cogitoergosum
2010-05-02 09:56:57 UTC
It's the Economy, Stupid: Sid Harth
http://bakulaji.typepad.com/blog/its-the-economy-stupid-sid-harth.html
ICICI Bank: Where's The Growth Story?
by: Naveen Selvaraj May 02, 2010 |
about: HDB / IBN
Naveen Selvaraj 118
Visit: Gridstone Research http://www.gridstoneresearch.com/
ICICI Bank (NYSE:IBN) was often showcased as the poster boy of the
Indian economy's supercharged growth in the 2003-08 period. While the
Indian economy growth story is back on track after a one-year hiatus,
it's probably going to take a little longer for ICICI Bank.
In the recently concluded 2010 fiscal year (March 2010), the Bank's
total unconsolidated income (excluding insurance and other
subsidiaries) declined ~12% to INR 332 billion. The decline in
interest income (~20%) was the main factor behind the income decline.
ICICI had focused on reducing its retail and unsecured lending book
and that is reflected in the ~20% decline in customer advances to INR
1.8 trillion (~$ 40 B at current exchange rates). Lower interest rates
coupled with a reduction in the loan book led to the decline in
interest income. However, operating profit increased by ~10% to INR 97
billion, thanks to the cost-control measures undertaken, and that
reflected in the 10% increase in net profits.
Peers Are Leaving ICICI Behind
The problem with these numbers is that they pale in comparison with
peers. HDFC Bank (NYSE:HDB), its closest private-sector-banking rival,
has had flattish interest income between 2009 and 2010 fiscals, but
its net interest margin (NIM) is ~3.4% against ICICI Bank's 2.5%.
While ICICI shrunk its customer loan book, HDFC had a whopping 25%
increase in customer advances and also maintained its lead on the NIM
front. The point to note is that the loan book growth in 2009 has been
despite more conservative lending norms followed in 2009 compared to
the more growth-focused lending in the 2005-08 period. Clearly as NPAs
hit the loan book, ICICI Bank hit the brakes on loan growth while HDFC
has filled the vacuum.
With advances totaling INR 1.2 trillion, HDFC is still much smaller
than ICICI Bank but it could well challenge ICICI in the years ahead
despite its 'conservative growth' focus. If, despite its conservatism,
HDFC can grow its loan book 25% and its NIM is industry-leading,
clearly it's doing things right.
Further on the NPA front, HDFC has a net NPA ratio of 0.6% while ICICI
has a net NPA ratio of 1.9% and that speaks of the difference is asset
quality between the two firms. All this means that ICICI will be more
cautious in growing its retail loan book (where it had the maximum
issues). HDFC has had no such problems,
Quality Of Loan Book - What The Numbers Will Not Tell
But what these numbers will not tell is what's been the quality of the
advances that have been added in 2009 and early 2010. While the
reduction in NPAs do indicate that overall quality of the loan book
has improved, there are other important qualitative factors that need
to be considered :
For ICICI, home loans constitute 60% of the retail loan book, which in
turn constitutes 43% of the total loan book. ICICI was reducing its
exposure to this market at a time when home affordability was its best
(in 2009) in the last 3-4 years in terms of the home value/consumer
income ratio.
Asset prices have India, especially homes, have started to increase
irrationally again in 2010 and so ICICI might find it difficult to
grow its loan book with the more conservative lending norms that it
has in place now.
HDFC and other public-sector banks have reaped the benefit of ICICI's
lack of aggression in 2009 in the retail segment
While India's central bank has fixed a 20% credit growth target for
fiscal 2011, the huge liquidity available in the system suggests that
there could be stiff competition among banks that go after credit
growth.
Despite consumer inflation being in double digits persistently, it
looks unlikely that it will cool off in the months ahead. This might
naturally lead to a increase in interest rates and reserve ratios, and
credit growth might be affected with the double whammy of increasing
interest rates and higher asset prices
Competition Has Caught Up And ICICI Needs to Forge Ahead
In summary, ICICI might have well missed an opportunity to increase
its dominant position in the retail lending landscape in India. While
prudent lending norms are definitely needed, it doesn't mean that
growth should be curtailed, as HDFC has shown over the last year. If
ICICI lags behind other Indian bank peers in advances growth in fiscal
2011, one poster boy of the Indian growth story will be replaced by
many other worthy contenders. ICICI is still perceived as a growth
story, and we do hope it stays that way.
