Economy
RBI's monetary policy decision and its impact
Last week Reserve Bank of India (RBI) Governor Raghuram Rajan cut the repo rate by 50 basis points to 6.75 percent. This reduction now takes the cumulative reduction since January 2015 to 125 basis points.
 
The decision was announced in the fourth bi-monthly review of the monetary policy and is seen by many as a bit surprising - because most economists, businesspeople, analysts and researchers had expected a rate cut of 25 basis points. A 50 basis point reduction was predicted by very few. 
 
What made the RBI take the decision? A host of factors have played a crucial role. Broadly speaking, the factors taken into account can be conveniently clubbed under three broad heads: low inflation, domestic factors and global factors. While low inflation is a domestic factor, it has had played a very crucial role in the rate cut and is thus put under a different head. 
 
First, CPI-based retail inflation in India continued to decline and in August was at a historic low of 3.66 percent. The WPI was seen too at historic lows and in the negative territory (-4.95 percent). Much of this has to do with global commodity glut leading to a price collapse in the international markets and adroit handling of food items by the government. The collapse had led India's Chief Economic Advisor (CEA) to argue that India is closer to a deflation territory and thus the rationale for this rate cut falls in line with CEA's observations. Also, RBI has reduced its inflation forecasts for January 2016 from the earlier six percent to 5.8 percent. In all likelihood, inflation will be below this level by January 2016. To spur growth and maintain price stability the RBI has gone ahead with the decision. One must also notice that Governor Rajan has been more than successful in taming India's inflation from its historic double-digit peaks when he took over in September 2013 to bring it down to the present historic lows. However, as the policy statement makes it clear the long-range target is to bring inflation to a level of five percent by the end of fiscal 2016-17. 
 
Second, the RBI has factored in the local domestic scenario of growth, liquidity, investments, monsoon expectations and production and service activities. With respect to growth, the RBI has stated 'a tentative economic recovery is underway, but still far from robust'. The liquidity 'eased considerably during August to mid-September'. Despite the 14 percent deficient monsoon, first advanced estimates suggest foodgrain production to be higher than the previous year. The manufacturing sector seems to be 'exhibiting uneven growth'. The manufacturing PMI remains in 'expansionary mode' in August despite slowing down in comparison to July. Service activity remained subdued as gauged from sluggish demand for cement and inventory of unsold residential houses. However, in the months ahead the government could boost the construction by spending on public works. Broadly speaking RBI has given due consideration to all the domestic factors before taking the decision. 
 
Third, the RBI's decision also takes into account global factors. These include, among others, the decision of the Federal Reserve to defer policy rate tightening to most probably later this year. Had the Fed increased the rates earlier this month, India's policy stance could very likely have not been as forthright as it has been at present. Also external factors like global commodity glut primarily due to sluggish Chinese demand have helped India meet its fiscal consolidation plans and helped ease inflationary trends. Another point that seems to have been looked at is the sluggish growth in Europe and recession-like conditions in emerging markets most notably in Brazil and Russia. China's move from investment to consumption has seen the depreciation of the renminbi and some rough turmoil on the stock markets. All these international developments and their impact on India's trading relationships have been factored into making the decision. 
 
Thus, all in all, the decision seems prudent and well thought through. One may ask what impact is the rate cut expected to have. If proper transmission does happen, the rate cut is expected to provide a boost to investment and consumption while increasing the inflation to a comfortable level. 
 
Going ahead, it is expected that the banks pass on the benefits to the business sector and retail consumers. Already some of them have announced the plans to transmit the rate cut forward. Overall it bodes well for the growth of the Indian economy but a careful eye must be kept on seeing how far do the rate cuts impact inflation.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

User

Over 20,500 dengue cases registered in Taiwan
The number of dengue cases registered in Taiwan has exceeded 20,500 so far this year, with 56 confirmed deaths, the Centres for Disease Control (CDC) said on Monday.
 
Currently there are 61 dengue patients in intensive care units while 83.4 percent of the total number of infected have recovered fully, EFE reported citing the centre.
 
Normally, the months of September and October witness the highest number of infections and another 10,000 to 15,000 cases are expected by the end of the year.
 
The spread of dengue in Tainan, the worst-affected with nearly 18,000 cases, has been checked, but the number of cases in the port city of Kaohsiung has increased, the centre added.
 
This year's dengue outbreak has been the worst-ever in the history of Taiwan and has caused a record number of deaths.
 
In 2014, a total of 15,492 dengue cases were registered, the highest until now.

 

Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

User

BSE to introduce smart beta indices by 2015-end
The Bombay Stock Exchange (BSE) in collaboration with S&P Dow Jones Indices will introduce three smart beta (factor-based) and a 1-2 thematic indices by 2015-end, an official said here on Tuesday.
 
"Work is under progress to introduce one-two thematic indices and at least three smart beta (factor-based) indices by December-end this year," Koel Ghosh, head of business development at Asia Index, told media persons here in an interactive session.
 
Asia Index is a 50:50 joint venture between Asia's oldest bourse - the BSE - and S&P Dow Jones Indices.
 
GHosh said the criteria for a company to qualify for the factor-based indices will be based on its profitability, liquidity and turnover. Other factors may also play a role in the selection process.
 
The joint-venture has already launched five thematic indices -- the manufacturing, infrastructure, PSU (Public Sector Undertakings), Shariah-complaint and CPSE (Central Public Sector Enterprises) index categories.
 
Thematic Indices are used to capture the impacts of various broad investment themes while the smart beta or the factor-based index will be based on the free-float mechanism.
 
The official said introducing equal-weighted indices is also in the pipeline.
 
Besides, she is hopeful that with investments poised to pour into the capital market from the Employees' Provident Fund Organisation, exchange-traded fundA(ETF) will get a boost.
 
ETF is an open-end investment fund traded on stock exchanges, much like stocks.
 
"As on July this year, the Indian ETF industry had 50 ETFs with 50 listings and assets of two billion dollars from 16 providers on two bourses," she said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)