The annual (year-on-year) rate of inflation in Indian economy increased to 5.6 per cent for the week ending January 10, 2009 compared to 5.2 per cent reported last week, showing a rise of 36 basis points, largely attributable to the impact of the oil and transport sector strikes.
A Finance Ministry communique points out that the increase in the inflation rate has temporarily reversed the 11-week declining trend which had set in since the last week of October 2008.
Year-on-year Inflation by Commodity groups
Commodity group-wise examination shows that inflation in the groups of primary articles and manufactured products have mirrored the rising trend seen in overall inflation in the current week.
i.In ‘primary articles’, the rate of inflation increased to 11.6 per cent, compared to 10.9 per cent reported last week. In the sub-group of ‘food articles’, inflation, which had declined to single digit in the last fortnight, rose to 11.6 per cent in the week ended January 10, 2009 as against 9.5 per cent in the previous week, largely due to higher inflation in vegetables and milk. In ‘non-food articles’, inflation continued to decline to 7.1 per cent compared to 9.6 per cent in the previous week, while inflation in ‘minerals’ rose to 41 per cent versus 40 per cent last week due to higher inflation in non-metallic minerals as limestone and felspar.
ii.In ‘fuel and power’, the rate of inflation remained steady at (-) 1.3.
iii.In ‘manufactured products’, the inflation rate increased to 5.9 per cent, compared to 5.6 per cent last week. While most sub-groups recorded stable or declining rates of inflation, the sub-groups of sugar, khandsari and gur, textiles and canned/processed fish showed increase.
For the combined food index (weight = 25.43 per cent), the year-on-year inflation in the week ended January 10, 2009 was higher at 9.5 per cent compared to 7.9 per cent last week. Inflation in cereals, pulses and fruits continue to register inflation rates ranging from 9 to 20 per cent.
Contribution of Commodity groups
Contribution of primary articles to the year-on-year inflation rate for the week ending January 10, 2009 show that this group accounted for 46.9 per cent, as against their share of 22 per cent to the WPI basket. While the contribution of the fuel and power group was (-) 5.1 per cent vis-à-vis share of 14 per cent, that of manufactured products was 58.5 per cent against a share of 64 per cent in the commodity basket.
Inflation measured by CPI
Inflation recorded by the Consumer Price Index for Agricultural Labour (CPI AL) and for Rural Labour (CPI RL) has remained steady at 11 per cent during September – December 2008.
Showing posts with label Indian Economy. Show all posts
Showing posts with label Indian Economy. Show all posts
Thursday, January 22, 2009
Friday, January 2, 2009
RBI signals another rate cut; slashes repo, CRR
Signaling a further drop in interest rates, the Reserve Bank of India has announced the reduction of the repo rate under the liquidity adjustment facility (LAF) by 100 basis points from 6.5 per cent to 5.5 per cent with immediate effect.
The reverse repo rate under the LAF will also be slashed by 100 basis points from 5.0 per cent to 4.0 per cent with immediate effect.
The apex bank also announced that the cash reserve ratio (CRR) of scheduled banks will reduced by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning January 17, 2009.
The RBI announcement said that the reduction in the CRR will inject additional liquidity of around Rs. 20,000 crore to the financial system.
It is expected that the reduction in the policy interest rates and the CRR will further enable banks to provide credit for productive purposes at appropriate interest rates. The Reserve Bank on its part would continue to maintain a comfortable liquidity position in the system.
Even as some public sector and private sector banks have cut lending rates in response to the Reserve Bank’s monetary policy stance, concerns over rising credit risk together with the slowing of economic activity appear to have moderated credit growth.
The Reserve Bank continues to urge banks to monitor their loan portfolio and take early action, including debt restructuring where warranted, to prevent the rise of bad assets down the road and safeguard the gains of the last several years in improving asset quality. At the same time, banks should price risk appropriately and ensure that quality enterprises continue to get funding.
The Reserve Bank appreciates that risk management is difficult even in normal circumstances; it is even more difficult in an environment of uncertainty and downturn.
