RBI may cut benchmark lending rate by 0.25% in May

rbi monetory and credit policy

RBI Governor D Subbarao will announce the Monetary Policy Statement for FY14 on May 3, 2013

The Reserve Bank may cut the benchmark short-term lending rate by about 0.25% in its annual monetary policy next month in the backdrop of declining inflation and the urgency to promote growth, say economists. 

“Right now conditions should enable the RBI to cut repo rate. We expect a cut of 25 basis points (or 0.25%) in its policy in May and may be by another 25 bps in the next review,” HDFC Bank Chief Economist Abheek Barua said. 

RBI Governor D Subbarao will announce the Monetary Policy Statement 2013-14 on May 3, 2013. 

YES Bank Chief Economist Shubhada Rao said RBI may cut the repo rate or the short-term lending rate by about 0.25% in May as inflation has come down and there is a need to fuel economic growth. 

“Taking cue from inflation, we believe that RBI could take this time…To cut rate, particularly, the way we have seen inflation in the past coming down. Given the strong deceleration in growth, we think RBI may cut repo rate by 0.25% in May as well as may provide some liquidity easing,” Rao said. 

Wholesale prices (WPI), a measure of inflation, softened to 5.96% in March after an annual rise of 6.84% in February, the lowest rate since November 2011. 

“If you look at the incremental data WPI, IIP in the last two months, that data is in favour of the 25 basis points rate cut. We are expecting a cut in repo rate in May,” Anubhuti Sahay, Economist, Standard Chartered Bank said. 

Industry has been batting for a rate cut to tide over the problems concerning poor demand, low industrial output and subdued economic growth.

 The Index of Industrial Production (IIP), the key gauge to measure industrial activity, slumped to 0.6% in February from 4.3% a year ago because of poor performance in manufacturing coupled with contraction in power generation and mining output. India’s economic growth rate is estimated to slip to a decade’s low of 5% in 2012-13, pulled down by poor performance of manufacturing, agriculture and services sectors.

RBI may issue clarification on bank licences by early May


It released guidelines for new bank licences in Feb this year, asking aspirants to submit applications by July 1, 2013

RBI may issue clarification on bank licences by early May. It released guidelines for new bank licences in Feb this year, asking aspirants to submit applications by July 1, 2013. The Reserve Bank is likely to issue by early next month clarifications on new bank licence guidelines as sought by interested entities, a senior RBI official has said.

“We have received queries from various entities. RBI will be posting on its website all the relevant clarifications with regard to new bank licence guidelines by this month end or early next month so that they get ample time to file applications,” a senior RBI official said.

RBI released guidelines for new bank licences in February this year, asking the aspirants to submit applications by July 1, 2013.

Many large business groups such as Anil Ambani-led Reliance Group, L&T, Mahindras, Birlas, Religare and Videocon have already made public their intentions to apply for the licences, while many NBFCs including Shriram group, Indiabulls, India Infoline, IFCI and PFC have also shown interest. Those reported to be interested in banking licence also include Tatas and Mukesh Ambani-led RIL group.

However, the RBI is expected to follow conservative approach and allow 4-5 new players in an already highly competitive banking sector.

Many aspirants have roped in former bank chiefs and other senior bankers from India and abroad as consultants to help them prepare for seeking the licence. Interestingly, a large number of real estate players have shown initial interest despite their financial positions not being entirely in adherence to the norms spelt out by the RBI.

After July 1, the last date of application for bank licence, RBI will make public names of all the interested entities. RBI last gave bank licences around a decade back.

A large number of clarifications could be relating to interpretation of various clauses of the new bank licence norms, as many entities had complained of ‘ambiguity’ on various fronts in the guidelines.

The applicants from the NBFC space have also sought to know whether RBI would allow conversion of all their Tier-1 branches and locations into bank branches in case of the transfer of their existing activities into various banking functions.

They have sought to know what will happen to the Tier 1 branches that are not allowed to be converted to bank branches, sources said.

As per RBI’s guidelines, those eligible to apply for banking licence include entities or groups in the private sector, entities in public sector and Non-Banking Financial Companies through a wholly-owned Non-Operative Financial Holding Company (NOFHC).

Clarifications have also been sought on the corporate structure of the NOFHC as well. RBI has said the NOFHC shall be wholly owned by the promoters and should hold the bank as well as all the other financial services entities of the group.

Euro zone inflation continues to ease in March

Eurozone Inflation

The annual rate of inflation in the euro zone fell further below the European Central Bank’s target level in March, official figures showed Tuesday.

The decline in upward pressures in consumer prices eases one impediment to monetary stimulus from the ECB to support the euro zone’s battered economy in coming months, and in theory makes households better off as inflation erodes less of their disposable income.

But not all countries are benefiting from the decline to the same degree. Inflation remained much higher than the average in Spain and the Netherlands in March, where falls in household incomes in real terms undermine the chances of an economic recovery.

Eurostat, the European Union’s statistics agency, said the annual rate of inflation in the 17 countries that use the euro fell to 1.7% in March from 1.8% in February, confirming an earlier estimate. The figure is the lowest since August 2010 and undercuts the ECB’s target level of a little under 2%.

The figure was in line with a forecast by economists in a Dow Jones Newswires poll last week.

Prices fell for transport fuel, telecommunications and medical services. Electricity prices rose.

The average rate masked big divergences between euro-zone member states.

Annual inflation was significantly higher than the average in the Netherlands, where the rate was 3.2% in March, and in Spain where it was 2.6%. Much lower rates of price growth were registered in Ireland, at 0.6%, and Portugal, at 0.7%. Greek consumer prices fell in year-to-year terms, by 0.2%.

ECB keeps rates unchanged



Main rate stays at 0.75%.

The European Central Bank has kept eurozone interest rates on hold. The main refinancing rate stays at 0.75%, where it has been since July 2012.

Although the decision was widely expected, some analysts expect the ECB to cut rates in the coming months.

Mario Draghi, the president of the ECB, will hold a press conference later this afternoon to explain the decision.