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<ul><li>High vegetable inflation, driven by hardening onion prices, has kept food inflation at 8.66% in February.</li><li>With low reservoir levels in many states, food inflation in FY25 is expected to be driven by monsoons, say experts.</li><li>The RBI is focused on bringing inflation below 4% and might continue the status quo for a longer time now, believe experts. </li></ul>In February, retail inflation came in on expected lines at 5.09%. However, high vegetable inflation, driven by hardening onion prices has kept food inflation up at 8.66%. Experts now believe that the <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (RBI) which has been focussed on bringing inflation to 4%, will maintain the status quo in the upcoming credit policy. “We expect inflation to average 4.8% in FY25. Given that the RBI Governor has been highlighting the aim of getting inflation to 4% on a durable basis, the policy rates are likely to be kept on hold in the upcoming policy meeting, with no change in stance,” said <keyword id="20938330" type="General" weightage="20" keywordseo="rajni-sinha" source="keywords">Rajni Sinha</keyword>, chief economist, CareEdge Ratings. Regulator to continue cautious stance Despite expectations from the market, the RBI has maintained its ‘withdrawal of accommodation’ stance in the last policy meeting in February. This policy, aiming to curtail inflation further, entails a reduction of easy money supply in the system, which started during the initial COVID-19 phase. RBI governor <keyword id="19913110" type="General" weightage="20" keywordseo="shaktikanta-das" source="keywords">Shaktikanta Das</keyword> had also earlier spoken about the risk of food inflation spilling into broader inflation. “We retain our view that RBI will remain cautious on volatile food inflation trajectory and hence prefer to remain in pause mode on rates till August policy. However, with RBI already having continuously fine-tuning liquidity and easing overnight rates closer to the repo rate, we see room for a shift in stance in the June policy,” said <keyword id="20169699" type="General" weightage="20" keywordseo="upasna-bhardwaj" source="keywords">Upasna Bhardwaj</keyword>, chief economist at <keyword id="19938495" type="General" weightage="20" keywordseo="kotak-mahindra-bank" source="keywords">Kotak Mahindra Bank</keyword>. Agrees Akhil Mittal, Senior Fund Manager-Fixed Income, <keyword id="20929846" type="General" weightage="20" keywordseo="tata-asset-management" source="keywords">Tata Asset Management</keyword>, “We anticipate the regulator to maintain a cautious stance. We think RBI would rather continue with stability priority and continue maintaining the 4% inflation target as sacrosanct, and hence we do not see a premature easing from RBI.” Vegetable inflation zooms, pulses in a tough zone Vegetable inflation came in high at 30.3% in February, and experts believe that pricey onions will keep food inflation elevated. Inflation in pulses, spices and eggs also saw double-digit inflation. Edible oils and fats have brought down inflation to an extent with negative growth. The food basket has nearly 50% weightage in the consumer price inflation (CPI) data. “Inflation is purely a food inflation-driven phenomenon which will continue to pressurise inflation in the coming months. Besides, horticulture output this year is expected to be lower than last year. Cereals, eggs, sugar, spices and pulses are the other pain points here,” comments <keyword id="20102121" type="General" weightage="20" keywordseo="madan-sabnavis" source="keywords">Madan Sabnavis</keyword>, chief economist at Bank of Baroda. The outlook for food prices is also bleak with lower reservoir levels and their impact on agricultural output. “The ongoing high inflation in specific food categories, including cereals, pulses, spices, and vegetables pose a risk of potentially broadening price pressures and de-anchoring inflationary expectations. Reservoir levels, particularly in eastern and southern India, persist at lower levels. Consequently, the forthcoming monsoon in FY25 holds significant importance for the trajectory of food inflation,” said Sinha. Core inflation has however remained soft, staying below the 4% threshold for three consecutive months. Rural inflation came in higher at 5.3%, while urban inflation is at 4.8% — mostly due to higher weightage of food products in the former index. Twelve of India’s 22 states saw inflation of above 5.1%. Odisha had the highest at 7.6%, while Delhi saw the lowest at 5.3%.

RBI likely to maintain status quo after food inflation keeps Feb print high, say experts

