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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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Business

RBI needs to ensure stability: Shaktikanta Das

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New Delhi: The head of the Reserve Bank of India (RBI) said he would take the steps necessary to maintain financial stability in the country and help create favourable conditions for growth.

India’s economy has grown because of measures such as the nationwide goods and services tax and the insolvency and bankruptcy code that prevents wilful defaulters from bidding for stressed assets, Shaktikanta Das said in his address to an investor roundtable.

The country’s growth story is backed by its strong domestic fundamentals, he said, citing lower inflation.

 

Annual retail inflation rate dropped to an 18-month low of 2.19 per cent in December, strengthening the views of some economists that the central bank could ease monetary policy next month.

India’s top business groups on Thursday urged the central bank to cut its benchmark interest rate by at least half a percentage point and lower the cash reserve ratio it imposes on banks.

The country also needs to watch out for any sudden turbulence in the gloal financial market, Das said.

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Centre removes two PNB executive directors for lapses in Rs 13,500-cr fraud

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Chennai:The Central government has removed two Punjab National Bank (PNB) Executive Directors — Sanjiv Sharan and K.Veera Brahmaji Rao — for the lapses in the Rs 13,500 crore fraud allegedly perpetrated by absconding diamantaire Nirav Modi.

The PNB has intimated the action to the stock exchanges.

“We welcome the Central government’s action to dismiss the two Executive Directors. The scam of such proportions could not have happened without the knowledge of the top management,” C.H. Venkatachalam, General Secretary, All India Bank Employees’ Association (AIBEA), told IANS.

 

“Perhaps for the first time, the Centra has removed the Executive Directors of a nationalised bank under the Nationalised Banks (Management and Miscellaneous Provision) Scheme, 1970. All these days it was said the top management of government-owned banks — Chairman, Managing Director, Executive Directors — are governed only by the contract of appointment.

“It is also good that the central government has followed the due process of giving the two PNB Executive Directors opportunity to put forth their views before dismissing them,” Venkatachalam added.

According to the Central government’s notification, on July 3, 2018, Sharan and Rao were issued a show cause notice as to why they could not be removed from office for having failed to exercise proper control over the functioning of PNB, thus enabling the fraud through the misuse of SWIFT at the bank’s Brady House branch in Mumbai.

After considering Sharan and Rao’s replies and the comments of the bank’s Board, the Centre removed them from office as it found it was expedient in the interests of PNB.

According to the notification, the dismissal of Rao is subject to the outcome of a plea in the Delhi High Court.

“We are happy to see some action being taken. Whether it is only the two Executive Directors and other officials are also involved in the scam has to be probed in full,” Venkatachalam said.

According to him, in the past, low-level officers would have been the scapegoats for such massive scams.

“With the action taken on the top management, people will be satisfied that public sector bank officials are answerable for their lapses,” Venkatachalam added.

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In this new world, data is the new wealth: Ambani

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Mumbai: Reliance Industries chairman and managing director Mukesh Ambani urged Prime Minister Narendra Modi to take steps against ‘data colonisation’, specially by global corporations, stating that Indian data must be owned by Indians.

Invoking Mahatma Gandhi’s movement against political colonisation, Ambani said India now needs a new movement against data colonisation.

“Gandhiji led India’s movement against political colonisation. Today, we have to collectively launch a new movement against data colonisation,” he said Gandhinagar at the Vibrant Gujarat Global Summit.

 

Stressing that, in this new world, data is the new wealth, Ambani said, “India’s data must be controlled and owned by Indian people and not by corporate, especially global corporations.”

He further said, “For India to succeed in this data driven revolution, we will have to migrate the control and ownership of Indian data back to India. In other words, give Indian wealth back to every Indian.”

Stating that the “entire world has come to recognise” Modi “as a man of action”, Ambani said, “Honorable Prime Minister, am sure you will make this one of the principal goals of your digital India mission.”

Later in the day, countering Ambani’s call, Governor – Commonwealth of Kentucky, Matthew Griswold, asked Modi “to think in the opposite” in order to realise the tremendous opportunity that lies in Indo-US partnership.

“Honorable prime minister you have been asked from this stage to think about limiting the amount of competition, limiting the exchange of ideas, information and goods. I would encourage you to think in the opposite,” he said.

While stating that it is important to put the people of India first, Griswold said, “It is also important to put their opportunity and our opportunity as citizens of the world to trade with one another and exchange ideas because iron sharpens iron.”

The greatest possibility comes from the exchange of these idea, he added.

“If we can cut the regulations, cut the bureaucracy, cut the red tape, the opportunity is enormous between our nations,” he added that India is now the 10th largest trading partner for the US and “climbing quickly”.

“The opportunity before us between India and the United States is incredible, but responsibility falls on each of one us, those of us in elected positions, those of you in the industry, those of you who represent various constituencies, we have much work to do…we must do this, ” Griswold said.

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