Investments
When gilts lost their sheen
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| Government securities are no longer among the choicest investment options of banks. They preferred shorter-term papers like treasury bills over government securities to cut down on interest rate risks.
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| Some banks even suffered treasury losses in 2004-05 even as they shifted parts of their gilts portfolios to the held-to-maturity (HTM) category from the held-for-trading (HFT) category.
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| Banks' lower appetite for government securities led to curtailment in their support to the government borrowing programme in 2004-05.
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| Their cause was helped by an unprecedented upsurge in retail credit. Investments in government securities by banks halved to Rs 62,988 crore in 2004-05 from Rs 1,20,087 crore in 2003-04.
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Corporate sector received greater accommodation from banks as they increased their investments in corporate securities by Rs 2,469 crore.
Rainfall
No monsoon magic
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| Adverse moisture conditions affected agricultural activity in 2004-05, eroding the gains of the strong rebound in growth that had occurred in 2003-04.
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| The cumulative area weighted rainfall during the South-West monsoon (June 1 to September 30, 2004) was 13 per cent below the long period average (LPA) compared with 2 per cent above the LPA during the previous year as per the macroeconomic statistics released by the RBI today.
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| The unsatisfactory spread of the South-West monsoon, particularly in the main sowing month of July, resulted in decline in sown area of major crops and a shift to short-duration low yielding varieties.
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| According to the third advance estimates released by the ministry of agriculture, kharif foodgrains production in 2004-05 is estimated to be around 104 million tonne- a shortfall of 11 per cent over the preceding year.
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The decline was mainly in the production of coarse cereals. Kharif oilseeds also recorded a shortfall of over 12 per cent. However, the satisfactory beginning of the North-East monsoon coupled with a comfortable water reservoir position augured well for rabi sowing.
Oil
Nervousness to the fore
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| International oil prices hardened during 2004 amid concerns about strong demand, oil supply bottlenecks, low inventories and very low spare output capacity.
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| In spite of periodic increases in supply by the Organisation of the Petroleum Exporting Countries (Opec), market sentiment remained nervous on supply concerns and forecasts of a sustained rise in demand. US crude oil prices (West Texas Intermediate or WTI) climbed to a high of $55 per barrel.
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| WTI rose to a record $57.40 on March 17, 2005 on concerns about the Opec's capacity to meet global demand which is seen as rising faster than supply.
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| Crude oil prices moderated to about US $ 54 a barrel by March 28, 2005 supported by a rebound in the US dollar.
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| It again rose again to an all-time peak of $57.8 a barrel on April 4, 2005 triggered by a forecast that prices could spike above $100 a barrel owing to robust global demand , tight spare capacity and on concerns about the Opec's capacity to meet rising global demand.
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Domestic prices were last revised in November 2004 when the Dubai crude price was at $34. 9 a barrel.
Inflation
Northward bias continued
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| Inflation conditions firmed up worldwide in 2004, driven up by soaring international crude oil prices and upward pressures from prices of metals and key agricultural commodities.
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| Monetary policy measures, including higher reserve requirements announced in September 2004 and 25 basis point increase in the reverse repo rate and re-introduction of one-day reverse repo in October 2004, were able to rein in inflation expectations.
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A hike in fuel prices on November 5, 2004 was partly offset by some moderation, effective November 15, 2004. On a year-on-year basis, headline inflation at 5. 0 per cent at the close of 2004-05 was well in line with the assumption on inflation in the RBI
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