RBI keeps rates un­changed

Money Times - - Market Review - By Deven­dra A Singh

The Sen­sex de­clined 521.05 points to set­tle at 35673.25 while the Nifty closed at 10693.7 los­ing 183.05 points for the week that ended on Fri­day, 7 De­cem­ber 2018. The RBI in its fifth bi-monthly mon­e­tary pol­icy re­view for FY2018-19 kept the key in­ter­est rates un­changed. The Repo rate stands at 6.5% and the Re­verse Repo rate at 6.25%. Cash Re­serve Ra­tio (CRR) re­mained at 4%. “The time is ap­po­site to strengthen do­mes­tic macro-eco­nomic fun­da­men­tals. Even as in­fla­tion pro­jec­tions have been re­vised down­wards sig­nif­i­cantly and some of the risks pointed out in the last res­o­lu­tion have been mit­i­gated, es­pe­cially of crude oil prices, sev­eral un­cer­tain­ties still cloud the in­fla­tion out­look,” the RBI said in its state­ment.

It also said that it will be­gin to lower banks’ manda­tory bond hold­ing ra­tios by 25 bps each quar­ter from next quar­ter on­ward un­til it reaches 18% of de­posits. The RBI held In­dia’s eco­nomic growth forecast for FY2018-19 at 7.4%. It slashed in­fla­tion pro­jec­tion to 2.7-3.2% by March 2019 from its prior forecast of 3.9-4.5%. But it also fore­casts in­fla­tion to pick up again pro­ject­ing a rate of 3.8-4.2% in H1FY20 with risks tilted to the up­side.

On the macro-eco­nomic data, the Nikkei Man­u­fac­tur­ing Pur­chas­ing Man­agers’ In­dex

(PMI) com­piled by IHS Markit rose to 54 for Novem­ber 2018 from 53.1 in Oc­to­ber. Pollyanna De Lima, a Prin­ci­pal Econ­o­mist at IHS Markit, said “The rel­a­tively weak de­mand en­vi­ron­ment seen ear­lier in the year showed signs of abat­ing with clients un­fazed by an­other round of hike in out­put prices and plac­ing more or­ders re­gard­less.”

“Signs of ris­ing con­fi­dence in the up­turn were also pro­vided by the trend for em­ploy­ment, which con­tin­ued to grow at one of the quick­est rates seen in six years,” De Lima added.

Fitch re­tained its sovereign rat­ing for In­dia at BBB- (the low­est in­vest­ment grade with a sta­ble out­look). It said that a weak fis­cal po­si­tion con­tin­ues to con­strain the rat­ings and there were sig­nif­i­cant risks to the macro-eco­nomic out­look. The gov­ern­ment has been mak­ing a strong pitch to Fitch Rat­ings for an up­grade af­ter its ri­val Moody’s In­vestors Ser­vice in Novem­ber 2017 up­graded In­dia’s sovereign rat­ing for the first time since 2004. Fitch had last up­graded In­dia’s sovereign rat­ing from BB+ to BBB- with a sta­ble out­look on 1 Au­gust 2006. Fitch Rat­ings has af­firmed In­dia’s long-term for­eign-cur­rency is­suer de­fault rat­ing (IDR) at BBB- with a sta­ble out­look. “In­dia bal­ances a strong medium-term growth out­look and fa­vor­able ex­ter­nal bal­ances rel­a­tive to peers with weak fis­cal fi­nances a frag­ile fi­nan­cial sec­tor and some lag­ging struc­tural fac­tors. Risks to the macro-eco­nomic out­look are sig­nif­i­cant and in­clude a drop in credit growth re­sult­ing from fur­ther prob­lems in the bank­ing or shadow-bank­ing sec­tor. A weak fis­cal po­si­tion con­tin­ues to con­strain In­dia’s sovereign rat­ings,” its re­port said. The In­dian econ­omy con­tin­ues to ex­hibit some struc­tural weak­nesses com­pared to its peers and is less de­vel­oped on a num­ber of met­rics.

Fitch fur­ther said that while a re­duc­tion in gen­eral gov­ern­ment debt over the medium term and higher sus­tained in­vest­ment and growth rates with­out the creation of macro im­bal­ances could trig­ger a pos­i­tive rat­ing ac­tion, a rise in debt bur­den of the sovereign and loose macro-eco­nomic pol­icy set­tings that cause a re­turn of per­sis­tently high in­fla­tion and widen­ing Cur­rent Ac­count Deficits (CAD) could trig­ger the op­po­site rat­ing ac­tion. Fitch kept the real GDP growth in FY2018-19 at 7.2% due to down­side risks from tight­en­ing fi­nan­cial con­di­tions, weak fi­nan­cial-sec­tor bal­ance sheets and high in­ter­na­tional oil prices, higher fi­nanc­ing cost and re­duced credit avail­abil­ity. For FY2019-20 and FY2020-21, it fore­casts the coun­try’s GDP growth at 7% and 7.1% re­spec­tively. Fitch ex­pected CAD to widen to 3% in FY2018-19 and 3.1% in FY2019-20 from 1.9% in FY2017-18. Key in­dex edged higher on Mon­day, 3 De­cem­ber 2018, as the mar­kets reg­is­tered mod­est gains. The Sen­sex gained 46.7 points to close at 36241.

Key in­dex fell on Tues­day, 4 De­cem­ber 2018, on global cues. The Sen­sex was down 106.59 points to close at 36134.31. Key in­dex plunged on Wed­nes­day, 5 De­cem­ber 2018, on sell­ing. The Sen­sex lost 250 points to close at 35884.41. Key in­dex tum­bled on Thurs­day, 6 De­cem­ber 2018, as US-China trade war knocked the mar­ket sen­ti­ment. The Sen­sex was down 572.28 points to close at 35312.13.

Key in­dex set­tled higher on Fri­day, 7 De­cem­ber 2018, on fresh buy­ing of eq­ui­ties. The Sen­sex was up 361.12 points to close at 35673.25.

Na­tional and global macro-eco­nomic fig­ures and events will dic­tate the move­ment of the mar­kets and in­flu­ence in­vestor sen­ti­ment in the near fu­ture. On the Ru­pee sce­nario, mar­ket par­tic­i­pants will closely watch the In­dian ru­pee trend against the US Dol­lar, which is hov­er­ing around 71.

The gov­ern­ment is sched­uled to re­lease data based on whole­sale price in­dex (WPI) and com­bined con­sumer price indices (CPI) for ur­ban and ru­ral In­dia for Novem­ber 2018 by mid-De­cem­ber 2018.

On the global front, United States and other Euro-na­tions’ macro-eco­nomic data for Novem­ber 2018 is sched­uled to be re­leased this week. China’s macro-eco­nomic data for Novem­ber 2018 will be re­leased in the next few weeks.

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