suzuki Castings have also resumed duties, he added.

Similarly, Suzuki Motorcycle India Workers Union president Anil Kumar said workers at the two-wheeler maker’s plant resumed duty this morning after an agreement was reached with the management.

Neither of them, however, specified whether the problem between the management and workers at Maruti Suzuki India’s Manesar plant has been resolved.

Yesterday, Maruti Suzuki had announced that it will shut down its plants at Manesar and Gurgaon today due to engine supply constraints on account of the strike at Suzuki Powertrain.

Suzuki Powertrain India employs over than 2,000 workers at its Manesar plant, where it manufactures diesel engines and transmissions for supplies to MSI. Suzuki Castings has nearly 700 workers.

Suzuki Motorcycles India has 1,400 workers at its plant near Manesar and rolls out about 1,200 motorcycles and scooters a day.

Meanwhile, Maruti Suzuki India said its Manesar plant will resume production on Sunday as it expects engines and components supplies to normalise after the end of strike at Suzuki Powertrain India (SPIL).

“Our focus now will be bringing the production to normal levels as supplies of components and engines will resume from SPIL. We will also further augment manpower at the Manesar plant,” a company spokesperson said.

MSI said, however, that its Gurgaon plant will not function on Sunday.

The company had yesterday announced that its factories at Manesar and Gurgaon will be shut today due to supply constraints of engines from SPIL due to the strike there.


RBI hikes repo rate by 25 bps to 8.25%; maintains anti-inflation stance

The Reserve Bank of India continues with its monetary tightening measures to control high inflation, notwithstanding concerns over economic slowdown

The Reserve Bank of India (RBI) today hiked interest rates for the 12th time in 18 months, saying that its monetary stance going forward will be influenced by the inflation trend.

The RBI announced it was hiking the repo rate (its main policy rate at which it lends to banks) to 8.25%, even as its monetary tightening appears to have not yielded the results it is looking for so far. The reverse repo rate has also been raised by an equivalent amount to 7.25%.

With this hike the policy rate has been increased by a total 300 basis points in one and a half year. The hike in policy rates which leads to higher lending rates, has affected retail loans as well as credit offtake by industry, which is seeing a slowdown in sales. This had prompted expectations that the central bank would take a pause.

But the central bank said it was too soon to ease its anti-inflationary bias. “A premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance,” it said.

Headline inflation for August rose to 9.78%, its highest in more than a year, from 9.2% in the previous month. However, the effect of previous rate hikes is likely to be felt in the forthcoming quarters, economists say, which could lead to the central bank stepping back.

The news of the rate hike dragged the stock market down by more than one per cent. The benchmark indices, which were mostly positive this morning, dipped to just below Thursday’s closing levels, but recovered afterwards in volatile trading.

The Nifty which opened this morning at 5,123, nearly 50 points up from yesterday, slipped just after noon to 5,068, just under its previous close, then climbed back up about 0.7%. It was a similarly trend with the Sensex.

Manufacturing slowed down to 3.3% in July, the lowest in 21 months and lower industrial output together with higher prices has cooled economic growth. GDP growth in the first quarter (April to June 2011) moderated to an 18-month low of 7.7%, against 8.8% in the corresponding period a year ago.

While inflation in India in largely driven by food and fuel prices, both seen to be beyond the scope of monetary policy, it has recently affected the core non-food manufacturing sector and remains way above the RBI’s stated comfort zone of 4% to 4.5%. Only yesterday, oil companies announced a hike in petrol rates by more than Rs3.


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