<ul><li>Food basket inflation was at 9.53% in December 2023, up from 8.7% in November.</li><li>The core inflation stood at 3.8%, moderating from 4.% in November.</li><li>India's industrial growth rate slumped to an 8-month low of 2.4% in November. </li></ul>Retail inflation inched up marginally to a four-month high of 5.69% in December 2023, mainly on account of higher food prices, according to official data released on Friday. The inflation based on Consumer Price Index (CPI) was at 5.55% in November 2023 and 5.72% in December 2022. In August 2023, inflation touched a high of 6.83%. As per the data released by the <keyword id="20070866" type="General" weightage="20" keywordseo="national-statistical-office" source="keywords">National Statistical Office</keyword> (NSO), retail inflation in the food basket was at 9.53% in December 2023, up from 8.7% in the preceding month and 4.9% in the year-ago month. “While persistent rise in the food prices contributed to an uptick in inflation in December 2023, the core inflation has continued to moderate indicating signs of easing price pressure for the households. A continual moderation in inflation is supportive of growth in the consumption driven sectors, said <keyword id="20169700" type="General" weightage="20" keywordseo="vivek-rathi" source="keywords">Vivek Rathi</keyword>, national director of research at Knight Frank India. The core inflation stood at 3.8%, moderating from 4.% in November. As per RBI’s forecast, FY24 inflation would be at 5.4%. The softer numbers that came in December could undershoot the numbers marginally,” said <keyword id="20169699" type="General" weightage="20" keywordseo="upasna-bhardwaj" source="keywords">Upasna Bhardwaj</keyword>, chief economist at Kotak Mahindra Bank. Experts expect RBI to keep its keep repo rate and policy stance unchanged in the February policy. The <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (RBI) has been focussed on bringing retail inflation under 4% which is its target. “We expect the RBI to allow liquidity conditions to ease in the coming months to let the operating target rate soften towards the repo rate before shifting stance— a move which is likely in 1QFY25,” said Bharadwaj. Manufacturing drags November industrial growth to 2.4% India's industrial growth rate slumped to an 8-month low of 2.4% in November from a 16-month high of 11.6% in October, data released by the Ministry of Statistics and Programme Implementation on Friday showed. In November 2022, the country’s industrial production had grown by 7.6%. The growth rate for November was dragged down by the manufacturing sector, which slowed to a crawl of 1.2 per cent on a year-on-year basis after having posted an increase of 10.2 per cent in October. The sharp slowdown in manufacturing output growth, which accounts for more than three-fourths of the index of industrial production (IIP), was partly attributed to the large number of holidays in November on account of festivals due to which the working declined. The IIP figure has been pulled down by the manufacturing sector which posted the lowest annualised growth of 1.2% in 13 months after a solid momentum in the early part of the fiscal. While moderation in industrial activity is typically seen in the post-festive season, this may also be an indication of an expectation of demand slowdown in the last quarter of the fiscal, he added. The electricity generation also grew at a slower pace of 5.8% as compared to a high double digit growth of 20.4% in October. Similarly, the mining output growth declined to 6.8% from 13.1% in October. “Industrial output for Nov-23 has disappointed even factoring in the impact of the festival holidays during the month and the adverse base factor. IIP has recorded a modest growth of 2.4% YoY, the lowest print in eight months since March 2023," said Suman Chowdhury, chief economist &amp; head of research of Acuite Ratings &amp; Research. There has also been a contraction in both consumer durables and non-durables output in Nov-23, leading to an overall contraction of 4.2 per cent YoY in the consumer goods sector. “The growth indicators from the industrial production print however seem to be uneven. Output from most of the key industries have witnessed moderate growth, however, due to a high statistical base. However, the consumer durable output, which is consumption reflection, contracted by 5.4%. This can be concerning as sustained consumption growth is the key to keep the economic growth momentum continuing,” said Rathi. (With inputs from PTI &amp; IANS)

Retail inflation inches to 4-month high in Dec; IIP growth slips to 8-month low in Nov

