India interest rates

By Rajeev Malik of CLSA

The general drift in the financial trenches is that Governor Raghuram Rajan of the Reserve Bank of India (RBI) will stay on hold at the bank’s April 7 policy meeting. After all, he just cut rates – in a second consecutive out-of-meeting action – in early March. What’s more, consumer price inflation moved up in February; this will constrain the RBI from easing. Finally, following the surprise rate cut in January, the RBI had stayed on hold at its February policy meeting; it will repeat this behaviour next month.

For these reasons, hardly anyone expects a rate cut next week. However, valid as these arguments are, they are overshadowed by factors that make a stronger case for another cut. Read more

By Sanjeev Prasad, Kotak Institutional Equities

The Indian government’s annual budget – to be announced on Saturday – will be intensely scrutinised for clues about the evolving policy priorities of Narendra Modi, the prime minister.

But while many will be focused on expenditure and revenue plans, Indian business will be looking in a somewhat different direction. It is hoping that the budget will further reforms to bring about a lower ‘visible’ role of the government in the economy, under which it relinquishes or reduces its multiple roles of financier, manager, owner, policy-maker and regulator.

The budget is an ideal opportunity for the government to re-evaluate its role in the economy at a time when the private sector, states and local governments are playing an increasingly larger role in economic and social development. A greater ‘invisible’ role of the government simply as a facilitator of private sector investment is required. Read more

Unexpectedly early interest rate cuts in India, Peru and Egypt on Thursday indicate that falling oil prices and gathering disinflationary pressures are accelerating a cycle of monetary easing in many emerging market economies, analysts said on Friday.

The easing in key EM economies – added to expectations that several more countries will also cut rates – stands in stark contrast to a recent market consensus that 2015 would herald upward pressure on EM rates as the US Federal Reserve espoused a tighter policy, analysts said. Read more

As Alan Beattie wrote recently, a clear divergence in monetary policy is polarising the emerging market (EM) universe. Some countries, such as China last Friday, have cut interest rates to invigorate demand while others, such as Russia and Brazil, have had to hike rates to battle inflation.

The divide is growing starker, forming a basic template for EM investors. Softer oil and commodity prices are subduing inflation in most countries, creating room for easier monetary conditions. Other countries, however, are still struggling with ideosyncratic frailties, preventing them from capitalising on the ebbing EM prices. Read more

Introducing Raghuram Rajan, governor of the Reserve Bank of India (RBI), at an Independence Day lecture on Wednesday evening, Sajjan Jindal of JSW Steel said he felt ‘at peace’ since the former International Monetary Fund (IMF) economist took over at the central bank last year. That was at a time of turmoil, as a financial crisis swept through emerging markets and the rupee plummeted.

“You’re at peace but you still want lower interest rates,” quipped Rajan in response. “They’ll come.” Read more

India’s central bank left interest rates unchanged for a third straight meeting and tweaked a banking regulation to encourage lending as Raghuram Rajan, governor, sought a balance between promoting economic growth and maintaining vigilance against inflation.

Rajan kept the benchmark repurchase rate at 8 per cent, the Reserve Bank of India (RBI) said in a statement on Tuesday, as economists had widely expected. The statutory liquidity ratio – which mandates how much banks must invest in government bonds – was reduced to 22 per cent of net liabilities from 22.5 per cent, effectively freeing up funds for lending. Read more

As the monsoon rains lash down on the streets of Mumbai, traffic has slowed to a crawl. Just last week, India’s trademark black and yellow taxis would speed down Marine Drive, the city’s seaside boulevard, but now the road is clogged as a jumble of jalopies and private cars trundle past potholes brimming with water.

Just the opposite is true of India’s car market: sales have started to accelerate. In the month of June, total car sales jumped 14.76 per cent year-on-year to 160,232 units, according to data from the Society of Indian Automobile Manufacturers (SIAM) published earlier this month.