The fundamentals of the indian economy continue to be strong. Once the crisis is behind us, and calm and confidence are restored in the global markets, economic activity in India would recover sharply. But a period of painful adjustment is inevitable, the Bank pointed out.
The reverse repo rate under the LAF will also be slashed by 100 basis points from 5.0 per cent to 4.0 per cent with immediate effect.
The apex bank also announced that the cash reserve ratio (CRR) of scheduled banks will reduced by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning January 17, 2009.
The RBI announcement said that the reduction in the CRR will inject additional liquidity of around Rs. 20,000 crore to the financial system.
It is expected that the reduction in the policy interest rates and the CRR will further enable banks to provide credit for productive purposes at appropriate interest rates. The Reserve Bank on its part would continue to maintain a comfortable liquidity position in the system.
Even as some public sector and private sector banks have cut lending rates in response to the Reserve Bank’s monetary policy stance, concerns over rising credit risk together with the slowing of economic activity appear to have moderated credit growth.
The Reserve Bank continues to urge banks to monitor their loan portfolio and take early action, including debt restructuring where warranted, to prevent the rise of bad assets down the road and safeguard the gains of the last several years in improving asset quality. At the same time, banks should price risk appropriately and ensure that quality enterprises continue to get funding.
The Reserve Bank appreciates that risk management is difficult even in normal circumstances; it is even more difficult in an environment of uncertainty and downturn.
The fundamentals of the indian economy continue to be strong. Once the crisis is behind us, and calm and confidence are restored in the global markets, economic activity in India would recover sharply. But a period of painful adjustment is inevitable, the Bank pointed out.
Thursday, December 18, 2008
Why the worst of times can also be the best of times
What are the learnings for the Indian economy and corporates from the pngoing global financial crisis? Here is an expert view by Sudip Bandyopadhyay, Director & CEO, Reliance Money
The world has changed. After years of benign economic conditions, the four horsemen of financial apocalypse – credit crunch, recession, volatility and uncertainty – are blazing a trail across the horizon. Executives must now reassess their organisation’s agenda and communicate it clearly. If history is a guide, most will frame the current conditions as a threat and take action to protect what they have. Mitigating threats in tough markets is prudent, but companies that adopt a defensive position ignore a counter-intuitive truth: the worst of times for an economy as a whole can be the best of times for individual companies to create value.These are probably occasions when a company can create value significantly in excess of the cost of the resources required to seize an opportunity, whether by acquisition, innovative product launches, expanding in new markets or buying resources.
Golden opportunities do not come along every day, and most people think they are more likely to arise when the good times are rolling. In fact, the moment when you can transform your fortunes often emerges during the toughest times. Companies can also use difficult trading conditions to drive a hard bargain on tangible assets. Emirates purchased Airbus A380s on favourable terms one month after the September 11 attacks, at a time when many airlines were reluctant or unable to make large commitments.
A crisis marks a clean break with the past and creates an external rationale to make unpopular but necessary changes. In a downturn, investors and Boards are more forgiving of short-term earnings dips that might result from actions to improve the organisation in the long term. Kun-Hee Lee, Samsung’s chairman, for example, welcomed the currency crisis that roiled Asian markets in the late 1990s. A decade earlier, Mr Lee had initiated a set of changes to transform Samsung from a competent Korean player to a global leader. Mr Lee harnessed the energy unleashed by the external crisis to reinvigorate the internal changes.
Many companies alternate between growth binges and periods of sober cost cutting. The better approach is to maintain cost discipline throughout the economic cycle. When considering cost cuts, managers should ask themselves how the process will help to maintain cost discipline in the future. The worst of times can be the best of times to create value for leaders alert enough to spot opportunities and courageous enough to seize them
Friday, October 24, 2008
Indian economy at point of inflexion, RBI sounds alarm bells
There is increasing evidence that the US slowdown is spreading via the trade and financial channels.
MUMBAI:The reserve Bank of India today sounded alarm bells on the state of the country’s economy.