Disclosure: Long IBN
http://seekingalpha.com/article/202197-icici-bank-where-s-the-growth-story
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India weighs capital controls with rupee on rise
By Penny MacRae (AFP) – 6 hours ago
NEW DELHI — India's government is weighing capital controls with the
rupee on the rise amid fears of "hot money" flowing into the country
as investors pile back into Indian assets.
Unlike fellow emerging market giant China, India allows its currency
to float freely and the central bank has warned of the dangers of
"sharp and volatile" exchange rate movements that could hurt India's
economy.
With the rupee riding at 18-month highs against the dollar, one idea
Reserve Bank of India Governor Duvvuri Subbarao is airing to curb
sudden big movements in the currency's value is a tax on foreign
exchange transactions, known as a Tobin tax, similar to one Brazil
introduced last year.
"Depending on what flows come in, we would employ measures, including
if necessary something like the Tobin tax," Subbarao said last week,
referring to a proposal first aired in the 1970s by Yale economics
professor James Tobin.
"We prefer long-term flows to short-term flows," he told a Washington
audience Monday in a speech posted on the bank's web site.
Tobin, a Nobel laureate for his work on financial markets, proposed a
small levy on every sum changed from one currency into another to curb
short-term speculation, stabilise currency markets and encourage long-
term investment.
Portfolio flows into India from foreign countries between April and
December 2009 nearly equalled the total from 2000 to 2005, driving up
demand for the rupee and causing it to strengthen against other
currencies.
A further surge in capital inflows "could force (Indian) policymakers
to resort to more active means, a la Brazil," noted economist Hemant
Mishra at Standard Chartered Bank in a recent commentary.
The currency has risen five percent against the dollar since the start
of the year to trade at around 44.36 rupees per dollar Friday,
following a record low in October 2008.
The rise has been similar against the yen in 2010 and more impressive
against European currencies. The rupee is up close to nine percent
against the pound and 11 percent against the euro.
Analysts say the Indian currency could be trading below 44 rupees to
the dollar by June.
But India knows all too well what can happen when foreign investors'
ardour for its assets wanes.
As the credit crisis spread across the globe in 2008 and risk appetite
evaporated, the rupee slid by 27 percent to breach the 50-rupee level
to the dollar in the space of months as foreign investors stampeded
for the exits.
India is in desperate need of investment to update its dilapidated
roads, ports and other infrastructure, but speculative capital flows
can be destabilising, resulting in sharp movements in asset prices,
economists say.
Along with strong economic growth -- officially forecast to reach 8.75
percent this financial year -- foreign investors have also been lured
by interest rates that are on their way up as the Indian central bank
seeks to clamp down on inflation.
Although the currency has yet to regain all its previous strength --
it hit a 10-year peak of 39.4 rupees to the dollar in early 2008 --
the Reserve Bank is under pressure from exporters to stem its
appreciation.
The government must also weigh the fact that as a higher rupee hits
exporters, it helps dampen inflation running at a 17-month peak of 9.9
percent by making imports cheaper, economists say.
Exports only account for around 15 percent of the gross domestic
product of India's still inward-looking economy.
"Inflation concerns trump exporters' complaints about competitiveness"
with the central bank, said Moody.com economist Nikhilesh
Bhattacharyya.
"Taking measures to depress the rupee at the current juncture would
add to imported inflation pressures when consumer prices are rising at
some of the fastest rates in a decade," Bhattacharyya said.
Instead of trying to depress the rupee, the central bank "appears to
favour actions to discourage short-term capital flows, which have fed
into asset price inflation across Asia," Bhattacharyya added.
Copyright © 2010 AFP. All rights reserved.
India's government is weighing capital controls with the rupee on the
rise amid fears of "hot money"
http://www.google.com/hostednews/afp/article/ALeqM5hHrvLGjGZcw5VYKCEQLKHW0BLuGw
India: India’s inflation hits 9.9 per cent, faster than economic
growth
India’s economy is growing fast, but inflation is growing even faster.
For the governor of the Reserve Bank of India, India is avoiding the
path adopted by China and other Asian nations, following instead its
own monetary and financial policy.
Wednesday, April 28, 2010By Asia News
Article Tools
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New Delhi – Reserve Bank of India Governor Duvvuri Subbarao said
faster inflation is a “big worry” for the economy. For this reason,
the central bank plans to remove monetary stimulus in a gradual manner
to ensure sustained growth. He made the point during a speech he
delivered yesterday at the Peterson Institute for International
Economics in Washington.
