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RBI expected to hold key interest rate on Wednesday

by admin | May 25, 2021 | Banking, Economy, Markets, News

Mumbai : The Reserve Bank of India (RBI) is expected to keep its key interest rate unchanged at its penultimate monetary policy review of the fiscal on Wednesday owing to higher inflation in October and a surge in oil prices, even as the reversal in the decline of GDP growth during the second quarter has eased pressure on the central bank to cut rates.

At its previous bi-monthly policy review here in October, the RBI had maintained status quo on its repo, or short term lending rate for commercial banks, at six per cent, citing risks to inflation and uncertainties on the external and fiscal fronts.

The central bank had earlier, in August reduced the repo, or its repurchase rate by 0.25 percentage points to six per cent.

According to the minutes of October’s Monetary Policy Committee (MPC) meeting, Governor Urjit Patel said: “We have to be vigilant on account of uncertainties on the external and fiscal fronts; this calls for a cautious approach.”

Japanese financial services major Nomura said in a report that input cost pressures are marginally higher now, which along with higher food inflation is likely to push retail inflation slightly above the RBI’s target of four per cent in November and beyond.

“We expect a hawkish hold from the RBI..and policy rates to remain unchanged through 2018,” it said.

Data released in November showed that India’s annual rate of inflation based on wholesale prices (wholesale price index) rose to 3.59 per cent in October due to an exponential rise in food prices.

In addition, the consumer price index (CPI), or retail, inflation for October rose to 3.58 per cent from 3.28 per cent in September.

Domestic credit rating agency ICRA said the MPC would leave the repo rate unchanged at six per cent “in a non-unanimous decision in the December 2017 policy review, given the expectation of a further rise in the CPI inflation in the coming months”.

On the other hand in October, the central bank lowered the country’s growth projection for 2017-18, pegging the Gross Value Added (GVA) to 6.7 per cent, from earlier estimate of 7.3 per cent.

Declaring that inflation is expected to rise from the then-level of around 3.3 per cent “and range between 4.2-4.6 per cent in the second half of this year”, Patel said the MPC remains committed to keeping headline inflation close to four per cent “on a durable basis”.

Five members of the six-member MPC voted in favour of maintaining the key lending rate.

The MPC had expressed concern about the upside risks to inflation and that implementation of farm loan waivers by states may result in fiscal slippages resulting in upward pressure on prices.

“Although the domestic food price outlook remains largely stable, generalised momentum is building in prices of items excluding food, especially emanating from crude oil. The possibility of fiscal slippages may add to this momentum in the future,” it said.

Breaking a five-quarter slump, a rise in the manufacturing sector’s output pushed India’s growth rate higher to 6.3 per cent during the second quarter ending September, official data showed last week.

On a sequential basis, GDP growth for the second quarter went up to 6.3 per cent, from 5.7 per cent reported during the first quarter of 2017-18.

On the oil price front, the Indian basket, comprising 73 per cent sour-grade Dubai and Oman crudes, and the balance in sweet-grade Brent, regained the $60 a barrel level in November and closed trade on November 30 at $61.60.

—IANS

Gold rallies after US Fed leaves interest rate unchanged

by admin | May 25, 2021 | World

Chicago:(IANS) Gold futures on the COMEX division of the New York Mercantile Exchange settled sharply higher on Friday following the US central bank’s decision to keep interest rate unchanged a day earlier.

The most active gold contract for December delivery rose $20.8, or 1.86 percent, to settle at $1,137.8 per ounce, Xinhua reported.

After a two-day policy meeting, the US Federal Reserve announced late on Thursday to let its policy rate unchanged by keeping its benchmark short-term rate near zero, amid concerns about a weak global economy, low US inflation and recent turmoil financial markets.

The US dollar fell sharply following the Fed’s announcement, while gold reacted very positively.

Analysts note gold and the US dollar typically move in opposite directions, that means a weaker US dollar can be a positive for commodities including gold, which is priced in the US dollar because it makes them more expensive for non-dollar investors.

For the week, December gold saw a gain of more than 3 percent.

Among other metals, silver for December delivery rose 17.9 cents, or 1.19 percent, to close at $15.163 per ounce. Platinum for October delivery added $16, or 1.65 percent, to close at $984.4 per ounce.

US sees conditions for tightening monetary policy

by admin | May 25, 2021 | World

Washington:(IANS) Most US Federal Reserve officials believe conditions for tightening monetary policy were approaching but failed to give clear signals on the timing of the first interest rate hike in nearly nine years.

“Most (Fed officials) judged that the conditions for policy firming had not yet been achieved but they noted that conditions were approaching that point,” according to the minutes of the Fed’ s monetary policy meeting on July 28 and 29 which are published on Wednesday, Xinhua reported.

The minutes left mixed signals on whether the Fed officials decide to raise the interest rate on next monetary policy meeting in September or not. Many Fed officials, including the Fed chairwoman Janet Yellen, has repeated that it’s appropriate to raise the benchmark interest rate this year. Market investors widely see September or even later as the most likely time for a Fed rate increase.

Some officials worried that the current low inflation and the inflation outlook might not meet the central bank’s one of the conditions for initiating a policy tightening and a premature tightening could further put downward pressure on the inflation and economic activity.

The Fed considers price stability and full employment as its dual mandate in managing the monetary policy. The Fed’s preferred inflation gauge, the price index for personal consumption expenditures, has been below the central bank’s 2 percent objective for years.

However, some officials viewed the economic conditions for beginning to raise interest rate as having been met or were confident that they would be met shortly, as they believe that the stance of monetary policy was very accommodative and a delayed rate hike could overshoot the central bank’s inflation target and have adverse impact on financial stability.

“Members generally agreed that additional information on the outlook would be necessary before deciding to implement an increase in the target range,” said the minutes. The Fed has kept its benchmark short-term interest rate near zero since December 2008.