Starting that aggregate supply conditions in the Indian economy have shown resilience in the second quarter of 2008-09 in the face of a deteriorating global macroeconomic and financial environment, the Central Bank said: “There are, however, growing indications that the underlying economic cycle is turning in tune with global economic developments and that domestic economic activity is straddling a point of inflexion.”
The highlights of the overall assessment as presented in the mid-year review by RBI Governor D Subbarao are:
• Aggregate demand conditions continue to be mainly investment-driven, although some slackening which set in during the first quarter of 2008-09 appears to have become broad based.
• Reflecting the aggregate demand pressures, key monetary and banking aggregates – money supply, deposit and non-food credit growth – have been expanding during the year so far at rates that are significantly elevated relative to indicative trajectories given in the Annual Policy Statement of April 2008.
• The developments in monetary conditions resulted in a tightening of liquidity conditions in domestic financial markets through the second quarter of 2008-09.
• Signs of deterioration in the fiscal situation appear to be adding to aggregate demand pressures in the economy.
• Domestically, imported inflation pressures have been keeping headline inflation at elevated levels with considerable uncertainty as to where it will peak and when.
• Since the First Quarter Review of July 2008, global economic prospects have weakened further. The global economy is facing the deflationary effects of the financial crisis. There is increasing evidence that the US slowdown is spreading via the trade and financial channels.
• The outlook for the emerging economies remains positive, but uncertainties about their resilience to the global shocks have increased.
• The international financial system is gripped by extreme risk aversion in the wake of spectacular failures among the world's largest financial institutions, including several credited with history and tradition.
• Conditions in global financial markets have worsened with the freezing of inter-bank markets in US and Europe necessitating massive liquidity injection facilities from central banks in these economies, reduction of policy rates, recapitalisation of troubled private banks by governments, coordinated action by European governments to bail out weak banks and guaranteeing of all deposits in the banking system in many countries.
• In the overall assessment, global economic conditions have worsened and the future path of their evolution has turned highly uncertain. The broadening slowdown of economic activity in the advanced economies is beginning to impact the macroeconomic prospects of emerging economies, with those reliant on exports and on international financial markets for external financing needs likely to be the most vulnerable. Inflation remains elevated and a key risk to global economic prospects.
Details of the RBI review can be accessed at: http://rbi.org.in/scripts/Annualpolicy.aspx
MUMBAI:The reserve Bank of India today sounded alarm bells on the state of the country’s economy.
Starting that aggregate supply conditions in the Indian economy have shown resilience in the second quarter of 2008-09 in the face of a deteriorating global macroeconomic and financial environment, the Central Bank said: “There are, however, growing indications that the underlying economic cycle is turning in tune with global economic developments and that domestic economic activity is straddling a point of inflexion.”
The highlights of the overall assessment as presented in the mid-year review by RBI Governor D Subbarao are:
• Aggregate demand conditions continue to be mainly investment-driven, although some slackening which set in during the first quarter of 2008-09 appears to have become broad based.
• Reflecting the aggregate demand pressures, key monetary and banking aggregates – money supply, deposit and non-food credit growth – have been expanding during the year so far at rates that are significantly elevated relative to indicative trajectories given in the Annual Policy Statement of April 2008.
• The developments in monetary conditions resulted in a tightening of liquidity conditions in domestic financial markets through the second quarter of 2008-09.
• Signs of deterioration in the fiscal situation appear to be adding to aggregate demand pressures in the economy.
• Domestically, imported inflation pressures have been keeping headline inflation at elevated levels with considerable uncertainty as to where it will peak and when.
• Since the First Quarter Review of July 2008, global economic prospects have weakened further. The global economy is facing the deflationary effects of the financial crisis. There is increasing evidence that the US slowdown is spreading via the trade and financial channels.
• The outlook for the emerging economies remains positive, but uncertainties about their resilience to the global shocks have increased.
• The international financial system is gripped by extreme risk aversion in the wake of spectacular failures among the world's largest financial institutions, including several credited with history and tradition.
