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.

Focus Turns to Hunt for Bombing Motive


Task Force To Question Injured Teen

Investigators in the Boston Marathon bombing case shifted their focus Saturday to hunting for a motive and preparing charges after apprehending 19-year-old college student Dzhokhar Tsarnaev Friday night.

Polls to help economy grow by 6.4% this fiscal: Goldman


Wall Street brokerage Goldman Sachs today projected an ‘above-consensus’ growth of 6.4 per cent for the current fiscal on factors like the upcoming general elections which, it said, will increase government spending, lower interest rates and lead to action on the policy front. 

“We reiterate our above-consensus GDP growth forecast of 6.4 per cent. The key to an improvement in activity is a pickup in the investment cycle,” it said in a report. It said higher government capex coupled with falling rates and policy reforms to ease bottlenecks and manufacturing export growth will drive investments during the ongoing fiscal. 

Yesterday, the UN pegged the calender 2013 growth at 6.4 per cent, while the ADB last projected that the domestic economy would reach 6 per cent in the current fiscal. In the budget, the government had pegged growth at between 6.1 and 6.7 per cent. Rating agency Crisil had lowered its FY14 growth estimate to 6 per cent from the earlier 6.4 per cent earlier this week. 

Official estimates suggest the economy might have expanded 5 per cent in the recently concluded fiscal, the lowest in ten years. “The year before the elections is generally associated with increased government spending. Indeed, government spending ( as a percentage of GDP) has increased the year before the elections, in each of the last four general elections,” it said. 

While stating this also increased the possibility of a higher fiscal deficit, it called it a “positive stimulus to the economy.” 

Crisil had cast doubts whether the government will be able to achieve its stated objective of reigning-in fiscal deficit at 4.8 per cent. Among other reasons cited include the expected lowering of interest rates by the RBI besides a drive on the policy front to expedite projects. 

“Ongoing policy reforms to de-bottleneck infrastructure and other investments, particularly, the Cabinet Committee on Investments can help,” the Goldman Sachs report said. Additionally other factors like the improvement in the global economic climate will also act as a “tailwind,” Goldman said. 

The report pointed out to data displaying some “greenshoots” like that on the index of industrial production, exports, and non-food credit.

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%.

FM ask banks to gear up for LPG subsidy rollout

lpg subsidy to adhar

Finance Minister P Chidambaram today asked banks to gear up for the rollout of direct cash subsidy scheme to cooking gas (LPG) consumers throughout the country.

 “I have asked them (bankers) to get ready for the rollout of LPG for the whole country,” Chidambaram told reporters after a meeting with senior PSU bankers here. 

As a pilot project, the government has decided to give cash subsidy to LPG consumers under its ambitious Direct Benefit Transfer (DBT) scheme soon, and will cover 20 districts by May 15. 

LPG consumers will get about Rs 4,000 per annum in cash from the government, and they will have to then buy LPG at market price of Rs 901.50 per 14.2-kg cylinder. 

Currently, each consumer is entitled to 9 cylinders of 14.2-kg each at subsidised price of Rs 410.50. On each of these cylinder the government bears a subsidy Rs 435.

 There are about 14 crore LPG consumers in the country. Regarding the second phase of DBT scheme to be launched from July in 78 districts, Chidambaram said: “They (bankers) have all said that they will be ready in the 78 districts”.

 The Planning Commission would be holding meetings with the 78 district collectors.

 “We have said the lead bank managers of 78 districts will also attend the meeting,” the Finance Minister said.

 The government has already capped the number of subsidised cylinders at six per household per year and beyond that a consumer has to pay the market price. However, some of the state governments are providing more subsidised cylinders and bearing the burden themselves.

 The government expects that the DBT will eliminate all ghost LPG connections and diversion of cylinders.

 In the first phase of DBT that started in January, 43 districts are being covered.

 Under the DBT scheme, subsidies and other benefits are transfered directly into the Aadhaar linked bank account of beneficiary.