<ul><li>The Dollar is strengthening in December adding to downward pressure on the <keyword id="6355302" type="General" weightage="20" keywordseo="rupee" source="Orion">Rupee</keyword>.</li><li>Festive-led consumption is the reason why it’s moving downward in spite of softening crude and buoyant markets.</li><li>Rupee is expected to trade with a depreciation bias, but without any sharp falls.</li><li>A depreciation rupee will support India’ ambitions to become an export-oriented economy. </li></ul>Indian rupee has hit new lows of 83.4 against USD in early December, when domestic markets were scaling new highs and crude prices coming down. It has recovered little since then, and economists say that it will keep trading with a depreciation bias in the near-term without central bank’s intervention. Unlike in November, the Dollar has also started strengthening in December, which is an added downward pressure on the Rupee. “Even as FPI flows continue and crude prices remain in check the <keyword id="6368584" type="General" weightage="50" keywordseo="us-dollar" source="Orion">US Dollar</keyword> has remained firm ahead of the Federal Open Market Committee (FOMC) and general buildup of uncertainties,” <keyword id="321486" type="General" weightage="50" keywordseo="upasna-bhardwaj" source="Orion">Upasna Bhardwaj</keyword>, chief economist at Kotak Mahindra Bank tells Business Insider India. The November trouble It however needs to be mentioned that the Rupee barely moved up even in November, when the dollar index was weakening. But in November, FII were selling their equities in the stock market, as they did in September and October. But now, they reversed their trend. In December until now, FIIs pumped in as much as ₹12,135 crore, but that too barely had any effect. In addition, Brent crude is now trading at around $75 per barrel which should have given Rupee some respite. It has missed this cue too. Widening trade deficit due to festival-linked consumption might have been the culprit, surmises Bharadwaj. “Rupee has been trending more with a depreciation bias with some volatility. Trade deficit for October 2023 reported at the highest led by imports (gold, oil and consumption) ahead of the festive season,” <keyword id="18350669" type="General" weightage="50" keywordseo="anitha-rangan" source="Orion">Anitha Rangan</keyword>, economist at Equirus, told Business Insider India. <keyword id="30067" type="General" weightage="50" keywordseo="rbi" source="Orion">RBI</keyword> on ‘wait and watch’ mode India’s central bank is sitting on foreign exchange reserves to the tune of $604 billion as on December 1, 2023. Yet, it has not been selling dollars and intervening to rescue the rupee in November. “RBI having spent sizable reserves in September-October, has not utilized its reserves to defend the rupee. Rupee has not appreciated while RBI reserves have grown in November,” comments Rangan. However, between March and October of 2022, RBI spent $100 billion in reserves to defend the rupee. This time too, it’s expected to intervene. “We expect RBI to continue to intervene and manage the volatility in INR very closely. We thus do not expect any sharp depreciation in INR in the near term,” says Bharadwaj. Rupee is expected to trade between 83-83.5/USD in the near term. Moreover, any new lows that it might hit will come gradually and will not be a sharp fall, expect economists. Over the last one year, Rupee depreciated by around 2.5% with interim bouts of strength and weakness. And this trend might continue going into the new year. “Let’s be mindful that the country is looking to strengthen its export franchise and taking advantage of global supply chain shifts and bolster its manufacturing capabilities. A depreciation rupee will be a support to exports, when global recovery arrives,” observes Rangan. In the meanwhile, India’s relative growth attractiveness will continue to make a case for FPI and FDI flows.They will also provide the much-needed immunity from volatility. SEE ALSO <a href="https://www.businessinsider.in/personal-finance/news/gold-rush-dont-recycle-or-book-profits-yet-another-bull-run-on-the-way-say-analysts/articleshow/105803018.cms">Gold rush: Don’t recycle or book profits yet, another bull-run on the way say analysts</a> <a href="https://www.businessinsider.in/stock-market/news/childs-play-high-recall-and-dominant-position-add-to-doms-appeal/articleshow/105923825.cms">Child’s Play: High recall and dominant position add to Doms’ appeal</a>

Explained: Why Rupee is missing market and crude oil cues

In April, the <keyword id="19899810" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords">RBI</keyword>) governor Shaktikanta Das referred to <keyword id="19895000" type="General" weightage="20" keywordseo="inflation" source="keywords">inflation</keyword> as the ‘elephant in the room’. He said, “The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis… Elephant moves slowly, and last mile inflation tends to be sticky.” On Friday, the Indian government data showed that the year-on-year inflation rate based on the Consumer Price Index (<keyword id="20468215" type="General" weightage="20" keywordseo="CPI" source="keywords">CPI</keyword>) for June 2024 stood at 5.08 per cent — rising from 4.75% last month. This was the first time the headline inflation had risen since December 2023! Looks like the elephant decided to stop and look back on its way to the forest. The question remains, what’s next — will it return to the forest or return to the room to haunt us again? <h2>Food price inflation at a record high</h2> The major driver for the higher inflation figures this month has been the rising <keyword id="19960157" type="General" weightage="20" keywordseo="food-prices" source="keywords">food prices</keyword> across India. In fact, food price inflation almost doubled year-on-year in June, rising to 8.36 per cent last month compared to 4.63 per cent in June 2023. Inflation in the food basket was 9.36 per cent in June, up from 8.69 per cent in May, according to the data of the National Statistical Office (NSO). Government data showed that <keyword id="513422" type="General" weightage="20" keywordseo="retail-inflation" source="Orion">retail inflation</keyword> for all food segments, including cereal, meat, eggs, milk, oils, fruits, vegetables, pulses, sugar, spices, prepared snacks, and sweets, increased month-on-month. This was the main cause for retail inflation hardening in June, diverging from the previous months' moderation. While the inflation rate based on the all-India CPI for June 2024 stood at 5.08%, rural and urban inflation rates also spiked to 5.66 per cent and 4.39 per cent, respectively. “Barring the food basket, inflation is indicating signs of bottoming out broadly across the non-food categories, also seen in the inflation in the core categories averaging at 3.5% in the last six months. A stable monsoon will play an important role in stabilising food prices and inflation levels over the next few months,” said Vivek Rathi, National Director Research, Knight Frank India. In May, annual retail inflation was at a 12-month low of 4.75%, slightly down from April's 4.83%. In December last year, retail inflation stood at 5.7 % and had been moderating until June. On the other hand, the US CPI rose only 3% on an annual basis in June versus expectations of 3.2%. Month-over-month, the US CPI declined 0.1%, on expectations for a 0.1% rise. <h2>There goes the chance of an early rate cut?</h2> While European central banks started to cut interest rates last month, hopes of such policy moves seem to have been derailed by these inflation figures. Indian central bank, RBI, has remained cautiously focused on inflation as the growth prospects remained robust. It has been waiting for the final phase of disinflation to materialise before considering rate cuts. The situation, however, does seem rather peculiar — as long as inflation does not align with the central bank's 4% target, the interest rates may remain rather high. However, the current economic environment is not gloomy at all, characterized by a robust GDP growth rate, estimated at 8.2% for 2023-24. Hence, the RBI adopts a wait-and-see approach. And the wait is likely to continue a little while longer. This year, food prices have become a significant issue for policymakers in India, and the RBI governor pinned his hopes on a good monsoon season to alleviate the food price inflation concerns. So far, the monsoon has stood up to our expectations, yet the food prices have remained stubbornly high, mainly due to extended heat wave conditions in June. "The CPI inflation came marginally higher than our expectations. While the <keyword id="67286" type="General" weightage="100" keywordseo="food-inflation" source="Orion">food inflation</keyword> risks will continue to dominate in the near term, we expect better sowing patterns and spatial distribution of rains to eventually ease the price pressures beyond these volatile months. Having said that, the central bank will be in no hurry to ease <keyword id="20104157" type="General" weightage="20" keywordseo="monetary-policy" source="keywords">monetary policy</keyword> given the headroom from robust growth in the backdrop of near-term inflation risks," said Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank. India's retail inflation remains within the Reserve Bank of India's (RBI) comfort range of 2-6% but exceeds the ideal 4% scenario. While inflation is a global concern, India has so far managed its inflation trajectory relatively well. Since May 2022, the RBI has raised the repo rate by 250 basis points cumulatively to combat inflation. However, over the last eight policy cycles, the central bank has kept the rates consistent at 6.5%. The next monetary policy meeting of the RBI is scheduled for early August. And with the higher-than-expected inflation data, the central bank is likely to keep the rate unchanged next month as well for the ninth consecutive month. However, hopes are still alive for a rate cut towards the end of the year. "We are not ruling out a stance change in October 2024 and a 25 bps rate cut each in December 2024 and February 2025, followed by an extended pause, if the food inflation outlook turns decidedly favourable on the back of a normal magnitude and favourable distribution of rainfall in the rest of the monsoon season, and there are no other shocks, either global or domestic," said Aditi Nayar, Chief Economist at ICRA. (With inputs from ANI and PTI) <div type="Article" hostid="261" msid="110784179" title="Monetary Policy Committee keeps repo rate unchanged at 6.5%, confirms RBI governor Shaktikanta Das" mstype="2" mssubtype="0"><payload><![CDATA[seealso]]></payload></div> <div type="Article" hostid="261" msid="110788776" title="RBI retains inflation projection for FY25 at 4.5%" mstype="2" mssubtype="0"><payload><![CDATA[seealso]]></payload></div>