• Conditions in global financial markets have worsened with the freezing of inter-bank markets in US and Europe necessitating massive liquidity injection facilities from central banks in these economies, reduction of policy rates, recapitalisation of troubled private banks by governments, coordinated action by European governments to bail out weak banks and guaranteeing of all deposits in the banking system in many countries.
• In the overall assessment, global economic conditions have worsened and the future path of their evolution has turned highly uncertain. The broadening slowdown of economic activity in the advanced economies is beginning to impact the macroeconomic prospects of emerging economies, with those reliant on exports and on international financial markets for external financing needs likely to be the most vulnerable. Inflation remains elevated and a key risk to global economic prospects.
Details of the RBI review can be accessed at: http://rbi.org.in/scripts/Annualpolicy.aspx
Wednesday, October 22, 2008
Indian economy resilient, says PM
TOKYO: Prime Minister Dr. Manmohan Singh today said that India would emerge stronger from the current “great turbulence in the world economy”.
“The short-term outlook is somewhat cloudy but I am confident that the Indian economy has the resilience to sustain its growth momentum in the medium run. We hope to build on India’s many inherent strengths as an emerging market economy that is now ready for rapid and sustained growth,” he said addressing the Business Luncheon hosted by Nippon Keidanren in Tokyo today.
“Over the past four years, we have averaged 9% GDP growth per year. It looks like slowing down in the current year because of conditions in the global economy. But, once normalcy returns, we can and we are determined to regain the 9% growth trajectory. We have a tradition of a high rate of domestic savings averaging 35% of our GDP. This is like most Asian countries, and we also have a strong and a dynamic private sector,” he said.
Speaking on "India-Japan Economic Relations in the 21st Century", the Prime Minister said: “We meet at a time of great turbulence in the world economy. The international financial crisis, which still continues, has revealed the extra-ordinary vulnerability of the global financial system even in the industrialized world. The crisis has choked credit flows and predictably spilled over to the stock market. We have to prevent the liquidity crisis from becoming a crisis of confidence in the international monetary and financial system.”
He pointed out that the Governments and central banks of the major economies have taken strong and even innovative steps to deal with the crisis. The global nature of the crisis calls for a coordinated global response. Developing countries like India are also affected by the crisis and have to be part of the solution. “We cannot afford to risk the gains we have made in the last few years. Nor do we wish to remain vulnerable to infirmities in international surveillance, supervision and regulatory mechanisms in the future,” he said.
The government has taken several measures in India in the last few weeks to ensure adequate liquidity and confidence in our financial system. The fundamentals of Indian economy have been and continue to be strong. The country’s banking system is well capitalized. “But, we have experienced a shrinking of liquidity and we are responding by injecting additional liquidity to ensure that the rhythm of economic activity is not disrupted. The Reserve Bank of India stands ready to respond quickly to address the emerging needs of our economy,” Dr Singh said.
“The short-term outlook is somewhat cloudy but I am confident that the Indian economy has the resilience to sustain its growth momentum in the medium run. We hope to build on India’s many inherent strengths as an emerging market economy that is now ready for rapid and sustained growth,” he said addressing the Business Luncheon hosted by Nippon Keidanren in Tokyo today.
“Over the past four years, we have averaged 9% GDP growth per year. It looks like slowing down in the current year because of conditions in the global economy. But, once normalcy returns, we can and we are determined to regain the 9% growth trajectory. We have a tradition of a high rate of domestic savings averaging 35% of our GDP. This is like most Asian countries, and we also have a strong and a dynamic private sector,” he said.
Speaking on "India-Japan Economic Relations in the 21st Century", the Prime Minister said: “We meet at a time of great turbulence in the world economy. The international financial crisis, which still continues, has revealed the extra-ordinary vulnerability of the global financial system even in the industrialized world. The crisis has choked credit flows and predictably spilled over to the stock market. We have to prevent the liquidity crisis from becoming a crisis of confidence in the international monetary and financial system.”
