RBI Leaves Rates Unchanged, Raises GDP Projection To 7%
The Reserve Bank of India's Monetary Policy Committee (RBI MPC) kept the repo rate unchanged at 6.5 per cent for the fifth time in a row on Friday. In its bi-annual policy announcement, RBI Governor Shaktikanta Das said the decision was unanimous
Our Top Reports For Today
- (00:00) Stories Of The Day
- (01:23) Nifty powers ahead of 21,000, Sensex close to 70,000.
- (02:48) RBI leaves rates unchanged, raises GDP projection to 7%.
- (16:57) China sees biggest institutional investor outflow since 2001.
- (19:41) Apple hits the gas pedal on India production again.
- (20:58) Onion exports curtailed, wheat reserves fall.
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
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If you were expecting interest rates to be cut, well, you will have to wait.
The Reserve Bank of India (RBI) held key rates for a fifth consecutive time even as it raised its growth forecast for fiscal 2023-2024.
The RBI Monetary Policy Committee kept the repo rate unchanged at 6.5 per cent and also maintained the FY24 inflation forecast unchanged at 5.4 per cent. It, however, raised the GDP forecast for FY24 to 7 per cent from the earlier 6.5%.
This figure is a little at variance with what most economists are saying.
But back on interest rates, the RBI appears to be waiting to see what direction the rest of the world takes.
More on the RBI shortly.
But the markets, still riding on the political continuity factor, took it all in good spirit.
The NSE Nifty 50 zoomed past the 21,000-mark, to hit a high of 21,006 before ending 68 points up at 20,969. The Nifty has already gained 3.5% this week and is on course to post its longest weekly winning streak in 3 years.
The BSE Sensex inched towards 70,000 today, a new all-time high at 69,894 before closing 304 points higher at 69,825.
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The Reserve Bank of India's Monetary Policy Committee (RBI MPC) kept the repo rate unchanged at 6.5 per cent for the fifth time in a row on Friday. In its bi-annual policy announcement, RBI Governor Shaktikanta Das said the decision was unanimous.
Das did caution that the near-term forecast remains uncertain owing to food inflation, which may lead to an uptick in headline inflation figures in November and December.
Food inflation seems to rear its head more than periodically and usually has the Government scrambling to impose export controls as it did with onion just now whose prices are up some 58% in a month.
Tomato prices are up sharply too by the way.
The RBI has now raised the repo rate by a total of 250 basis points (bps) between May 2022 and February 2023 in a bid to cool surging inflation, which dropped to a four-month low of 4.87 per cent in October this year.
On inflation, the monetary policy committee kept the forecast unchanged. In FY24, India's retail inflation forecast has been kept at 5.4 per cent. In Q3FY25, the inflation forecast was kept at 5.6 per cent and 5.2 per cent in Q4FY24.
To get a sense on how the street received the RBI policy, I reached out to Vivek Kumar, economist at Mumbai-based Quant Eco Research and began by asking him why rates were not coming down yet.
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Meanwhile, there is a bit of a runaway consumption boom which the Reserve Bank has to its credit woken up reasonably early to.
This consumption boom which of course helps the economy and all the projections we make in it has been fuelled to or a good part by small loans and run into hundreds of thousands of crores.
The fintech-greased and fuelled personal loan frenzy has seen the RBI wave red flags in a series of warnings, almost like a railway conductor on a platform trying to warn an engine driver that the train is going too fast and will crash.
The RBI has cautioned several times and also raised risk weightages on such loans, which include credit cards.
Meanwhile, Reuters is reporting that top Indian banks and non-bank lenders have asked their fintech partners to curtail issuing tiny personal loans, weeks after the central bank clamped down on the fast-growing business.
One such fintech, Paytm, said it would go slow on sub-50,000-rupee-loans (about $600), it said Wednesday, the first to announce such a move since the Reserve Bank of India (RBI), last month, told banks to set aside more capital to cover personal loans and lending by NBFCs on concerns that soaring demand could lead to higher risk.
The move would have appeared like a preemptive move of genius except that the markets got the drift and hammered the stock 20% in two days.
The language actually is quite shocking if you ask me.
"While we don't intend to completely cut back funding to fintech partners at this point, we have expressed our discomfort towards them going big on small ticket personal loans," said another banker with a private sector bank.
Reading between the lines, this banker seems to be saying they want to almost have nothing to do with fintechs who of course provide the grease and ease for small loans.
The RBI also appears to be and quite rightly focussing as much on the social side of the problem of unbridled borrowing , mostly and presumably by young people.
Reuters reported in a separate and insightful article in October written by Ira Dugal that delinquencies for loans under 50,000 rupees were at 8.1% as of June 2023, data from credit bureau CRIF Highmark shows. This is well above the 1.4% bad loan ratio for all retail loans as of March 2023, according to the latest RBI data.
The total value of loans below 10,000 rupees grew 37% in the financial year ending March 31, 2023, while loans of 10,000-50,000 rupees rose 48%, according to CRIF data.
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And Now, India Energy Week Segment...
Oil continues to TRADE WEAK
Oil is still stuttering on the way down to hold near a five-month low as concerns about excess supplies continued.
West Texas Intermediate closed near $69 a barrel, or a 11% drop over six sessions, the longest run of daily losses since February while Brent settled around $74, the lowest since June, Bloomberg reported.
Traders have been expecting high crude exports from the US and other non-OPEC producers, adding to greater volumes of lighter barrels across the globe.
