RBI may also scale down GDP growth estimates in today’s policy review
The Economic Advisory Council to Prime Minister (PMEAC), in its review of Indian Economy 2008-09, has scaled down India's GDP estimate for FY 2008-09 to 7.1% from 7.7% made in July 2008, factoring the slow down caused by painful adjustment to abrupt changes in the international economy and deeper than anticipated recession in the advanced industrial countries in the second half. Similarly, RBI, in its report on review of Macro economic and monetary developments for the third quarter ended December 2008, has indicated that the Indian economy, after exhibiting strong growth during the second quarter of 2008-09, has experienced moderation (in the quarter ended December 2008) in the wake of the global economic slowdown. RBI indicated that the agricultural outlook remains satisfactory, but has cautioned that the industrial growth has decelerated sharply and services sector is slowing. The economic slowdown, during the second quarter vis-à-vis the first quarter of 2008-09, was primarily driven by a moderation of consumption growth and widening of trade deficit, offset partially by acceleration in investment demand.
PMEAC expects the investment rate to decline by 2.4% to 35.0% in FY 2008-09, factoring in the financial constraints being faced by Indian enterprises and downturn in investor confidence in the second half of the current fiscal. However, it expects the saving rate to fall by whopping 2.9% to 33.1%, largely due to negative savings of the government.
On inflation, it expects WPI based inflation to ease close to 4.0% by end February and early March 2009, and trend may continue for a few months in the next fiscal due base effects. But the overall inflation for 2008-09 is placed at 8.7% higher than 4.7% in the previous fiscal, and also above the RBI's projected level of 7% for 2008-09. It also cautioned that the decline in CPI based inflation is unlikely to match that of WPI. It drew comfort from reasonably comfortable external payment and also projected the current account deficit to be around 1.9% of GDP in FY 2008-09. But PMEAC cautioned that the combined fiscal deficit of Central and State governments could cross 10.0% of GDP in FY 2008-09, which is well above the comfortable levels, but draw solace from the compelling need in the exceptional circumstances of the current fiscal.
On external trade front, it projects the
Indian economy is expected to remain relatively week in the quarter ending June 2009, but to slowly pickup thereafter and show fairly strong recovery in growth in the second half of FY 2009-10. GDP growth is estimated between 7.0% and 7.5% or somewhere above that in FY 2009-10.
Forex reserves declines by US $2.58 billion in the week ended 23 January
The Ministry of Commerce has said that
Rupee weakens 1.15% so far in January 2009
The rupee has weakened by 0.94% in the week ended 23 January and about 1.15% so far in January 2009, as rising losses in the local stocks due to risk aversion among investors, raised concerns over outflows and hampered rupee sentiments, while strong dollar also dented the rupee value. The PMEAC in its outlook 2008-09 has projected the outflow of loans worth US $14.3 billion scheduled for the second half, while trade deficit for 2008-09 to widen by 34% to US $120.7 billion. All these things will have huge bearings on value of the rupee in rest of the fiscal.
Crude oil production falls marginally, gas and refinery production rises in April-December 2008
India's cumulative crude oil production in April-December 2008 slipped 0.55% to 25.43 million tonnes (mt), while the production was 5% short of planned target of 26.771 mt set for the period. On the other hand, refining and natural gas output galloped 3.7% to 120.448 mt and 2.7% 25 billion cubic meters, respectively in April-December 2008, according to the Ministry of Petroleum and Natural Gas. The overall refinery capacity utilization in April-December 2008 was 107.3% of the installed capacity as compared with 103.7% in the corresponding previous period.
Crude oil Prices scales up 27.3% in the week ended 23 January
Crude oil futures at NYMEX increased by 27.28% to US $46.47 a barrel in the week ended 23 January 2009 and 4.2% so far in January 2009. The Government of India has said that country's oil product demand is expected to expand 6% annually, about the same as last year. The finance ministry and the Planning Commission have opposed the cut in retail fuel prices, proposing the right to deregulate the fuel prices to be determined by the market forces. However, the government will continue to control the kerosene and cooking gas prices
Crude & Petroleum products exports fell 22.25% in April-November 2008
The export of crude & petroleum product during April-November 2008 stood at 24.01 mt (38.93% fall on y-o-y basis) compared to import of 99.03 mt (4.73% rise on y-o-y basis). In dollar term the export of crude and petroleum products plunged 22.25% to US $ 20.814 billion, whereas imports shot up 50.46% to US $75.321 billion in April-November 2008, as per the Petroleum Planning and Analysis cell.