In March, India’s benchmark wholesale-price inflation shot up to a 17-
month high of 9.9 per cent. Consumer prices paid by industrial workers
surged 14.9 per cent in February from a year earlier.
Food-price inflation has hovered above 15 per cent since November,
ostensibly because of bad monsoon rains last year and lower
agricultural output. Some observers have suggested however that the
high rate is due to speculation and poor infrastructure (roads and
ports), which makes it harder to deliver products, especially
perishable food.
Government fiscal and monetary measures have helped the economy, but
private consumption and investment have not fully recovered to pre-
crisis levels, Subbarao said.
The governor defended the Reserve Bank’s monetary policy. Unlike
central banks from Malaysia to China, which have raised interest rates
or taken steps to remove excess cash from their banking systems to
fend off inflation and asset-bubble risks, India has kept interest
rates low enough not to dampen economic recovery.
The Indian economy probably expanded by as much as 7.5 per cent in the
fiscal year that ended on 31 March, and may grow 8 per cent in the
current year, Subbarao said.
Still since prices have grown faster in recent months, inflation
remains a big worry.
“Supply- side inflation pressures are abating only gradually;
meanwhile, demand-side pressures are building up,” Subbarao noted.
Source: Asia News
http://www.speroforum.com/site/article.asp?id=31766&t=India%3A+++India%92s+inflation+hits+9.9+per+cent%2C+faster+than+economic+growth
RBI Chief: India's Economy To Grow Better Than Expected, Inflation Big
Worry
4/27/2010 5:45 AM ET
(RTTNews) - India's economic growth this year would be slightly
faster than expected, while higher inflation is a big worry, Reserve
Bank of India Governor Duvvuri Subbarao said Monday. The economy is
expected to grow 7.2% during the fiscal 2009-10.
Speaking at the Peterson Institute for International Economics think
tank in Washington, Subbarao said India's capacity utilization is near
high and private sector activity is increasing. "The potential for
growth in double digits is there," the central bank chief said.
He noted that rising food and asset prices escalates inflationary
pressures in the country. "The big worry is inflation," Subbarao said.
"Supply- side inflation pressures are abating only gradually;
meanwhile, demand-side pressures are building up."
On exit measures, Subbarao said the RBI plans to withdraw monetary
stimulus gradually to ensure sustained growth.
"We have begun the process of exit from the expansionary stances of
the crisis period," he said adding that a calibrated effort is
necessary while exiting emergency measures given the fact that private
consumption and investment are yet recover fully.
Last week, the RBI raised its key interest rates for the second time
in a month in order to contain soaring inflation and demanded bankers
to set aside more funds as reserves.
The central bank raised the repurchase rate and reverse repurchase
rate by 25 basis points to 5.25% and 3.75% respectively. The central
bank also lifted the cash reserve ratio to 6% from 5.75%.
by RTT Staff Writer
For comments and feedback: contact ***@rttnews.com
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Eagle's Eye: Monetary policy 2010-11: An academic assessment
Category » Editorial
Posted On Wednesday, April 28, 2010
The prevailing trend of the farmers going to Commission Agent for all
practical purposes can be minimized if not stopped completely by
simplification of the institutionalized set up of financial
institutions (Narrow Banking plus Universal Banking): MM Goel
The wait and watch strategy of the Reserve Bank of India (RBI) in its
Monetary Policy 2010-11 announced by its Governor Dr D Subbarao
recently is not in good taste and gives wrong signals to the
performing sectors of the Indian economy.
Monetary policy 2010-11 was expected to play a very crucial role for
choosing right perspectives for the growth of Indian Economy of hope
with panic and FEAR (False Evidences Appearing Real) of the so-called
global financial crisis. As RBI follows contextual objective and
inflation is posing biggest problem in present context, tackling and
controlling it should be the top priority and for that matter it
should have increased more than the increased CRR (6 %), SLR (25 %),
Repo (5.25%) and Reverse Repo (3.755) rate more importantly required
as in the coming time exchange rate appreciation may also need RBI's
attention which can further aggravate inflation. The gap between repo
rate and reverse repo rate is not understandable in the relationship
management language of the RBI and other Banks (both narrow banking
plus universal banking) and needs to be reduced for harmonization and
healthy economic relationship of RBI with commercial Banks.
