By Cherian Thomas
Oct. 24 (Bloomberg) -- When India's central bank governor Duvvuri Subbarao took office in early September, combating inflation was his ``immediate'' priority. In seven weeks, his agenda has changed.
Subbarao, 59, may signal further moves to lower borrowing costs and support India's economic growth in his first quarterly monetary-policy statement in Mumbai today as the world heads toward a recession. He unexpectedly cut interest rates earlier this week for the first time since 2004.
Prime Minister Manmohan Singh, a former central bank governor, is pushing the Reserve Bank of India to change its stance as the global credit crunch threatens to weaken Asia's third-largest economy ahead of national elections due by May. Subbarao has room to move as global prices of oil, steel and food tumble, reducing inflation risks.
``Global economic conditions have changed dramatically in recent weeks,'' said Saugata Bhattacharya, an economist at Axis Bank Ltd. in Mumbai. ``Clearly, faltering growth and financial stability have become a bigger concern than inflation.''
Subbarao may keep the key repurchase rate unchanged at 8 percent today after reducing it from 9 percent on Oct. 20, according to 11 of 16 analysts in a Bloomberg survey. The announcement is scheduled for 11:15 a.m. local time.
India's key wholesale-price inflation slowed to a four- month low of 11.07 percent in the week to Oct. 11. Crude oil prices have halved since their peak in July and the Reuters/Jefferies CRB Index of 19 commodities fell 18 percent this month.
`Temporary Slowdown'
Singh, who opened India's economy to foreign investments as the finance minister in 1991, asked the nation this week to be prepared for a ``temporary slowdown.'' India's $1.2 trillion economy has expanded at a record annual average pace of 8.9 percent since he became prime minister in 2004. Singh did not give an estimate on the extent of the slowdown.
The rupee has slumped 21 percent this year, the most since 1991, as overseas investors sold a record $12 billion of stocks. The yield on the benchmark 10-year bond has declined 181 basis points to 7.59 percent since the central bank's last monetary- policy statement on July 29.
The decline in demand is already showing in India. The nation's output at factories, utilities and mines rose 1.3 percent in August from a year earlier after a 7.4 percent gain in July. JSW Steel Ltd., India's third-biggest producer, delayed the start of a new 3 million ton blast furnace by two months.
Crisis Talks
Since Subbarao was appointed the central bank governor on Sept. 5, Prime Minister Singh has shown he wanted to take charge of monetary policy. Last week, Subbarao was summoned back to New Delhi from Washington midway through the annual meetings of the International Monetary Fund and World Bank for crisis talks.
After the meeting Subbarao reduced the amount of money banks need to hold as reserves by one percentage point, adding to a 1.5 percentage point reduction a week earlier to pump one trillion rupees ($21 billion) into the financial system. Twelve of 16 analysts surveyed by Bloomberg expect Subbarao to hold the cash reserve ratio at 6.5 percent today.
The relations between the government and Subbarao, a former economic adviser to Singh and the top bureaucrat in the finance ministry before he was appointed the central bank governor, contrasts with that of his predecessor Yaga Venugopal Reddy.
Reddy, who spent almost a decade at the central bank starting as a deputy governor, had disagreements with the finance ministry on monetary policy. Reddy wanted interest rates to be tighter while Finance Minister Palaniappan Chidambaram favored a ``benign'' environment.
After Reddy finished his term on Sept. 5, with inflation close to a 13-year high, Reddy said monetary policy would have been tighter ``if I'd had my way.''
``Subbarao, unlike his predecessor, is toeing the government's line on monetary policy,'' said D. H. Pai Panandiker, president at RPG Foundation, an economic policy group in New Delhi. ``He has no choice in the present context. Growth is suffering and policy rates must be reduced now.''
India's Rate Forecasts
---------------------------------------------------------------
Cash Statutary
Reverse Reserve Liquidity
Company Repo Rate Repo Ratio Ratio
---------------------------------------------------------------
Median 8.00% 6.00% 6.50%
% estimates at Median 68.75% 87.50% 75.00%
High 8.00% 6.00% 6.50%
Low 7.50% 5.50% 6.00%
Number of Estimates 16 16 16 7
---------------------------------------------------------------
Action Economics 8.00% 6.00% 6.50% No Cut
Anand Rathi Securities 8.00% 5.50% 6.50% No Cut
Axis Bank Ltd. 7.75% 6.00% 6.50% --
Bank of America 8.00% 6.00% 6.00% --
CARE Ratings 7.50% 6.00% 6.50% No Cut
CFC Seymour 7.50% 5.50% 6.50% --
CRISIL Ltd. 8.00% 6.00% 6.50% --
DBS Group 8.00% 6.00% 6.50% --
Edelweiss Capital 8.00% 6.00% 6.50% --
Forecast Singapore 7.50% 6.00% 6.00% --
Inst. of Economic Growth 8.00% 6.00% 6.50% No Cut
Kotak Mahindra Bank 8.00% 6.00% 6.50% --
Kotak Securities Ltd. 8.00% 6.00% 6.50% No Cut
Macquarie Capital Sec. 8.00% 6.00% 6.50% Cut
Moody's Economy.com Inc 7.50% 6.00% 6.00% --
Yes Bank 8.00% 6.00% 6.00% No Cut
[TAGINFO]
---------------------------------------------------------------
To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net.
Posts
No comments:
Post a Comment