He pointed out that the Governments and central banks of the major economies have taken strong and even innovative steps to deal with the crisis. The global nature of the crisis calls for a coordinated global response. Developing countries like India are also affected by the crisis and have to be part of the solution. “We cannot afford to risk the gains we have made in the last few years. Nor do we wish to remain vulnerable to infirmities in international surveillance, supervision and regulatory mechanisms in the future,” he said.
The government has taken several measures in India in the last few weeks to ensure adequate liquidity and confidence in our financial system. The fundamentals of Indian economy have been and continue to be strong. The country’s banking system is well capitalized. “But, we have experienced a shrinking of liquidity and we are responding by injecting additional liquidity to ensure that the rhythm of economic activity is not disrupted. The Reserve Bank of India stands ready to respond quickly to address the emerging needs of our economy,” Dr Singh said.
Monday, October 13, 2008
Banish Fear, says Indian FM
NEW DELHI, October 13, 2008: Indian Finance Minister P. Chidambaram today declared that “we must banish fear”.
Making a statement on the ongoing crisis in the financial markets, Mr Chidambaram said: We must remain confident and respond to the situation in a cool and mature manner. We must banish fear. Especially, depositors have nothing to fear because their deposits in banks are safe.”
He said: “Investors must take informed decisions. Before you sell, you must remember that for every seller there is a buyer. You must ask yourself why the buyer is buying in these times of perceived uncertainty and, therefore, ask yourself the further question whether there is a need to act in haste or in panic. In my view, there is no reason at all to act in haste or to give room for panic.”
“If all the players in the economy remain confident and take informed decisions, I have no doubt that the Indian economy will weather the current storm and emerge stronger.,” he said.
Pointing out that “this is a time of uncertainty,” he said: “Yet, even in a time of uncertainty there are some facts that cannot be – and ought not to be – ignored.”
The Indian economy continues to grow at a satisfactory rate. As recently as last week, the IMF’s research department (Mr. Oliver Blanchard) noted that “the Indian economy would continue to do well despite the impact of the global liquidity crunch.” As per projections made by the IMF, India is expected to post a GDP growth of 7.9 per cent during the current fiscal year.
The stock market indices are important indicators, but they are not the only indicators of the health of the Indian economy. The ratio of investment to GDP remains high at over 35 per cent at the end of the first quarter of 2008-09. The monsoon has been normal; the Kharif crop (especially rice and cotton) has been good; farmers are sowing their fields; and the prospects for the Rabi crop are bright. Factories continue to produce goods and the services sector is growing at a brisk rate, he said.
“Crude oil and commodity prices have declined sharply. This is expected to have a beneficial effect on inflation.
“The root cause of the present uncertainty is liquidity and not any dramatic change in the fundamentals of the economy. According to RBI figures, as on 26th September, 2008, non-food credit increased, year-on-year, by 24.8 per cent. Between April and 26th September, non-food credit grew by 7.8 per cent. Time and demand deposits with banks grew, year-on-year, by 18.8 per cent and, between April and 26th September by 7.2 per cent. I am happy that depositors continue to repose their confidence in the health of our banking system.
“Nevertheless, liquidity was found to be inadequate and, consequently, lenders were unwilling to take risks. Some lenders and investors faced redemption pressures leading to a sale of assets, especially stocks. The markets that are bearing the brunt of the problem are the capital market and the money market and, to an extent, the foreign exchange market. These problems can be overcome if adequate liquidity is infused into the system.
“Accordingly, RBI has taken measures that have infused an additional Rs.60,000 crore into the financial system. The LAF also provides liquidity and, as on 10th October, 2008, Rs.91,500 crore had been accessed by banks through the LAF window. We believe that these steps should ease the liquidity situation and the flow of credit should become smoother, relieving the pressures that had built up in the last two weeks.
“Government, RBI and SEBI have been in close consultation with each other during the weekend. I have spoken to the Governor, RBI and Chairman, SEBI several times in the last two days. We are coordinating our actions. We are watching the situation carefully and we will respond swiftly according to the needs of the situation. We are working on more measures that will infuse liquidity, make credit intermediation smoother, and increase the confidence of depositors and investors. We hope to be able to announce them shortly.