Inflation spikes in June 2024 due to high food prices; Likely to affect RBI’s decision on interest rate

<ul><li>Retail inflation eased to a three-month in January mainly on account of lower food prices.</li><li>Twelve of the 22 states witnessed higher than average inflation, especially in large states like Maharashtra, UP, Gujarat, Karnataka.</li><li><keyword id="19895063" type="General" weightage="20" keywordseo="india" source="keywords">India</keyword>'s industrial production grew 3.8% in December 2023, according to official data. </li></ul>Retail inflation eased to a three-month low of 5.1% in January mainly on account of lower food prices, according to official data released on Monday. Inflation based on the Consumer Price Index (CPI) was at 5.69% in December 2023 and 6.52% in January 2024. In August 2023, inflation touched a high of 6.83%. According to the data released by the <keyword id="20070866" type="General" weightage="20" keywordseo="national-statistical-office" source="keywords">National Statistical Office</keyword> (<keyword id="20067517" type="General" weightage="20" keywordseo="nso" source="keywords">NSO</keyword>), retail inflation in the food basket was at 8.3% in January 2024, down from 9.53% in the preceding month. “Inflation came in higher for December than our expectations at 5.1% against 4.7%, though lower than that of November which was 5.7%. Food products continue to exert upward pressure on inflation with cereals, vegetables, fruits, pulses, sugar and spices all witnessing high increases. There has been soothing of inflation in the core goods and services which is a relief from the point of view of monetary policy,” said <keyword id="20102121" type="General" weightage="20" keywordseo="madan-sabnavis" source="keywords">Madan Sabnavis</keyword>, chief economist at Bank of Baroda. Twelve of the 22 states witnessed higher than average inflation. It indicates that inflation is still high in large states like Maharashtra, UP, Gujarat, Karnataka, opine experts. The <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> has been tasked by the government to ensure retail inflation remains at 4%. “With RBI stating risk of food inflation translating into generalised inflation, we expect RBI to continue cautious stance. However, softening of core inflation should provide confidence to trajectory of inflation moving as expected. We think RBI would rather continue with stability priority and continue maintaining 4% inflation target as sacrosanct, and hence we do not see premature easing from RBI,” said Akhil Mittal, senior fund manager-fixed income, Tata Mutual Fund. Most experts believe that uncertain food prices will keep the central bank cautious. "CPI inflation came in slightly softer than our expectations led by moderation in food prices. Positively though, core inflation softened in line with our expectations. However, uncertainties in food inflation outlook should keep RBI cautious in the near term, with much of action by the RBI expected on the liquidity front," said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank. Industrial production grows 3.8% in December 2023 India's industrial production grew 3.8% in December 2023, according to official data released on Monday. Factory output measured in terms of the Index of Industrial Production (IIP) had witnessed a growth of 5.1 per cent in December 2022. "India's Index of Industrial Production grows by 3.8% in December 2023," an official statement said. The data released by the National Statistical Office (NSO) showed that the manufacturing sector's output grew 3.9% in December 2023, up from 3.6% in the year-ago month. In December last year, the mining production rose 5.1% and power output increased 1.2%. IIP grew 6.1% during the April-December 2023 period compared to a 5.5% expansion in the year-ago period. “Growth has been pulled down by electricity growth which was just 1.2% reflecting lower levels of demand. Eleven of the 23 manufacturing categories witnessed negative growth with the significant one again being electronic items. Textiles too continue to be in the negative zone due to lower export demand,” says Sabnavis. (With inputs from PTI)

