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Track core inflation to predict RBI’s next move on interest rates

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Mumbai :Investors wrong-footed by the hawkish Reserve Bank of India (RBI) monetary policy meeting minutes might rather want to train their sights on underlying trends in inflation than the volatile headline number, analysts say.
The RBI, which Bloomberg economists Tom Orlik and Justin Jimenez rate among the top 3 central banks that surprise the most, has a mandate to keep headline inflation around 4% in the medium term. But commentary from members of RBI’s rate-setting panel show they are more focused on core inflation — the gauge that strips out volatile food and fuel components.
Globally, focus on core inflation is par for course. But in India’s context, it’s the headline inflation that matters, at least until now.
According to the minutes of the April 4-5 meeting released last week, Deputy Governor Viral Acharya said the headline inflation was being influenced by volatile vegetable prices, which according to him wasn’t amenable to monetary policy actions. His panel colleague, Michael Patra, a noted hawk and head of the RBI’s research department, sought an increase in the repurchase rate, citing the stubborn rise in core inflation to above 5%.
“This volatility is largely ‘noise’ from an interest-rate setting perspective,” said Acharya, who heads the the monetary policy department. What concerns him more is inflation — minus food and fuel — which “one can consider as the ‘signal’ given its persistence.”
The stubborn nature of this inflation gauge along with an optimistic outlook for growth and demand meant Acharya would vote for withdrawal of accommodation in the June policy meeting — news that sent bond yields soaring. That was a far cry from early April, when bond investors interpreted RBI’s lowering of near-term inflation projections as a signal that interest rates would remain on hold for sometime.
“India’s volatile food prices can often obscure the underlying inflationary trends,” said Priyanka Kishore, lead Asia economist at Oxford Economics in Singapore, adding that investors would do better to keep an eye on the consumer price index excluding food, fuel and motor fuels, which is rising.
At the April policy meet, Governor Urjit Patel lowered inflation projections. The RBI is forecasting inflation for April to September at 4.7-5.1%, slower than 5.1-5.6% made only two months back. It expects the second half inflation to ease to 4.4%, having earlier estimated it at 4.5-4.6%.
India’s annual headline inflation slowed for a third straight month in March to 4.28% from 4.44% in February. That masked an upward climb in core inflation making some policy makers uneasy.
With the current easing in inflation likely to prove temporary, the tone of the minutes show the debate is veering toward a possible rate increase — something that economists may need to factor in.
The central bank will probably hold the benchmark repurchase rate at 6% through 2018, according to the median of forecasts by economists surveyed by Bloomberg. They see rates increasing in the second-quarter of next year.
“The debate within the MPC has shifted from ‘hold versus cut’ to ‘hold versus raise’ even though the RBI has cut its near-term inflation forecast,” said Rohan Chinchwadkar, assistant professor of finance at the Indian Institute of Management at Tiruchirappalli in southern India. “One reason is the worry that high core inflation will translate to the headline since low food inflation may not sustain.”


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RBI asks banks to grout ATMs to wall, floor for security by September-end

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Mumbai: The Reserve Bank asked banks to ensure their ATMs are grouted to a wall, pillar, or floor by September-end, except those installed in high secured premises such as airports, to enhance security of the cash vending machines.

In 2016, the RBI had st up a Committee on Currency Movement (CCM) to review the entire gamut of security of treasure in transit.

Based on the recommendations of the panel, the central bank has now issued instructions aimed at mitigating risks in ATM operations and enhancing security.

 

As part of the security measures, all “ATMs shall be operated for cash replenishment only with digital One Time Combination (OTC) locks”.

Also, “All ATMs shall be grouted to a structure (wall, pillar, floor, etc.) by September 30, 2019, except for ATMs installed in highly secured premises such as airports, etc. which have adequate CCTV coverage and are guarded by state/central security personnel”.

Further, banks may also consider rolling out a comprehensive e-surveillance mechanism at the ATMs to ensure timely alerts and quick response, it said.

The new measures to be adopted by banks are in addition to the existing instructions, practices and guidance issued by the RBI and law enforcement agencies.