The RBI approach for cooling inflation is lip service in the false
hope of good rabi crop and normal monsoons and may prove risky for the
middle class of the Indian economy. RBI needed to be proactive rather
than reactive because of long time lags in monetary policy. There was
certainly a case for RBI safeguards for asset bubbles. Further, it has
the capacity to do so because it has vast data base and analytical
capacities which many others do not have. Can RBI think of devising a
new methodology to measure inflation in India which is location
specific?
RBI needs to use its qualitative methods also to curb inflation in
India, it is more of a structural problem. RBI should also devise some
way out of fake currency also. The Indian economy stays on the growth
track needed strengthening of fundamentals of Indian economy like
domestic saving rate, investment rate and capital formation requiring
vision in missionary mode.
To encourage the farmers to produce more without risk to induce them
to undertake larger investments and to adopt improved production
technology for which there is a case for interest free loans instead
of subsidies. The prevailing trend of the farmers going to Commission
Agent for all practical purposes can be minimized if not stopped
completely by simplification of the institutionalized set up of
financial institutions (Narrow Banking plus Universal Banking).
To create a climate of investment and growth in the Indian economy, we
need to make every possible effort for increasing the marginal
propensity to save which requires correct valuations of shares by
reducing the risks over time and space further required for increasing
the returns. It may be relevant to read the writings of JM Keynes that
100 per cent freedom and deregulation for the finance market is not
conducive to predictability of steady growth of the markets of the
economy. Contrary to this observation, the NPA in the Indian Banks
probably is the result of the State intervention and needs to be
discouraged.
The provisions therein monetary policy 2010-11 are necessary but not
sufficient for balancing the need for making credit available for the
productive sectors with price stability in the long run for the Indian
economy. One of the basic tests of a bad or good economic policy is to
check if it clearly spells out how its different components are
together expected to achieve the desired objectives and targets of
growth and stability.
The writer is Professor & Chairman, Department of Economics,
Kurukshetra University , Kurukshetra-136119 ( Haryana).
http://www.centralchronicle.com/viewnews.asp?articleID=33889
Path to capital convertibility to be calibrated: RBI
fe Bureaus
Posted: Wednesday, Apr 28, 2010 at 2139 hrs IST
Updated: Wednesday, Apr 28, 2010 at 2139 hrs IST
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Discuss ■Valentine Gift's■■■Mumbai: Reserve Bank of India (RBI)
governor D Subbarao has said that the Indian economy should traverse
towards capital convertibility along a gradual path and the path was
likely to be recalibrated on a dynamic basis in response to domestic
and global developments.
“Post-crisis, that continues to be our policy. We will continue to
move towards liberalising our capital account, but we will revisit the
road map to reflect the lessons of the crisis. Our position is that
capital account convertibility is not a standalone objective but a
means for higher and stable growth,'' he said while speaking at the
Peterson Institute for International Economics, Washington DC.
“We prefer long-term flows to short-term flows and non-debt flows to
debt flows. The logic for that is self-evident. Our policy on equity
flows has been quite liberal, and in sharp contrast to other emerging
economies, which liberalised and then reversed the liberalisation when
flows became volatile, our policy has been quite stable. Historically,
we have used policy levers on the debt side of the flows to manage
volatility. This has been our anchor when we had to deal with flows
largely in excess of the economy’s absorption capacity in the years
before the crisis. This has been our policy when we saw large outflows
during the crisis. And I believe this will continue to be our
policy,'' he added.
He further said that there could be crowding out of the private sector
credit due to an upward movement of government bond yields and the
consequent pressure on interest rates. “The upward pressure on yields
on government securities and the consequent pressure on interest rates
makes ‘crowding out’ a potential possibility,” said Subbarao. “Surely,
yields on government securities had firmed up, but only modestly. Even
as fiscal deficit this year (2010-11), as a percentage of GDP, is
lower, the absolute amount of government borrowing in gross terms is
roughly of the same order as in last year,” he said.
The governor noted that inflationary pressures are stronger, thereby
restraining the flexibility for infusing liquidity through open market
operations (OMO).
“Last year banks held significant quantities of market stabilization
scheme (MSS) bonds issued earlier for sterilizing the liquidity
arising from capital flows. The RBI bought back those bonds to infuse
systemic liquidity. That option is not available this year as the
quantum of MSS bonds remaining is very marginal,” he said.
