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First things first: on behalf of Business Standard online team, we wish you all the best for March 19 mid-quarter monetary policy review. Frankly, we admire your intellectual honesty in calling a spade a spade. Coming to the point straight, we do get a sense that this time the Reserve Bank of India (RBI) may spring a surprise by cutting the repo rate 50 basis points.
Economists and bond market players hope a cut of mere 25 basis points in the repo rate, but lower inflation numbers and the urge to pump up growth may push you to turn adventurous.
People are keeping their fingers crossed expecting an interest rate cut on consumer loans — home, auto and personal loans. Will they finally get a cheaper rate after March 19? Sir, it is you who can answer this moot question in no uncertain terms. (A status quo will mean overall cost of borrowings, equated monthly installments (EMIs) and interest rates on fixed and other deposits will remain unchanged.)
We do believe that you’re well aware that inflation measured by the Wholesale Price Index (WPI) had declined to 6.62% in January. It was 7.18% in December and 7.24% in November. In January last year, the WPI inflation was 7.23%. Consumer prices rose 10.91% last month from a year earlier, one of the highest rates in the world. But since WPI is likely to be below 7% and growth is weak, the central bank has ample room to cut rates. Sir, this is to bring to your kind notice that retail and wholesale inflation have tended to move in opposite direction in recent months because of the high weight to food articles in the consumer price index.
The economy grew at a worse-than-expected 4.5% in the quarter ended December 31, hurt by a slowdown in agriculture, mining and manufacturing. It is high time to cut interest rates to revive slowing economic growth. (The central bank delivered a 25 bps cut in January for the first time since April 2012.) Sir, both politicians and India Inc. are demanding to reduce interest rates that are among the highest among the major economies.
India’s factory output rose more than economists estimated in January. Production at factories, utilities and mines climbed 2.4% from a year earlier after a revised 0.5% drop in December. Sir, just a quick reminder that the government has launched a slew of bold measures that included cutting fuel subsidies, hiking rail passenger fares and opening up the retail sector to foreign players.
Passenger car sales plunged 26% in February — its worst performance in 12 years — courtesy of falling consumer confidence in a slowing economy and rising interest rates.
The current account deficit widened to 4.6% of gross domestic product (GDP) in the first six months ending September 2012 as export growth slowed more sharply than imports. It is expected to be at around 5% in 2012-13, more than the 4.2% in 2011-12. Yours truly is quite conscious of the fact that it may limit the room for further monetary easing.
We would like to bring your attention to a few vital things. Sir, in the Union Budget for 2013-14, Finance Minister P. Chidambaram had said that the fiscal deficit for the financial year ending March 31, 2013 will be 5.2% of the country’s GDP. For the next financial year, the fiscal deficit target has been fixed at 4.8%.
For clarity, we’re quoting the FM: “On the fiscal consolidation path, the government has walked the talk. The RBI, of course, will take into account the overall broad economic situation and what happens between now and March 19 and take a call (on interest rate)... we have delivered on the fiscal consolidation path.”
We do hope a positive combination of lower inflation, fiscal consolidation and signs of improvement in the CAD in the first quarter of 2013 to facilitate the rate cuts.
Wish you a very Happy and colourful Holi in anticipation.
PS. log in to www.business-standard.com for latest news and views on credit policy on March 19
Thanking you!
Yours truly