Retail inflation eases to 3-month low of 5.1% in January, IIP grows 3.8% in December

<ul><li><keyword id="30067" type="General" weightage="80" keywordseo="rbi" source="Orion">RBI</keyword> governor <keyword id="6359111" type="General" weightage="50" keywordseo="shaktikanta-das" source="Orion">Shaktikanta Das</keyword> is not done yet with interest rate hikes this year, but the gati of those hikes might moderate. </li><li>India’s real interest rate is still in the negative zone, but Das’ frontloaded hikes of 190 bps so far have reduced the gap drastically. </li><li>Once the real interest rates become neutral, Das might have the time to breathe and pause. Until then, the match is on. </li></ul>RBI governor Shaktikanta Das<a href="https://www.businessinsider.in/finance/news/rbi-hikes-repo-rate-by-50-bps-taking-it-to-a-three-year-high-of-5-9-das-says-inflation-at-alarmingly-high-levels/articleshow/94550429.cms"> announced the fourth interest rate hike this year</a> to battle persistent inflation, continuing his streak of frontloading interest rate hikes now when India’s reserves are stronger, keeping only little ground to cover towards the end. The fact that more rate hikes are in tow is clearly visible from Das’ comments today, where he said, “The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.” Das made an interesting observation during the rate hike in August, saying “50 bps hike is the new normal for central banks”. This is something that’s observed with several major central banks around the world, including the US Fed, Bank of England, and the European Central Bank. Now, with 190 bps rate hikes done, there’s still some more ground to cover for the RBI, with the general consensus amongst economists being that Das intends to take interest rates to neutral territory before he takes a pause. What might change though is the pace of rate hikes – or rather, the quantum – with RBI now just 80 bps shy of entering the neutral interest rate territory. “We expect the MPC to hike 35bps in the December policy. However, with inflation expected to fall within 6% threshold in 4QFY23, we expect the MPC to probably pause and assess the lagged impact of monetary tightening,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank. According to the RBI, inflation is projected to be at 6.7% in 2022-23, and in the immediate future, that is Q3 FY23, it is projected to be at 6.5%. With the current interest rate of 5.9%, RBI is 60-80 bps short of entering the neutral interest rate zone. Economists are, therefore, suggesting we could see a 35-40 bps rate hike in December, with possibly another hike in February next year. Alternatively, Das could also front load another 50 bps hike, leaving the last hike of FY23 at 30 bps. “We could see another rate hike in December, but it may not be as high as 50 bps, unless there is a major change in circumstances. If RBI hikes rates, it will be calibrated based on domestic conditions and US Fed’s stance,” market analyst Arun Kejriwal told Business Insider India. <div type="Article" hostid="261" msid="93329850" title="RBI and US Fed policies are more similar than you think" mstype="2" mssubtype="0"></div> <cmsannotation type="cmsannotation" annotationid="What exactly is the real interest rate?" comment="subhead" text="What exactly is the real interest rate?">What exactly is the real interest rate?</cmsannotation> Real interest rate is the difference between RBI’s repo rate and inflation. For instance, RBI has pegged inflation for 2022-23 at 6.7%. At the current interest rate of 5.9%, the real interest rate comes to -0.8%, or negative 80 bps. For the real interest rate to be considered neutral, the repo rate should be equal to inflation. RBI can take a pause once it hits the neutral zone. With Q1 FY24 inflation estimated to be 5%, the central bank can revert to its accommodative stance in the beginning of the next financial year. <cmsannotation type="cmsannotation" annotationid="Here’s why you should care about real interest rates" comment="subhead" text="Here’s why you should care about real interest rates">Here’s why you should care about real interest rates</cmsannotation> Interest rates have a direct impact on your budget. For instance, if your deposits earn an interest of 5% while the inflation is at 7%, your money is losing value sitting in a bank deposit. When your savings become less valuable tomorrow, it impacts your budget and your purchasing power is reduced. Interest rates also affect business decisions – when interest rates are lower, businesses tend to borrow more money to take advantage of it and infuse money into their businesses, since the borrowing costs are low. This was the case until the middle of 2022, but the cycle turned in May when RBI started hiking rates in reaction to US Fed’s rate hikes. This will only end when inflation is brought under control and the real interest rates enter the neutral or positive territory. SEE ALSO: <a href="https://www.businessinsider.in/finance/news/rbi-hikes-repo-rate-by-50-bps-taking-it-to-a-three-year-high-of-5-9-das-says-inflation-at-alarmingly-high-levels/articleshow/94550429.cms">RBI hikes repo rate by 50 bps, taking it to a three-year high of 5.9% – Das says inflation at ‘alarmingly high levels’ across jurisdictions</a> <a href="https://www.businessinsider.in/business/news/here-is-how-much-your-emi-will-go-up-after-the-recent-repo-rate-hike/articleshow/94552904.cms">Here is how much your EMI will go up after the recent repo rate hike</a> <a href="https://www.businessinsider.in/business/news/real-estate-demand-may-take-a-hit-this-festive-season-after-rbis-rate-hike/articleshow/94555871.cms">Real estate demand may take a hit this festive season after RBI’s rate hike</a>