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ICICI Bank: Where's The Growth Story?
by: Naveen Selvaraj May 02, 2010 |
about: HDB / IBN
Naveen Selvaraj 118
Visit: Gridstone Research http://www.gridstoneresearch.com/
ICICI Bank (NYSE:IBN) was often showcased as the poster boy of the
Indian economy's supercharged growth in the 2003-08 period. While the
Indian economy growth story is back on track after a one-year hiatus,
it's probably going to take a little longer for ICICI Bank.
In the recently concluded 2010 fiscal year (March 2010), the Bank's
total unconsolidated income (excluding insurance and other
subsidiaries) declined ~12% to INR 332 billion. The decline in
interest income (~20%) was the main factor behind the income decline.
ICICI had focused on reducing its retail and unsecured lending book
and that is reflected in the ~20% decline in customer advances to INR
1.8 trillion (~$ 40 B at current exchange rates). Lower interest rates
coupled with a reduction in the loan book led to the decline in
interest income. However, operating profit increased by ~10% to INR 97
billion, thanks to the cost-control measures undertaken, and that
reflected in the 10% increase in net profits.
Peers Are Leaving ICICI Behind
The problem with these numbers is that they pale in comparison with
peers. HDFC Bank (NYSE:HDB), its closest private-sector-banking rival,
has had flattish interest income between 2009 and 2010 fiscals, but
its net interest margin (NIM) is ~3.4% against ICICI Bank's 2.5%.
While ICICI shrunk its customer loan book, HDFC had a whopping 25%
increase in customer advances and also maintained its lead on the NIM
front. The point to note is that the loan book growth in 2009 has been
despite more conservative lending norms followed in 2009 compared to
the more growth-focused lending in the 2005-08 period. Clearly as NPAs
hit the loan book, ICICI Bank hit the brakes on loan growth while HDFC
has filled the vacuum.
With advances totaling INR 1.2 trillion, HDFC is still much smaller
than ICICI Bank but it could well challenge ICICI in the years ahead
despite its 'conservative growth' focus. If, despite its conservatism,
HDFC can grow its loan book 25% and its NIM is industry-leading,
clearly it's doing things right.
Further on the NPA front, HDFC has a net NPA ratio of 0.6% while ICICI
has a net NPA ratio of 1.9% and that speaks of the difference is asset
quality between the two firms. All this means that ICICI will be more
cautious in growing its retail loan book (where it had the maximum
issues). HDFC has had no such problems,
Quality Of Loan Book - What The Numbers Will Not Tell
But what these numbers will not tell is what's been the quality of the
advances that have been added in 2009 and early 2010. While the
reduction in NPAs do indicate that overall quality of the loan book
has improved, there are other important qualitative factors that need
to be considered :
For ICICI, home loans constitute 60% of the retail loan book, which in
turn constitutes 43% of the total loan book. ICICI was reducing its
exposure to this market at a time when home affordability was its best
(in 2009) in the last 3-4 years in terms of the home value/consumer
income ratio.
Asset prices have India, especially homes, have started to increase
irrationally again in 2010 and so ICICI might find it difficult to
grow its loan book with the more conservative lending norms that it
has in place now.
HDFC and other public-sector banks have reaped the benefit of ICICI's
lack of aggression in 2009 in the retail segment
While India's central bank has fixed a 20% credit growth target for
fiscal 2011, the huge liquidity available in the system suggests that
there could be stiff competition among banks that go after credit
growth.
Despite consumer inflation being in double digits persistently, it
looks unlikely that it will cool off in the months ahead. This might
naturally lead to a increase in interest rates and reserve ratios, and
credit growth might be affected with the double whammy of increasing
interest rates and higher asset prices
Competition Has Caught Up And ICICI Needs to Forge Ahead
In summary, ICICI might have well missed an opportunity to increase
its dominant position in the retail lending landscape in India. While
prudent lending norms are definitely needed, it doesn't mean that
growth should be curtailed, as HDFC has shown over the last year. If
ICICI lags behind other Indian bank peers in advances growth in fiscal
2011, one poster boy of the Indian growth story will be replaced by
many other worthy contenders. ICICI is still perceived as a growth
story, and we do hope it stays that way.