“Our banks are ready and willing to provide credit. Suitable advisories are being issued to the banks.
Over the weekend, the US, UK, Euro zone and Australian authorities have announced a number of measures to stabilize the financial system. The Australian capital market and three of the East Asian capital markets have opened on a bright note this morning. I expect that our capital market will also take its cue from these positive developments.”
Making a statement on the ongoing crisis in the financial markets, Mr Chidambaram said: We must remain confident and respond to the situation in a cool and mature manner. We must banish fear. Especially, depositors have nothing to fear because their deposits in banks are safe.”
He said: “Investors must take informed decisions. Before you sell, you must remember that for every seller there is a buyer. You must ask yourself why the buyer is buying in these times of perceived uncertainty and, therefore, ask yourself the further question whether there is a need to act in haste or in panic. In my view, there is no reason at all to act in haste or to give room for panic.”
“If all the players in the economy remain confident and take informed decisions, I have no doubt that the Indian economy will weather the current storm and emerge stronger.,” he said.
Pointing out that “this is a time of uncertainty,” he said: “Yet, even in a time of uncertainty there are some facts that cannot be – and ought not to be – ignored.”
The Indian economy continues to grow at a satisfactory rate. As recently as last week, the IMF’s research department (Mr. Oliver Blanchard) noted that “the Indian economy would continue to do well despite the impact of the global liquidity crunch.” As per projections made by the IMF, India is expected to post a GDP growth of 7.9 per cent during the current fiscal year.
The stock market indices are important indicators, but they are not the only indicators of the health of the Indian economy. The ratio of investment to GDP remains high at over 35 per cent at the end of the first quarter of 2008-09. The monsoon has been normal; the Kharif crop (especially rice and cotton) has been good; farmers are sowing their fields; and the prospects for the Rabi crop are bright. Factories continue to produce goods and the services sector is growing at a brisk rate, he said.
“Crude oil and commodity prices have declined sharply. This is expected to have a beneficial effect on inflation.
“The root cause of the present uncertainty is liquidity and not any dramatic change in the fundamentals of the economy. According to RBI figures, as on 26th September, 2008, non-food credit increased, year-on-year, by 24.8 per cent. Between April and 26th September, non-food credit grew by 7.8 per cent. Time and demand deposits with banks grew, year-on-year, by 18.8 per cent and, between April and 26th September by 7.2 per cent. I am happy that depositors continue to repose their confidence in the health of our banking system.
“Nevertheless, liquidity was found to be inadequate and, consequently, lenders were unwilling to take risks. Some lenders and investors faced redemption pressures leading to a sale of assets, especially stocks. The markets that are bearing the brunt of the problem are the capital market and the money market and, to an extent, the foreign exchange market. These problems can be overcome if adequate liquidity is infused into the system.
“Accordingly, RBI has taken measures that have infused an additional Rs.60,000 crore into the financial system. The LAF also provides liquidity and, as on 10th October, 2008, Rs.91,500 crore had been accessed by banks through the LAF window. We believe that these steps should ease the liquidity situation and the flow of credit should become smoother, relieving the pressures that had built up in the last two weeks.
“Government, RBI and SEBI have been in close consultation with each other during the weekend. I have spoken to the Governor, RBI and Chairman, SEBI several times in the last two days. We are coordinating our actions. We are watching the situation carefully and we will respond swiftly according to the needs of the situation. We are working on more measures that will infuse liquidity, make credit intermediation smoother, and increase the confidence of depositors and investors. We hope to be able to announce them shortly.
“Our banks are ready and willing to provide credit. Suitable advisories are being issued to the banks.
Over the weekend, the US, UK, Euro zone and Australian authorities have announced a number of measures to stabilize the financial system. The Australian capital market and three of the East Asian capital markets have opened on a bright note this morning. I expect that our capital market will also take its cue from these positive developments.”
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