RBI’s interest rate hikes not over yet, but intensity might come down

Mumbai, Apr 13 () Economists on Monday termed the ease in March CPI inflation to a four-month low of 5.1 per cent as a misplaced sense of improvement because the impact of lockdown on food prices will be felt in April. Retail inflation as measured by consumer price index (CPI) slowed to a four-month low of 5.91 per cent in March as against 6.58 per cent in February 2020 and 2.86 per cent in March 2019."The number does give a sense of improvement in inflation, which is misplaced given that the real impact of the lockdown will be felt sharply in April as prices of food items have increased quite sharply," Care Ratings chief economist Madan Sabnavis.With the lockdown across the country and limited movement of goods due to absence of labour, trucks and activity in wholesale markets, there have been sharp declines in supplies of foodgrains, horticulture, sugar which have been reflected in higher prices in the market. "This can push food inflation towards the 10 per cent mark. We can expect CPI inflation in April to be above 6 per cent," Sabnavis said.However, core inflation will trend downwards as service prices would not be changing and those products with MRP would not witness a change even with supplies declining.Kotak Mahindra Bank's senior economist Upasna Bhardwaj said going ahead CPI trajectory will remain above 5 per cent for the next few months before beginning to moderate at sub-four per cent around August. "We expect the MPC to look through the near term inflation readings and focus on the medium-term trajectory while addressing the economic and financial stability," she said.Bhardwaj said the RBI is expected to adopt several unconventional measures to tackle the current crisis beyond repo rate cuts. "We see additional rate cuts of 50-75 basis points in the year ahead given our GDP expectations of 0.4 per cent in FY21," Bhardwaj said. DBS Bank India economist Radhika Rao said March inflation was in line with the forecast."Undercurrents reflect a smaller pace of decline in food (MoM), but offset by low energy prices and subdued demand activity," she said.On food, despite signs of a bumper harvest, market arrivals have dropped, particularly perishables (vegetables around 50-70 per cent) and foodgrains, she said. Besides widening closure of wholesale markets, these supply shortages reflect logistical delays due to delays in intra-state movements due to lockdown situation and labour shortage, which are likely to cause short-term distortions in late-Q1 and Q2, along with a situation where consumption was dominated by essentials while rest of discretionary demand was scaled back, Rao said."Beyond these incipient pressures, inflation is expected to trend down for rest of FY21 and average around 4 per cent in FY21," Rao said. HV MR

Economists expect retail in to spike in Apr due to lockdown

Mumbai, Feb 1 () Economists have offered mixed views on the Budget with some going public with their disappointment for not taking adequate measures to boost growth, while others said it is on expected lines.
"In the back drop of low growth and calls for explicit stimulus to pump-prime the economy, the budget disappoints on many counts again," small-sized private sector lender RBL Bank's economist Rajni Thakur said.
Acknowledging multiple spending announcements on health, rural, education and infrastructure sectors, she said the actual expenditure will only be marginally higher and hence, the multiplier effect will be muted.
However, Kotak Mahindra Bank's Upasna Bhardwaj said fiscal posturing is on expected lines and pointed out to the 10 per cent nominal GDP growth target as a factor which will aid sentiment.
The many income tax tweaks should help in boosting consumer confidence and demand, raising hopes of for growth revival, she added.
However, Thakur doubted the same, stating that two tax regimes with optionality for personal tax, as in case of corporate taxes, only makes the structure "more complicated".
Domestic brokerage firm Geojit Financial Service's economist Deepthi Mary Mathew also said the budget does not meet expectations.
"For consumption revival, the finance minister mainly focused in the adoption of new tax regime. It needs to be looked into whether the new tax regime will be enough in reviving the consumer spending," she said.
The budget was presented at a time when the growth rate is set to slip to a decadal low of 5 per cent in FY20, and efforts are on from all ends to help revive growth process.
The equity markets have reacted negatively to the budget and closed over 2.5 per cent down. AA BEN BAL
BAL