Which in turn has negated the effect of a decision by producers in the OPEC+ group to curb output into 2024.
We have been discussing in The Core about how continuous threats by the OPEC countries to cut supplies are not impacting prices, at least so far and almost seem to be having the opposite effect.
One reason being that demand projections continue to be weak.
Meanwhile Reuters pointed out that oil benchmarks were headed for a seventh straight weekly decline on worries over a global supply surplus and weak Chinese demand, although prices recovered ground on Friday after Saudi Arabia and Russia called for more OPEC members to join output cuts.
Speaking of demand, India’s overall fuel demand dropped 2% year-on-year in November, driven by a 3% decline in diesel sales, the ET reported quoting petroleum ministry data.
Petrol and jet fuel sales, however, grew around 10% in November over the same period last year, aided by increased leisure travel in the festive season.
Strong vehicle sales also contributed to petrol sales, which accounts for 17% of the country’s overall refined products sales volume.
But sales of diesel, which powers the economy in a manner of speaking and makes up 40% of the overall volumes, contracted in November after rising by 6.6% in the April-October period.
The China Syndrome
The amount of money that institutional investors have in Chinese stocks and bonds has declined by more than $31 billion this year, through October, the biggest net outflow since China joined the World Trade Organization in 2001, official Chinese data show, the WSJ is reporting.
Interestingly, hedge funds, including Bridgewater Associates, whose founder Ray Dalio has long been a China bull, have significantly reduced their holdings of Chinese securities.
Private-equity firms, including Carlyle have slashed fundraising targets for their Asia funds or stopped raising China-oriented funds altogether.
Moreover, mutual-fund managers such as Vanguard and Van Eck Associates have either pulled out or aborted their China plans.
Over the past decade, private-equity funds targeting China have raised an average of nearly $100 billion each year.
So far this year, they have raised a meagre $4.35 billion, according to data firm Preqin.
Bitcoin No Coin
Sticking with institutional investors and one major one who also made a highly publicised visit to India recently, JPMorgan Chase CEO Jamie Dimon has trashed bitcoin and its peers, suggesting in remarks on Wednesday that cryptocurrencies should be banned.
“I’ve always been deeply opposed to crypto, bitcoin, etc.,” the head of the largest U.S. bank by assets said under questioning from Sen. Elizabeth Warren, during a Senate Banking Committee hearing. “The only true use case for it is criminals, drug traffickers … money laundering, tax avoidance.”
“If I was the government, I’d close it down,” he added.
The remarks form part of the latest set of attacks from Dimon against cryptocurrencies, though his bank is heavily involved in blockchain, the enabling technology for the $1.6 trillion industry.
In previous statements, Dimon has called bitcoin “a hyped-up fraud,” a comment he later walked back. He had also likened it to a “pet rock.”
Dimon and several other CEOs of large banks brought before the committee as part of a routine hearing on the industry, agreed that crypto companies should face the same anti-money-laundering regulations as the major financial institutions, CNBC reported.
Whether or not JPMorgan has walked forward and backward on bitcoin as its and Jamie Dimon’s critics point out, the fact is that on this instrument, if one were to call it that, he would find ready supporters and sympathisers in India’s own regulators, including the Reserve Bank of India which has thrown up its hands on more than one occasion.
Apple Expands
Apple and its suppliers aim to build more than 50 million iPhones in India annually within the next two to three years, which could make India account for a quarter of global iPhone production, Reuters is reporting.
China will remain the largest iPhone producer.
Apple and its suppliers, led by Taiwan-based Foxconn Technology Group, generally believe the initial push into India has gone well and are laying the groundwork for a bigger expansion, say people involved in the supply chain.
The first phase of a Foxconn plant spread over 300 acres is under construction near Bangalore’s airport in Karnataka and is expected to start operating in April.
The plant aims to make 20 million mobile handsets annually, mainly iPhones, within the next two to three years, said people with direct knowledge of the construction plans.
Global iPhone shipments last year totaled more than 220 million, according to research firm Counterpoint, a number that has remained steady in recent years.
Another iPhone-producing megaplant is on Foxconn’s drawing board with capacity similar to the one in Karnataka.
Foxconn said last month it was investing the equivalent of more than $1.5 billion in the country.
Onions
Onions have joined the list of India’s list of foods facing export restrictions, as the government tries to stabilise runaway domestic prices ahead of a national election next year.
Overseas shipments of onions will be banned until March 31, although cargoes of vegetables that started loading prior to the notification can still be exported, the government said Friday, reported Bloomberg.
The onion ban comes a day after India restricted the use of sugar cane juice to produce biofuels, a move aimed at expanding its reserves of the sweetener.
The move follows curbs on wheat and rice.
The ethanol ban will also affect the Government’s own ethanol fuel-blending target, 15% this year, compared to 12% last year and 20% in 6 years..
Out of the total ethanol production, around 28 percent is from sugarcane juice, which also fetches maximum price for the sugar mills, at Rs 65.61 per litre.
The move could affect earnings of the sugar mills with stock prices already having fallen after the decision.
Over 50 percent of the ethanol comes from the sugar by-product B-heavy molasses, which the government has not banned.
Meanwhile, staying with food and related, Reuters is reporting that India's wheat inventories at state warehouses have dropped to 19 million metric tons, the lowest in seven years.
Two years of falling production has forced state-run agencies to sell more grain to private players.
India, the world's second-biggest wheat producer, banned exports last year.
