RBI keeps rates unchanged
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.