Economists offer mixed views on Budget

New Delhi, Feb 28 () Industry experts are cautiously optimistic about the economy going forward as global supply chain disruptions and weakening demand amidst spread of the coronavirus epidemic pose a challenge. Meanwhile, the December quarter GDP expansion slowed to a near seven-year low and eight core industries recorded a 2.2 per cent growth in January. "If we see the performance of eight core industries for January, the first month of the fourth quarter and compare it with the third quarter GDP numbers, the situation seems to be improving. "Take for instance coal production, while it decelerated by 4.3 per cent in third quarter, the trend reversed and coal output grew by 8 per cent in January. Similar trend is visible in cement, giving us hope that the growth slowdown is bottoming out," said Assocham Secretary General Deepak Sood. India's GDP growth slipped to a nearly 7-year low of 4.7 per cent in October-December 2019, weighed by a contraction in manufacturing sector output, according to the National Statistical Organisation.The Gross Domestic Product (GDP) growth was recorded at 5.6 per cent in the corresponding quarter of 2018-19.In the previous quarter (July-September) of the ongoing fiscal, the economic growth was revised upwards to 5.1 per cent from 4.5 per cent estimated earlier."The only bright spot in 3QFY20 GDP growth numbers is minor improvement in private final consumption expenditure (PFCE)...However, investment demand does not show any chance of revival," said Devendra Kumar Pant, Chief Economist and Senior Director, India Ratings &amp; ResearchCommenting on the NSO data, Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank said the softening in economic activity continues despite slight improvement been witnessed in the high frequency data for the third quarter. "...we remain cautious in the data ahead as the global supply chain disruptions and weakening demand amidst spread of the epidemic could pose downside risk to India's growth," she said.D K Aggarwal, President, PHD Chamber of Commerce and Industry, was of the opinion that the growth is expected to improve further in the coming quarters."Plethora of reform measures and focus on consumption demand in the Union Budget 2020-21 will rejuvenate the growth trajectory particularly boost the rural demand and help manufacturing sector to post higher growth," said Aggarwal.Joseph Thomas, Head of Research, Emkay Wealth Management was of the opnion that the accent on demand-side measures for a consumption-led recovery needs to be emphasized as such measures would reach fruition faster than investment-led measures in a massive consumer economy like ours. By any reasonable estimate it may be another four to six quarters before there is a convincing turnaround in the fortunes of the economy in a consistent fashion," he said. NKDMKJ

Industry experts 'cautiously optimistic' about economy amid challenges

New Delhi, Feb 6 () Economists and financial experts have welcomed RBI's widely expected status quo on repo rate, and other announcements to spur economic growth and ensure money supplies effectively. The RBI on Thursday kept the key policy rate unchanged at 5.15 per cent. This follows a cumulative 135 basis points (bps) cut in repo rate since February to December 2019. The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das unanimously decided to keep the repo rate unchanged. Bank of India CMD A K Das termed the RBI policy quite progressive and forward looking. "Notwithstanding unchanged policy rates, introduction of Term Repo opens up ways to transmit the signal rate changes," he said. "Measures like DCCO extension for realty, MSME window expansion for restructuring and CRR exemption for incremental funding to key segments are growth oriented and promise to provide the much needed impetus to bank lending," Das said. According to Rajni Thakur, Economist, RBL Bank, MPC's decision was on expected lines. "The changes in development and regulatory policies however were a positive surprise and could potentially turn out to be a big support to the troubled sectors in the economy," Thakur said. Specific announcements in terms of CRR relief or long-term durable liquidity for banks push the overall credit availability in the financial system. Whether these steps manage to improve demand conditions is another question all together, she added. The RBI has announced term repurchase agreements (repos) of one-year and three-year tenors of appropriate sizes for a total amount of Rs 1 lakh crore at the policy repo rate, from the fortnight beginning February 15. "It is an effort to ensure better monetary policy transmission. It will enable banks to reduce their lending rates," RBI Governor Das told reporters in the post policy conference. Upasna Bhardwaj, Economist, Kotak Mahindra Bank said very aptly, MPC has addressed the growth concerns through pushing transmission via tweaking the liquidity framework, providing long term liquidity operations and incentivising credit to select sectors. "We expect these measures to aid transmission with the shorter end of the yield curve expected to rally meaningfully. These measures should help availability of funds at lower costs and aid sectors in stress," Bhardwaj said. ICRA Economist Aditi Nayar said: "The tone of the MPC's statement was rather dovish, especially given the reiteration that policy space is available for future action. "The accommodative stance will be maintained for as long as necessary to revive growth, in spite of the headline inflation having breached the upper threshold of the MPC's medium term target." The RBI also raised upwards the retail inflation projection for last quarter of this fiscal to 6.5 per cent citing high input cost for milk and pulses besides costlier crude oil prices amid rising geo-political tensions. Nayar said the statement suggests the near certainty of at least one additional rate cut, even if its magnitude is modest, the timing of which will depend on how quickly inflation appears to be reverting towards 4 per cent. Umesh Revankar, MD and CEO - Shriram Transport Finance said the attention-grabbing aspect of the policy is marginal improvement in IIP, manufacturing index (PMI) and service index. These numbers depict beginning of increasing activity though still under wait and watch radar to bring in any further excitement, he said. "We believe that all the policy decisions along with pro-consumption budget corroborates that there would be better demand from the consumption side. Once that increases, automatically there will be better credit demand," Revankar said. The expansionary monetary policy stance was necessary and is an assurance that there will be no reversal of easing and that the RBI will not hike rates immediately, opined Rumki Majumdar, Economist, Deloitte India. Engineering Exports and Promotion Council (EEPC) Chairman Ravi Sehgal said RBI measures to provide one-time restructuring window for advances to MSMEs would help growth revival in the employment-oriented sectors. MSMEs contribute significantly to the country's exports. "With global markets being subdued, exporters, particularly those in the SMEs are facing challenges. The RBI measures through loan restructuring and providing CRR incentives to the banks to lend to MSMEs would certainly help the exporting sector," he said. Ample liquidity with the banks should lead to lowering of interest rates as part of effective transmission of earlier reductions, he added.Anarock Property Consultants Chairman Anuj Puri said the extension for restructuring of project loans by a year is a major relief to the real estate sector. It complements many of the previous initiatives by the government in 2019. "Loans for projects that have been delayed for reasons beyond the control of their promoters have been extended by another one year without downgrading the asset classification. This is a big move and will bring the much-needed relief to the cash-starved real estate sector - and to both developers and HFCs from the liquidity perspective," Puri said. KPM KPM ANUANU