While the evidence is too fragmented to make a compelling case for a sustainable upturn in car sales, some analysts are optimistic. The thumping triumph of Narendra Modi, prime minister, in May’s national election – which has also sparked an impressive stock market rally – may be helping to infuse consumers with a sense of wellbeing, analysts said. Read more

Raghuram Rajan, governor of the Reserve Bank of India (RBI), held the repo lending rate steady at 8 per cent on Tuesday as the markets expected.

As Rajan said himself, the only surprise was the lack of a surprise. But there was plenty more in the governor’s speech that grabbed our attention. Read more

Soothing words are heard from finance minister Palaniappan Chidambaram on Monday around the strength of the Indian economy and the fiscal and current account deficits. In a separate vein, Bollywood stars are lending some lustre to the election campaign, but how effective will they be if they win a seat and embark upon the workaday business of governing a constituency?

Ahead of central bank governor Raghuram Rajan’s monetary policy announcement on Tuesday, we look at what he is likely to say and do.

 Read more

It is ironic that Raghuram Rajan, governor of the Reserve Bank of India, will announce India’s latest monetary policy decision on Tuesday – April Fools’ Day.

Since taking the helm at the central bank last year, Rajan has repeatedly surprised the markets by holding the repo lending rate steady when we all expected a hike and giving us a hike when we were sure no change was on the cards. In the midst of a pre-election rally, what can we expect now? Read more

Surprise! On Wednesday, India’s central bank kept the repo lending rate steady at 7.75 per cent and the cash reserve ratio at 4 per cent.

That went against the expectations of investors, analysts and economists who thought Raghuram Rajan, the governor of the Reserve Bank of India, would raise interest rates once again to crack the whip on inflation. Read more

As expected Raghuram Rajan, the new governor of the Reserve Bank of India, has confirmed beyond all doubt that he’s all hawk.

The central bank raised the policy repo rate 25 basis points on Tuesday to 7.75 per cent. At the same time, it cut the marginal standing facility (MSF) – the rate at which banks borrow funds overnight from the RBI – by 25bp to 8.75 per cent. Read more

Raghuram “Rockstar” Rajan, the new governor of the Reserve Bank of India, proved he meant business last month when he surprised markets and raised the repo rate by 25 basis points to 7.5 per cent.

His next policy decision comes on Tuesday and many analysts are expecting another 25bp hike. So what are the signs he’ll be looking for? Read more

After long discussion, a battle in India’s government between the imperatives of boosting the economy and supporting the currency has been decided.

Late on Monday, the Reserve Bank of India (RBI) announced a package of measures to tighten liquidity. It hopes to stem the depreciation of the rupee and prevent its current account deficit from spiralling out of control – but it has done so at the risk of limiting India’s already meager economic growth. Read more

It’s a problem that many countries are experiencing: the central bank cuts rates, but the banks aren’t passing the reductions on to borrowers. What can be done to make more credit available?

In India, finance minister Palaniappan Chidambaram is trying the direct route. On Wednesday, he met with the heads of public sector banks and requested they reduce lending rates. Will they? Read more

With sluggish growth, industrial production down, car sales slowing and manufacturing confidence fading, what can the Reserve Bank of India come up with?

The RBI has a decision to make next week – can it cut rates? It will be keen to jumpstart the economy. But the sharp depreciation of the rupee this week could force the central bank to hold off its plans. Read more

Ratings agency S&P has warned that the chances of India’s sovereign credit being downgraded to junk is more than one in three, as the economy battles with unsustainable current account and fiscal deficits.

But foreign institutional investors (FIIs) see reasons for cheer as growing inflows send Indian equity markets soaring. On Monday, India’s benchmark Nifty index surged 31 points to 6,229.45, its highest since November 2010. The Sensex too gained 163 points to 20,443.62, its highest since January 2011. Both indices have gained in every session in the past week. What’s going on? And will this rally last? Read more

India’s annual wholesale price inflation rate dropped to 4.89 per cent in April, a 41-month low.

It was sharply down on the 5.96 per cent recorded in March and well below expectations, with an average forecast of 5.5 per cent in a Reuters poll of analysts. Read more