Disclosure: Long IBN
http://seekingalpha.com/article/202197-icici-bank-where-s-the-growth-story
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India weighs capital controls with rupee on rise
By Penny MacRae (AFP) – 6 hours ago
NEW DELHI — India's government is weighing capital controls with the
rupee on the rise amid fears of "hot money" flowing into the country
as investors pile back into Indian assets.
Unlike fellow emerging market giant China, India allows its currency
to float freely and the central bank has warned of the dangers of
"sharp and volatile" exchange rate movements that could hurt India's
economy.
With the rupee riding at 18-month highs against the dollar, one idea
Reserve Bank of India Governor Duvvuri Subbarao is airing to curb
sudden big movements in the currency's value is a tax on foreign
exchange transactions, known as a Tobin tax, similar to one Brazil
introduced last year.
"Depending on what flows come in, we would employ measures, including
if necessary something like the Tobin tax," Subbarao said last week,
referring to a proposal first aired in the 1970s by Yale economics
professor James Tobin.
"We prefer long-term flows to short-term flows," he told a Washington
audience Monday in a speech posted on the bank's web site.
Tobin, a Nobel laureate for his work on financial markets, proposed a
small levy on every sum changed from one currency into another to curb
short-term speculation, stabilise currency markets and encourage long-
term investment.
Portfolio flows into India from foreign countries between April and
December 2009 nearly equalled the total from 2000 to 2005, driving up
demand for the rupee and causing it to strengthen against other
currencies.
A further surge in capital inflows "could force (Indian) policymakers
to resort to more active means, a la Brazil," noted economist Hemant
Mishra at Standard Chartered Bank in a recent commentary.
The currency has risen five percent against the dollar since the start
of the year to trade at around 44.36 rupees per dollar Friday,
following a record low in October 2008.
The rise has been similar against the yen in 2010 and more impressive
against European currencies. The rupee is up close to nine percent
against the pound and 11 percent against the euro.
Analysts say the Indian currency could be trading below 44 rupees to
the dollar by June.
But India knows all too well what can happen when foreign investors'
ardour for its assets wanes.
As the credit crisis spread across the globe in 2008 and risk appetite
evaporated, the rupee slid by 27 percent to breach the 50-rupee level
to the dollar in the space of months as foreign investors stampeded
for the exits.
India is in desperate need of investment to update its dilapidated
roads, ports and other infrastructure, but speculative capital flows
can be destabilising, resulting in sharp movements in asset prices,
economists say.
Along with strong economic growth -- officially forecast to reach 8.75
percent this financial year -- foreign investors have also been lured
by interest rates that are on their way up as the Indian central bank
seeks to clamp down on inflation.
Although the currency has yet to regain all its previous strength --
it hit a 10-year peak of 39.4 rupees to the dollar in early 2008 --
the Reserve Bank is under pressure from exporters to stem its
appreciation.
The government must also weigh the fact that as a higher rupee hits
exporters, it helps dampen inflation running at a 17-month peak of 9.9
percent by making imports cheaper, economists say.
Exports only account for around 15 percent of the gross domestic
product of India's still inward-looking economy.
"Inflation concerns trump exporters' complaints about competitiveness"
with the central bank, said Moody.com economist Nikhilesh
Bhattacharyya.
"Taking measures to depress the rupee at the current juncture would
add to imported inflation pressures when consumer prices are rising at
some of the fastest rates in a decade," Bhattacharyya said.
Instead of trying to depress the rupee, the central bank "appears to
favour actions to discourage short-term capital flows, which have fed
into asset price inflation across Asia," Bhattacharyya added.
Copyright © 2010 AFP. All rights reserved.
India's government is weighing capital controls with the rupee on the
rise amid fears of "hot money"
http://www.google.com/hostednews/afp/article/ALeqM5hHrvLGjGZcw5VYKCEQLKHW0BLuGw
India: India’s inflation hits 9.9 per cent, faster than economic
growth
India’s economy is growing fast, but inflation is growing even faster.
For the governor of the Reserve Bank of India, India is avoiding the
path adopted by China and other Asian nations, following instead its
own monetary and financial policy.
Wednesday, April 28, 2010By Asia News
Article Tools
Discuss
New Delhi – Reserve Bank of India Governor Duvvuri Subbarao said
faster inflation is a “big worry” for the economy. For this reason,
the central bank plans to remove monetary stimulus in a gradual manner
to ensure sustained growth. He made the point during a speech he
delivered yesterday at the Peterson Institute for International
Economics in Washington.
