Economy
What a rate cut will not achieve
The possible rate cut of 25-50bps by RBI is unlikely to stimulate capex as there is a need for complimentary demand side policies, says a research note
 
The Reserve Bank of India (RBI), in its first bi-monthly monetary policy review for FY2016-17 on Tuesday is widely expected to cut interest rates by at least 25 to 50 basis points. However, the monetary easing is unlikely to stimulate capex now amidst weak demand and there is a need for complimentary demand side policies, say a research note.
 
In the report, Religare Capital Research Ltd, said, "Going by RBI’s stated preference for maintaining real interest rate in the 1.5-2% range, there is room for 50bps rate cut. However, RBI may cut repo rate by only 25bps in April policy and rather wait for further development on monsoon and 7th Pay Commission implementation while also taking steps to improve transmission."
 
As per RBI’s latest order books, inventories and capacity utilisation survey (OBICUS), capacity utilization levels continue to remain low at about 70%. External and domestic demand, especially from rural India, continues to remain subdued. Thus, monetary easing is unlikely to spur investment demand, Religare feels. 
 
"FY2016-17 Budget did attempt to address the weak demand conditions by focusing on infrastructure and rural India. However, the wait may be longer. It may ultimately be a policy choice – to induce demand slowly in a low inflationary way leading to a lower but less volatile growth trajectory, or to induce demand in a stronger way, leading to high inflation and higher but more volatile growth path," the report says.
 
Elaborating the logic behind the possible rate cut, Religare said, multiple factors have converged during the last 30 days that warrant a policy rate cut in the upcoming monetary policy review on 5th April. These include, a sharper-than-expected fall in February Consumer Price Index (CPI) inflation number to 5.2% from a 17-month high of 5.7% in January 2016, the government's decision to stick to the fiscal deficit roadmap in the Union Budget FY206-17 at least on paper, the sharp slowdown in Index of Industrial Production (IIP) post first half of FY2016 and the government’s decision to cut interest rates on small savings and thus strengthen the monetary policy transmission mechanism.
 
The RBI has stated its preference for maintaining real interest rate (T-Bill rate minus inflation) in the 1.5-2% range. The average real interest rate in FY2016 has been 2.5%. Thus, there is a 50bps room for monetary easing. 
 
However, Religare said, this is dependent on inflation trajectory. The RBI has set an inflation target of 5% by end-FY17. In order to achieve this, core inflation, which has remained sticky at about 5% during the last 12 months, will have to decline from current levels in order to cushion for the gyration in food inflation. The upside risks to CPI inflation is from poor monsoon, 7th Pay Commission implementation, particularly the housing component and a rebound in oil-prices from low sub-$40 per barrel. Inflation expectations are also inching up; as per the RBI’s household inflation expectations survey, 3-month and 1-year ahead inflation expectations edged up in December 2015 quarter. 
 
"Given the upside risks to inflation, the RBI is likely to cut repo rate by only 25bps in April policy and rather wait for further development on monsoon and 7th Pay Commission implementation while also taking steps to improve transmission," Religare concluded.

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COMMENTS

B. Yerram Raju

8 months ago

Religare's expectation is range bound and well argued.

Coal case: Four years jail for two JIPL directors
New Delhi : In the first conviction in a coal block allocation case, a special court here on Monday awarded four-year jail term to two directors of Jharkhand Ispat Pvt. Ltd., holding them guilty of criminal conspiracy and cheating in bagging a coal block.
 
Special Central Bureau of Investigation Judge Bharat Parashar awarded four years' jail terms to JIPL directors R.S. Rungta and R.C. Rungta and slapped a Rs.5 lakh fine each on them.
 
The court also imposed a fine of Rs.25 lakh against Jharkhand Ispat Pvt. Ltd. (JIPL).
 
The court last week convicted JIPL and its directors R.S. Rungta and R.C. Rungta for the offence of cheating and criminal conspiracy under the Indian Penal Code (IPC), observing that they had "fraudulently" and with a "dishonest intention" deceived the government in allocating the North Dhadu coal block in Jharkhand to the firm.
 
The Rungtas, who are already in judicial custody, were present in the courtroom when the sentence was pronounced.
 
Besides this case, 19 other cases investigated by the Central Bureau of Investigation (CBI) are pending before the court, set up to exclusively deal with all the coal scam matters. 
 
Two other cases probed by the Enforcement Directorate are also pending before the court.
 
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.

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IIM-B top management, IIT-M top engineering institute: HRD
New Delhi : The Human Resource Development Ministry on Monday ranked IIM-Bangalore as the top management institute and IIT-Madras as the top engineering institute in India.
 
The Indian Institute of Management-Bangalore was followed by IIM-Ahmedabad and IIM-Calcutta in the second and third spot among management institutes.
 
The Indian Institute of Technology-Bombay and IIT-Kharagpur were ranked the second and third best engineering institutes respectively. 
 
The rankings were announced by the ministry under the the National Institutional Ranking Framework's (NIRF) programme 'India Ranking 2016' here. 
 
NIRF was launched by the HRD ministry on September 29, 2015. 'India Rankings 2016' evaluates higher educational institutions in engineering, management, universities and pharmacy categories.
 
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.

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