Government likely to announce sops for exporters
In the special meeting convened by Prime Ministers Office on 21 January, the government discussed the problems of exporters with heads of 26 Export Promotion Councils (EPCs) and eight commodity boards, and is likely announce more sops within a week. The exporting community wants the Government to increase DEPB rates by 5% across the board, enhancement of interest subvention, tax holiday on export income, increase in the tax refunds through drawback and more concessions on interest rates.
Government bans import of Chinese toys
The Government of India has banned the import of toys from
Inflation rebounds to 5.6% on higher food prices due to truckers strike
After eight weeks of consistent fall, India's whole sale price index based inflation increased to 5.61% in the week ended 10th January 2009, up from 5.24% in the week ended 3rd January 2009, primarily due to 2.2% rise in food articles (part of primary articles), food products (part of manufactured products) too rose by 1.6% in the week ended 10th January 2009 over the previous week. Finance Ministry attributed the increase in food article and food product prices to truckers' strike, which was withdrawn on
RBI continues to absorb liquidity through Liquidity Adjustment Facility (LAF)
In the week ended 23 January, the RBI did not received any bid for liquidity infusion through repo window, while it just injected an aggregate Rs 90 crore through special term repo window. Meanwhile the RBI absorbed Rs 50546 crore on daily average basis from the banking system, through reverse repo auctions, in the week ended 23 January. The net daily liquidity absorption (absorption less infusion) by the RBI amounted to Rs 50528 crore during the week ended
Railways' freight earnings increases 13.39% in April-December 2008
The revenue earnings from freight traffic for Indian Railway increased 13.39% to Rs 38279.23 crore in April-December 2008.The total freight loading of Indian Railways rose 2.98% to 72.15 mt in December 2008, while it surged 6.03% to 606.75 mt in April-December 2008 against the corresponding period in the previous fiscal. However, the freight earnings as well as freight traffic decelerated 3.78% to Rs 12776.28 crore and 1.42% to 204.86 mt in the quarter ended December 2008.
Record wireless subscribers added in December 2008
Bond yields seesawing ahead of policy review
The yield on 10-year benchmark Government Stock 8.24% maturing in 2018 rose 13 bps to 5.72% in the week ended 23 January, amid lackluster trading ahead of monetary policy review on 27 January. The market is segmented over the view of rate cuts, with the majority hoping that the RBI would hold the rates constant at policy review. Bond yield will fall further if the central banks cut key lending rates at policy review beating the majority expectations.
Ports traffic at 12 major ports plunges 3.43% in the quarter ended December 2008
The total traffic handled by major 12 ports in
Area under Rabi crops surges to 585.59 lakh hectares
Area under rabi crop in the 2009 season increased 3.94% to 585.59 lakh ha as on
As per the Central Water Commission (CWC) the total water availability in 81 major reservoirs in the country was 69.81 BCM or 46% of their designed capacity as on 22 January. However the storage capacity was lower by 13.2% compared to live storage of 80.44 BCM in the corresponding period last year.
Outlook
The Reserve Bank of
In the absence of definite Finance
Minster the economy is flooded with lot of contradictory comments from various policymakers and politician on stimulus packages, sops and interest rate cuts, therefore the market is segmented in to different views.
The RBI in its Macroeconomic and Monetary Development Review for 3rd quarter of 2008-09 has said that Indian economy has experienced moderation in the wake of global economic slowdown, primarily due slower consumption growth and widening trade deficit. It has also predicted the inflation rate to ease further in the near term.
The domestic liquidity condition seems to be sizable, which is evident from the fact that the central bank is continuously absorbing surplus liquidity from the banking system since week ended 21 November, through reverse repo auction. The liquidity in the banking system has improved substantially reflecting the impact of series of interest rate cut and reserve requirement easing implemented by RBI since October 2008. But the credit growth has been moderating in the recent months, which remains a concern.
At a time when industry's liquidity and capital requirements are rising, and various alternatives like domestic capital markets, overseas debt / quasi equity markets turning hostile, many corporate are rushing to banks for their funding requirements. In this context, how RBI is able to ameliorate the Industry's problems especially for ensuring more credit for productive purposes and at the same time does not hinder in the bank's quest for maintaining / improving asset quality remains to be seen.
source: Capital Market
