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Amid trade war, surging oil headwinds, record-low rupee doesn’t scare RBI

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Mumbai :India’s central bank stared down the rupee’s slide to a record low, opting to keep interest rates unchanged as it flagged risks to the economy from global monetary policy tightening, trade wars and surging oil prices.
In a surprise decision, the monetary policy committee led by Governor Urjit Patel voted 5-1 to leave the repurchase rate at 6.5 per cent on Friday. The decision, which was predicted by just nine of 49 economists in a Bloomberg survey, sparked a selloff in the nation’s currency and stocks.
The Reserve Bank of India’s pause after two hikes since June is in contrast to its peers in Indonesia and the Philippines, who have pressed ahead with aggressive policy action to counter an emerging-market selloff triggered by higher US rates and a stronger dollar. But in a clear indication that it’s not done with rate increases, the RBI changed its policy stance to “calibrated tightening” from the neutral that’s been in place since February 2017.
While the change doesn’t mean that every meeting will result in a rate hike, it does take rate cuts off the table, Governor Patel said. Lowering the inflation forecast to a range of 3.9 per cent to 4.5 per cent for the second half of the year ending March, from 4.8 per cent previously, allows the MPC room to pause on rates, he said.
Inflation, for now, is well below the 4 per cent midpoint of the central bank’s target range, even as the economy expands at a world-beating 8 per cent plus pace.
“There are already forces at play that we expect will slow activity in coming quarters, including tighter financial conditions, higher oil prices and weaker global growth,” said Sonal Varma, chief India economist at Nomura Holdings Inc. and one of the nine economists who had forecast rates to remain unchanged. “Against this backdrop, the impact of cost-push factors should be limited and transient and, as the output gap again turns negative, underlying inflation should converge back towards 4.5 per cent.”
While headline inflation has eased in recent months, the core measure, which strips out volatile fuel, food and electricity prices, has been sticky at around 6 per cent.
The central bank’s September survey on households painted a mixed picture about price pressures. While inflationary expectations for the three months ahead rose sharply by 50 basis points, a year down the line those expectations were lower by 30 basis points compared to the survey in June.
The decision by the RBI comes at a time when liquidity conditions have tightened and there are worries that defaults by a systemically-important financier could lead to a contagion. Authorities have moved to ringfence Infrastructure Leasing & Financial Services Ltd., while the RBI has pledged to inject $5 billion into the system through bond purchases as it tries to ease the liquidity squeeze.
Foreigners have pulled $9.7 billion from local shares and debt this year, adding to worries that India will struggle to bridge its swelling current-account deficit. The government has raised import tariffs while the central bank allowed companies to raise more money abroad, though those efforts haven’t stopped the rupee’s slide.
The government lowered duties on fuel, providing some relief to consumers while putting pressure on its budget goals.
Patel appeared unfazed by the sharp drop in the currency, saying the depreciation was helping to correct external imbalances. The RBI doesn’t have any target or band in mind and acts only to manage volatility.
“The unchanged decision suggests that the Reserve Bank of India is not overly concerned about rupee depreciation,” said Mitul Kotecha, a senior emerging-markets strategist at TD Securities in Singapore.
The rupee, which is the worst-performing major currency is Asia, has dropped about 7 per cent since August when the RBI last raised rates. At the same time, prices of crude oil — India’s biggest import — rose more than 10 per cent, a factor that is likely to drive headline inflation in coming months.
An increase in the price of oil to $96 a barrel could stoke inflation by 40 basis points above its estimate and damp growth by 30 basis points, the central bank said. Trading giant Mercuria Energy Group Ltd. said last month Brent crude may spike over $100 in the fourth quarter, amid concerns sanctions on Iran will shrink global supplies and as Venezuela’s industry continues to struggle.
The RBI lowered India’s economic growth projection for the first quarter of the 2020 fiscal year to 7.4 per cent from the August projection of 7.5 per cent, while retaining the current year’s forecast at 7.4 per cent.


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India to get extra oil from major producers to make up for loss of Iranian oil: Pradhan

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New Delhi: India will get additional supplies from other major oil producing countries to compensate for the loss of Iranian oil, Petroleum and Natural Gas Minister Dharmendra Pradhan said.

The United States on Monday demanded that buyers of Iranian oil stop purchases by May 1 or face sanctions, ending six months of waivers which had allowed Iran`s eight biggest buyers, most of them in Asia, to continue to import limited volumes.

Pradhan said on Twitter that India has put in place a robust plan for adequate supply of crude oil to refineries.

 

“Indian refineries are fully prepared to meet the national demand for petrol, diesel and other petroleum products,” he said.

Reuters last week reported that Indian refiners are increasing their planned purchases from the nations of the Organization of the Petroleum Exporting Countries (OPEC), Mexico and the United States to hedge against loss of Iranian oil.

Refiners in India, the worlds third-biggest oil importer and Irans top oil client after China, had almost halved their Iranian oil purchases since November when petroleum sanctions went into effect. At the time, the United States granted waivers from sanctions, known as significant reduction exceptions (SRE), for six months to countries that purchased some amounts of Iranian crude, including India.

U.S. President Donald Trump said on Monday that Saudi Arabia and other OPEC nations could “more than make up” for any drop in Iranian oil supplies to global markets now that the waivers are ended.

Saudi Arabia, the world`s biggest oil exporter, said on Monday it would coordinate with other oil producers to ensure an adequate crude supply and a balanced market.