The RBI also warned the banks that non-adherence of timelines or non-observance of the instructions would attract regulatory action including levy of penalty.

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SBI refuses to disclose communication from RBI, govt on electoral bonds

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New Delhi: The State Bank of India has refused to disclose any communication it received from the government or the Reserve Bank of India on electoral bonds, terming it “personal information” and held in “fiduciary capacity”.

Responding to an RTI filed by Pune-based activist Vihar Durve who had demanded copies of all letters, correspondence, directions, notifications or e-mails received from the RBI or any government department between 2017 and 2019, the SBI said it cannot be provided by it.

The bank cited two exemption clauses under the RTI Act to deny information — Section 8(1)(e) which pertains to information held in fiduciary capacity and Section 8(1)(J) which pertains to personal information of a person which has no link to any public activity.

 

“Information sought by the applicant cannot be disclosed as it is in fiduciary capacity, disclosure of which is exempted under Section 8(1)(e) and 8(1)(j) of the RTI Act, 2005,” the Central Public Information Officer of the bank said in his reply.

The bank also refused to give any details of action taken by it on such communications from the RBI and the government.

The electoral bonds, for giving donations to political parties, are being sold through SBI only. The sale opens in SBI branches when the Finance Ministry issues a notification of their sale for a given period.

The scheme of electoral bonds notified by the Centre in 2018 has been challenged in the Supreme Court.

Only the political parties registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951) and which secured not less than one per cent of the votes polled in the last general election to the House of the People or the Legislative Assembly of the State, shall be eligible to receive the bonds.

The bonds may be purchased by a person who is a citizen of India “or incorporated or established in India,” the government had said in a statement last year.

The bonds remain valid for 15 days and can be encashed by an eligible political party only through an account with the authorised bank within that period only.

A voluntary group working in the field of electoral reforms, Association for Democratic Reforms (ADR), has demanded a stay on the sale while the CPI(M) has challenged it before the Supreme Court in separate petitions.

ADR recently filed an application in the Supreme Court seeking a stay on the Electoral Bond Scheme, 2018 which was notified by the Centre in January last year.

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Walmart’s Flipkart, Indian startup GOQii settle dispute over sharp discounting

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New Delhi: Walmart unit Flipkart has settled a legal dispute with an Indian startup that alleged it suffered losses because its products were sharply discounted on the global retailer’s website.

GOQii, a seller of smartwatch-type health devices, sued Flipkart last month in a Mumbai court, alleging its devices were discounted by around 70 per cent to the retail price, much more than the two sides had agreed. The court had, as an interim measure, ordered device sales to be halted on Flipkart.

In a joint statement , the companies said the dispute had been resolved and GOQii health devices would again be available on Flipkart. They didn’t say how the settlement was reached.

 

Vishal Gondal, CEO of GOQii, told Reuters the company would withdraw the case against Flipkart. The e-commerce retailer’s “team worked on a resolution benefitting the brand and the customers”, Gondal said in the statement.

The legal spat was seen as a test case of the giant retailer’s operating strategy in the country.

Small traders and a right-wing group close to Prime Minister Narendra Modi’s ruling party have raised concerns about large e-commerce companies, saying they burn billions of dollars deeply discounting some products to lure customers onto their sites, in the expectation that they will also buy other goods.

GOQii said it signed an agreement last year with a Flipkart unit to sell two of its devices at a price not below 1,999 rupees (USD 28.63) and 1,499 rupees. It later found the devices were being sold for 999 rupees and 699 rupees, calling it “unauthorized” discounting.

In response, Flipkart said it reserved “the right to institute actions for defamation, both civil and criminal”, arguing it wasn’t responsible for any discounts which are determined by third-party firms which sell via its website.

The two companies struck a friendlier tone in their joint-statement on Friday as they brought the legal battle to an end.

“We have ensured constant engagement with GOQii to resolve any differences,” Flipkart said in the statement.

With a 19 per cent market share, GOQii was the second-biggest player in India’s so-called wearables market last year, data from industry tracker IDC showed. The market is dominated by China’s Xiaomi, with Samsung a small player.

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