Experts hail RBI measures to boost economy, improve money supply

<ul><li><keyword id="1012551" type="PERSON" weightage="20" keywordseo="RBI-cuts">RBI cuts</keyword> repo rate by 25 basis points to 5.75% from 6% in a unanimous decision.</li><li>Monetary policy stance changed to ‘accommodative’ from neutral. </li><li>RBI revised the GDP growth downwards to 7% for 2019-20 from 7.2% during the April policy rate. </li></ul> India’s central bank cut the repo rate by 25 basis points to 5.75% from 6%, in its bi-monthly policy statement today. This is the third consecutive rate cut after similar cuts in April and February this year. The monetary policy committee or MPC changed the monetary policy stance to ‘accommodative’ from neutral. “The decision to cut the rate and the change in stance is unanimous. It reflects the resolve of the MPC to act decisively and in a timely manner,” the RBI governor Shaktikanta Das said at the ongoing press conference. Higher and Faster Transmission Das also said that central banks across the world have turned accommodative. He is also confident that three rate cuts accounting to 75 basis points this year will be translate it to loans, said the Governor who delivered a hatrick after cutting rates in February and April this year. “The expectation is that the rate transmission will be higher and faster too. The effect will be seen in new consumer loans too,” Das said. The <keyword id="6354335" type="ORGANIZATION" weightage="20" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword> also has revised the GDP growth downwards from 7.2% during the April policy rate cuts, to 7% for 2019-20. Repo rate is the rate at which RBI lends money to <keyword id="187928" type="ORGANIZATION" weightage="20" keywordseo="commercial-banks">commercial banks</keyword>. Any cut in this rate, will ease stress in the economy and increase liquidity as banks can borrow at a cheaper rate. This rate also becomes the base rate at which banks determine their own lending rates. As per expectations A lot of experts and agencies expected a 25 basis points rate cut, if not more. The stock markets have been rallying on expectations that the banks might get a lease of life, amidst many problems that they face. Yet, there are doubts whether the benefits of this rate cut will be transmitted by the banks to the borrowers. It has happened many times that the banks absorbed the rate cut advantages without passing on the benefits to the industry or the consumers. While Das took no steps to ensure that it will be transmitted, he said that 21 basis points have already been transmitted by banks. He had cut rates earlier in April and February too. “We expect RBI to spell clearly its stand on how a large cut if impacted will lead to better transmission: will the banks be now mandated for benchmarking their asset and liability moving together? Otherwise, banks will not rate cut deposit rates given the huge currency leakage,” said Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India. Is it enough? The rate cut was much expected yet is believed to fall short for a stimulus that the economy desperately needs. India’s fourth quarter GDP numbers came in at 5.8%, which was lower than expectations. Many experts have revised the growth numbers for the year downwards, and expect the pressure to continue till October. “We see further downside risks to growth as we await the reforms to begin bearing fruit in the medium term. We expect 2019-20 GDP growth to remain muted at 6.8%, with slowdown in the first half likely to continue and some improvement in consumption and investment likely in the second half,” said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank. As per SBI’s predictions, the growth rate will stay below 6%, at least in the first half of 2019-20 and will only recover in the second half. “Global growth is fast turning out to be an Achilles’ Heel,” added Ghosh.

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RBI’s interest rate hikes not over yet, but intensity might come down

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Economists offer mixed views on Budget

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Industry experts 'cautiously optimistic' about economy amid challenges

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Experts hail RBI measures to boost economy, improve money supply

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