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Industry delegation calls on RBI Guv, discusses steps for MSMEs, NBFCs

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Mumbai: A delegation led by PHD Chamber President Rajeev Talwar met RBI Governor Shaktikanta Das here on Monday and discussed concerns related to the growth of MSMEs, NBFCs, affordable housing and the real estate sector.

The chamber in its submission has also sought further cut in the repo rate in the coming quarters.

“PHD Chamber in its submission has urged RBI to increase the limit for classifying over dues of MSMEs to 180 days from the current level of 90 days as working capital cycle of MSMEs keeps prolonging due to delays in realisation of their bills/receivables,” said Talwar.

 

It has also requested that at least one year period should be considered for eligibility of MSMEs’ stressed and NPA accounts under the restructuring scheme.

All such Accounts which turned into defaulters or became NPAs after January 1, 2018 should be covered under the policy of RBI for being eligible for restructuring, said Sanjay Agarwal, Vice President, PHD Chamber.

It was also recommended that the loans given by banks to NBFCs for the purpose of on-lending to micro, small and medium enterprises (MSMEs) should be treated as indirect finance to MSMEs eligible for classification under the Priority Sector lending of banks, said D K Agrawal, Senior Vice-President.

The industry body said that infrastructure financing should ideally be carried out by specialist players like Infrastructure Finance Companies (IFCs).

“IFCs should be allowed to deploy a minimum of 50 per cent of their total assets in infrastructure loans, while the rest may be deployed towards financing allied and ancillary activities for infrastructure projects, which are essentially non-infra in nature,” PHD Chamber said.

The chamber said that IFCs should be allowed to issue tax-free bonds and on-tap resource mobilisation through issuance of Non-Convertible Debentures (NCDs) to retail investors.

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Jet Airways waits for buyer as rivals muscle in on territory

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Mumbai: A revival of Jet Airways India Ltd., once the nation’s biggest carrier by market value, is at risk as days roll by since its operations were completely halted.

While the cash-strapped carrier awaits potential investors to pump in money, rivals are aggressively going after its most prized assets. A government desperate to limit public backlash after flight ticket prices escalated is parceling off landing and parking slots at congested airports. Lessors are also adding to the woes by allocating grounded aircraft to competitors.

“It appears to me that lenders are not very confident of getting any serious bid,” said Harsh Vardhan, chairman of New Delhi-based Starair Consulting. “You can not hold on to slots, and planes are not Jet Airways’ property. They have to find a buyer as soon as possible.”

 

Jet Airways, the oldest surviving private airline which broke into a monopoly of Air India Ltd., had a fleet of 124 and flew profitable routes like connecting India, the fastest growing aviation market in the world, with London and Toronto. With nearly 23,000 jobs at stake, its collapse last week couldn’t have at worse time for Prime Minister Narendra Modi who’s seeking a second term based on his business-friendly image.

While the arrangement to give Jet’s landing slots and aircraft to rivals is temporary, the process to swap them again is complicated and is the domain of airports. It may get more difficult once rivals start new flights and sell tickets in advance, and that could potentially leave close to nothing for a potential new owner.

Jet Airways started flying in the early-1990s after India liberalized its economy, and quickly cemented its spot as a leading airline offering an alternative to Air India, while averting several downturns that forced dozens of its peers to close shop. But a boom of budget airlines in the mid 2000s, on top on rising fuel prices and a weakening rupee, kept adding to Jet Airways’ costs in the notoriously price-sensitive market.

The airline, which controlled 13.6 percent of the local market as recently as January, needs 85 billion rupees ($1.2 billion) to restart operations. So far, it isn’t clear whether Jet Airways will find a buyer to fly again, or if lenders will take it to a bankruptcy court. Over the weekend, local media reported Mukesh Ambani, Asia’s richest man, and salt-to-software conglomerate Tata Group are keen to pick up a stake or purchase Jet’s assets.

Shares of Jet Airways gained as much as 9.2 percent to 168.95 rupees in Mumbai and were trading at 167.35 rupees as of 11:06 a.m. local time. The shares plummeted 36 percent in the previous two trading sessions, after all flights were grounded last week.

Local carriers have been quick to take advantage of the situation. SpiceJet Ltd. plans to induct more than a dozen Boeing Co. 737 planes, offering flights on the routes previously operated by Jet Airways. Market leader IndiGo, operated by InterGlobe Aviation Ltd. has also added additional flights from New Delhi and Mumbai, the two busiest airports of the nation which hardly had any landing slots available when Jet Airways was operating.

Ambani, who controls Reliance Industries Ltd., may partner Abu Dhabi’s Etihad Airways PJSC to pick up a stake in Jet Airways, while also exploring a possible bailout of state-run Air India Ltd, the Indian Express newspaper reported over the weekend. Etihad, which already owns 24 percent of the Jet Airways, has put in an initial bid showing interest in purchasing a stake in the carrier, the newspaper said.

The Tata Group may jump into the fray if the sale process fails, and bankruptcy proceedings kick in, the Mint newspaper reported separately, citing two unidentified people. The government reached out to the group, which has a majority stake in two local airlines, last year to potentially bail out the airline but it did not materialize into a deal.

A Reliance spokesman declined to comment but said the company evaluates various opportunities on an ongoing basis. A Tata group representative also declined to comment.

With lessors taking over aircraft and slots going to rivals, the value of Jet Airways has eroded, said Mark Martin, founder of Dubai-based Martin Consulting.

“The lenders should have paid some money to lessors and urged them not to take over the aircraft while the sale process is on, and should have finalized a payment plan for past dues over the next 18 months, Martin said. “But they did not, and that’s really unfortunate.”

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