In March, India’s benchmark wholesale-price inflation shot up to a 17-
month high of 9.9 per cent. Consumer prices paid by industrial workers
surged 14.9 per cent in February from a year earlier.
Food-price inflation has hovered above 15 per cent since November,
ostensibly because of bad monsoon rains last year and lower
agricultural output. Some observers have suggested however that the
high rate is due to speculation and poor infrastructure (roads and
ports), which makes it harder to deliver products, especially
perishable food.
Government fiscal and monetary measures have helped the economy, but
private consumption and investment have not fully recovered to pre-
crisis levels, Subbarao said.
The governor defended the Reserve Bank’s monetary policy. Unlike
central banks from Malaysia to China, which have raised interest rates
or taken steps to remove excess cash from their banking systems to
fend off inflation and asset-bubble risks, India has kept interest
rates low enough not to dampen economic recovery.
The Indian economy probably expanded by as much as 7.5 per cent in the
fiscal year that ended on 31 March, and may grow 8 per cent in the
current year, Subbarao said.
Still since prices have grown faster in recent months, inflation
remains a big worry.
“Supply- side inflation pressures are abating only gradually;
meanwhile, demand-side pressures are building up,” Subbarao noted.
Source: Asia News
http://www.speroforum.com/site/article.asp?id=31766&t=India%3A+++India%92s+inflation+hits+9.9+per+cent%2C+faster+than+economic+growth
RBI Chief: India's Economy To Grow Better Than Expected, Inflation Big
Worry
4/27/2010 5:45 AM ET
(RTTNews) - India's economic growth this year would be slightly
faster than expected, while higher inflation is a big worry, Reserve
Bank of India Governor Duvvuri Subbarao said Monday. The economy is
expected to grow 7.2% during the fiscal 2009-10.
Speaking at the Peterson Institute for International Economics think
tank in Washington, Subbarao said India's capacity utilization is near
high and private sector activity is increasing. "The potential for
growth in double digits is there," the central bank chief said.
He noted that rising food and asset prices escalates inflationary
pressures in the country. "The big worry is inflation," Subbarao said.
"Supply- side inflation pressures are abating only gradually;
meanwhile, demand-side pressures are building up."
On exit measures, Subbarao said the RBI plans to withdraw monetary
stimulus gradually to ensure sustained growth.
"We have begun the process of exit from the expansionary stances of
the crisis period," he said adding that a calibrated effort is
necessary while exiting emergency measures given the fact that private
consumption and investment are yet recover fully.
Last week, the RBI raised its key interest rates for the second time
in a month in order to contain soaring inflation and demanded bankers
to set aside more funds as reserves.
The central bank raised the repurchase rate and reverse repurchase
rate by 25 basis points to 5.25% and 3.75% respectively. The central
bank also lifted the cash reserve ratio to 6% from 5.75%.
by RTT Staff Writer
For comments and feedback: contact ***@rttnews.com
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Eagle's Eye: Monetary policy 2010-11: An academic assessment
Category » Editorial
Posted On Wednesday, April 28, 2010
The prevailing trend of the farmers going to Commission Agent for all
practical purposes can be minimized if not stopped completely by
simplification of the institutionalized set up of financial
institutions (Narrow Banking plus Universal Banking): MM Goel
The wait and watch strategy of the Reserve Bank of India (RBI) in its
Monetary Policy 2010-11 announced by its Governor Dr D Subbarao
recently is not in good taste and gives wrong signals to the
performing sectors of the Indian economy.
Monetary policy 2010-11 was expected to play a very crucial role for
choosing right perspectives for the growth of Indian Economy of hope
with panic and FEAR (False Evidences Appearing Real) of the so-called
global financial crisis. As RBI follows contextual objective and
inflation is posing biggest problem in present context, tackling and
controlling it should be the top priority and for that matter it
should have increased more than the increased CRR (6 %), SLR (25 %),
Repo (5.25%) and Reverse Repo (3.755) rate more importantly required
as in the coming time exchange rate appreciation may also need RBI's
attention which can further aggravate inflation. The gap between repo
rate and reverse repo rate is not understandable in the relationship
management language of the RBI and other Banks (both narrow banking
plus universal banking) and needs to be reduced for harmonization and
healthy economic relationship of RBI with commercial Banks.
