Confidence, growth estimates better: RBI
The Financial Express, July 28, 2009, Page 1
fe Bureau, Mumbai
Two key pieces of data released by RBI on the eve of announcing its position on interest rates for the July-September quarter shows a higher growth estimate for the economy and a turnaround in business sentiment. The data is part of the Macroeconomic & Monetary Developments: First Quarter Review 2009-10.
The latest survey of professional forecasters conducted by RBI in June 2009 indicates most estimates converging on a 6.5% rate of GDP growth, higher than the 5.7% in the March survey. Average inflation in the fourth quarter is also expected to rise to 5.4% from the current negative 1.31%.
Similarly, the business expectation indices of private sector manufacturing companies has improved both for the April-June quarter and expectations for the July-September quarter. Company expectations are 20.3% and 14% more for better performance, compared with the previous quarters. The indices had dropped to their lowest level ever in the January-March quarter of 2009. RBI, however, cautioned that early indications suggest the revival impulses need to strengthen further to boost consumer and investor confidence.
Analysts, therefore, said it was difficult to take a call on possible repo and reverse repo rates the central bank would announce on Tuesday. These are the rates at which RBI respectively sells and buys surplus cash from banks, and provide a benchmark for interest rates at which banks provide credit.
Based on the RBI assessment, bond yields moved up in the debt market. The benchmark ten-year 6.90% maturing in 2019 ended at 6.95%, above Friday’s close of 6.92%, but volumes were moderate at Rs 7,640 crore after traders hedged their bets.
Yes Bank chief economist Shubhada Rao said RBI may revise its inflation forecast upwards on Tuesday, but would wait until early 2010--the fiscal fourth quarter--to drain liquidity by lifting cash reserve ratio requirements. “We believe RBI will provide comfort on the liquidity front. The fourth quarter is the one where we expect RBI to remove the ‘froth’ in liquidity,” she said.
RBI has cut repo six times since last October, lopping 425 basis points off to the present 4.75% as it tried to guard against economic deceleration in the middle of the global financial crisis. It also slashed reverse repo by 275 basis points since early December and brought down the cash reserve requirement by 400 basis points to 5% to keep credit flowing.
“The growth outlook for 2009-10 (therefore) needs to be assessed in the context of indications emerging from lead indicators so far… Indicators such as the higher growth in core infrastructure sector, positive growth in IIP, gradual revival in demand for non-food credit, improving performance of the corporate sector in terms of both sales and profitability, gradual return of risk appetite in the capital market, more optimistic business expectations and forecasts could be viewed as signs of recovery from the slowdown,” says the report.
Factors that could dampen the growth outlook, according to RBI, are the delayed progress of the monsoon, decline in exports due to the persistent global recession and the lagged impact of negative growth in manufacturing in the last quarter of 2008-09. But according to the central bank, chances of these happening are weaker.
The Financial Express, July 28, 2009, Page 1
fe Bureau, Mumbai
Two key pieces of data released by RBI on the eve of announcing its position on interest rates for the July-September quarter shows a higher growth estimate for the economy and a turnaround in business sentiment. The data is part of the Macroeconomic & Monetary Developments: First Quarter Review 2009-10.
The latest survey of professional forecasters conducted by RBI in June 2009 indicates most estimates converging on a 6.5% rate of GDP growth, higher than the 5.7% in the March survey. Average inflation in the fourth quarter is also expected to rise to 5.4% from the current negative 1.31%.
Similarly, the business expectation indices of private sector manufacturing companies has improved both for the April-June quarter and expectations for the July-September quarter. Company expectations are 20.3% and 14% more for better performance, compared with the previous quarters. The indices had dropped to their lowest level ever in the January-March quarter of 2009. RBI, however, cautioned that early indications suggest the revival impulses need to strengthen further to boost consumer and investor confidence.
Analysts, therefore, said it was difficult to take a call on possible repo and reverse repo rates the central bank would announce on Tuesday. These are the rates at which RBI respectively sells and buys surplus cash from banks, and provide a benchmark for interest rates at which banks provide credit.
Based on the RBI assessment, bond yields moved up in the debt market. The benchmark ten-year 6.90% maturing in 2019 ended at 6.95%, above Friday’s close of 6.92%, but volumes were moderate at Rs 7,640 crore after traders hedged their bets.
Yes Bank chief economist Shubhada Rao said RBI may revise its inflation forecast upwards on Tuesday, but would wait until early 2010--the fiscal fourth quarter--to drain liquidity by lifting cash reserve ratio requirements. “We believe RBI will provide comfort on the liquidity front. The fourth quarter is the one where we expect RBI to remove the ‘froth’ in liquidity,” she said.
RBI has cut repo six times since last October, lopping 425 basis points off to the present 4.75% as it tried to guard against economic deceleration in the middle of the global financial crisis. It also slashed reverse repo by 275 basis points since early December and brought down the cash reserve requirement by 400 basis points to 5% to keep credit flowing.
“The growth outlook for 2009-10 (therefore) needs to be assessed in the context of indications emerging from lead indicators so far… Indicators such as the higher growth in core infrastructure sector, positive growth in IIP, gradual revival in demand for non-food credit, improving performance of the corporate sector in terms of both sales and profitability, gradual return of risk appetite in the capital market, more optimistic business expectations and forecasts could be viewed as signs of recovery from the slowdown,” says the report.
Factors that could dampen the growth outlook, according to RBI, are the delayed progress of the monsoon, decline in exports due to the persistent global recession and the lagged impact of negative growth in manufacturing in the last quarter of 2008-09. But according to the central bank, chances of these happening are weaker.
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