The RBI approach for cooling inflation is lip service in the false
hope of good rabi crop and normal monsoons and may prove risky for the
middle class of the Indian economy. RBI needed to be proactive rather
than reactive because of long time lags in monetary policy. There was
certainly a case for RBI safeguards for asset bubbles. Further, it has
the capacity to do so because it has vast data base and analytical
capacities which many others do not have. Can RBI think of devising a
new methodology to measure inflation in India which is location
specific?
RBI needs to use its qualitative methods also to curb inflation in
India, it is more of a structural problem. RBI should also devise some
way out of fake currency also. The Indian economy stays on the growth
track needed strengthening of fundamentals of Indian economy like
domestic saving rate, investment rate and capital formation requiring
vision in missionary mode.
To encourage the farmers to produce more without risk to induce them
to undertake larger investments and to adopt improved production
technology for which there is a case for interest free loans instead
of subsidies. The prevailing trend of the farmers going to Commission
Agent for all practical purposes can be minimized if not stopped
completely by simplification of the institutionalized set up of
financial institutions (Narrow Banking plus Universal Banking).
To create a climate of investment and growth in the Indian economy, we
need to make every possible effort for increasing the marginal
propensity to save which requires correct valuations of shares by
reducing the risks over time and space further required for increasing
the returns. It may be relevant to read the writings of JM Keynes that
100 per cent freedom and deregulation for the finance market is not
conducive to predictability of steady growth of the markets of the
economy. Contrary to this observation, the NPA in the Indian Banks
probably is the result of the State intervention and needs to be
discouraged.
The provisions therein monetary policy 2010-11 are necessary but not
sufficient for balancing the need for making credit available for the
productive sectors with price stability in the long run for the Indian
economy. One of the basic tests of a bad or good economic policy is to
check if it clearly spells out how its different components are
together expected to achieve the desired objectives and targets of
growth and stability.
The writer is Professor & Chairman, Department of Economics,
Kurukshetra University , Kurukshetra-136119 ( Haryana).
http://www.centralchronicle.com/viewnews.asp?articleID=33889
Path to capital convertibility to be calibrated: RBI
fe Bureaus
Posted: Wednesday, Apr 28, 2010 at 2139 hrs IST
Updated: Wednesday, Apr 28, 2010 at 2139 hrs IST
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Discuss ■Valentine Gift's■■■Mumbai: Reserve Bank of India (RBI)
governor D Subbarao has said that the Indian economy should traverse
towards capital convertibility along a gradual path and the path was
likely to be recalibrated on a dynamic basis in response to domestic
and global developments.
“Post-crisis, that continues to be our policy. We will continue to
move towards liberalising our capital account, but we will revisit the
road map to reflect the lessons of the crisis. Our position is that
capital account convertibility is not a standalone objective but a
means for higher and stable growth,'' he said while speaking at the
Peterson Institute for International Economics, Washington DC.
“We prefer long-term flows to short-term flows and non-debt flows to
debt flows. The logic for that is self-evident. Our policy on equity
flows has been quite liberal, and in sharp contrast to other emerging
economies, which liberalised and then reversed the liberalisation when
flows became volatile, our policy has been quite stable. Historically,
we have used policy levers on the debt side of the flows to manage
volatility. This has been our anchor when we had to deal with flows
largely in excess of the economy’s absorption capacity in the years
before the crisis. This has been our policy when we saw large outflows
during the crisis. And I believe this will continue to be our
policy,'' he added.
He further said that there could be crowding out of the private sector
credit due to an upward movement of government bond yields and the
consequent pressure on interest rates. “The upward pressure on yields
on government securities and the consequent pressure on interest rates
makes ‘crowding out’ a potential possibility,” said Subbarao. “Surely,
yields on government securities had firmed up, but only modestly. Even
as fiscal deficit this year (2010-11), as a percentage of GDP, is
lower, the absolute amount of government borrowing in gross terms is
roughly of the same order as in last year,” he said.
The governor noted that inflationary pressures are stronger, thereby
restraining the flexibility for infusing liquidity through open market
operations (OMO).
“Last year banks held significant quantities of market stabilization
scheme (MSS) bonds issued earlier for sterilizing the liquidity
arising from capital flows. The RBI bought back those bonds to infuse
systemic liquidity. That option is not available this year as the
quantum of MSS bonds remaining is very marginal,” he said.
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