Offline
|
|||||||
 | |||||||
| Price + |
| Intraday Chart |
| Financials |
| News |
| Messages |
| Reports |
| Block Deals |
| Corporate Announcements |
| MF Holdings |
| Compare with Peer |
Watch Video| ads by google |
Inflation for week ended March 15 is at 6.68% versus 5.92%, much above market expectations of around 6%. It's at a 59-week high.
Inflation numbers are revised to 4.45% versus 3.93% (provisional), for the week ended January 19.
Iron and steel prices have gone up 5.3%, while vegetable prices have gone up 2.5% for the week ended March 15.
CNBC-TV18's Latha Venkatesh, on the inflation numbers:
What is awful is that this is the fourth week in a row that it has come in much worse than expected; much worse as in a good 10-15 ticks worse than expected. Now if you looked at the week-on-week numbers - the Index numbers as you look at it, it was 221.8 in the week ago period and now shot up to 223.6. Now this kind of an 18 tick jump is practically unheard of. Occasionally you see such a big jump when there is a fuel price or an administered price hike that is announced by the government. It never ever happens that in a normal week like this you see prices jumping so much.
Quite clearly, the steel and iron ore prices, which had risen actually way back in February had not been factored-in because either the government was trying to negotiate with steel producers. But for whatever reason, it was the delayed factoring-in of those iron and steel prices that has brought up this quantum jump. Over the last two weeks, it is a 5.3% jump this week. It was an 11% jump last week and that is what is working into the 6.5% inflation number.
Besides this, other transitory elements like vegetables have also had their fair share. But that perhaps will ebb away. The Rabi harvest normally comes in at this time and perhaps food prices will not be here to stay. But the non-vegetable food prices are not going to be a very beneficial impact, because globally these prices are still very strong.
What can the government do about it? We have already seen a lot of export discouraging steps that have come out, withdrawing the DEPB benefits. Now what we hear from industry is that this is going to make only a Rs 1-2 difference per bag and exports don’t normally get discouraged. But it is not a great deal of cement that is anyway getting exported. So, to expect this to have a major impact would be a little premature.
Also, similar steps are being taken by China. China is also discouraging exports to control its local inflation. A lot of exports coming out of China are rising, the prices of those elements are rising in the global markets because China is not exporting enough. So, this is not going to necessarily solve the problem. We could hear of some kind of monetary steps coming from the RBI is what the market fears.
It is extremely difficult to believe that even with growth petering down to about 5% IIP numbers, the RBI hikes interest rates at this juncture, it is extremely unlikely. But the market fears that CRR could be hiked because liquidity will improve in April. So, the market is sitting with a lot of trepidation.
Commerce Minister, Kamal Nath said that the rising inflation is a matter of concern. He said that the inflation is rising on account of high cement and steel prices. The government is trying to manage supplies to tame inflation, he said. The government may impose complete ban on non-basmati rice exports, he said.
A Prasanna, Chief Economist, ICICI Securities feels that liquidity is going to come back in the system in the form of government spending, and Forex flows are also picking up. This would result in a lot of liquidity in the system in April and so, he estimates that the RBI may hike the CRR, as a measure to curb inflation.
Excerpts from CNBC-TV18’s exclusive interview with A Prasanna:
Q: The worst fears are now recognized, what are you expecting henceforth? Do you think the RBI even from these levels will be propelled in to any liquidity tightening steps?
A: This is clearly a shocking number and much above RBIs comfort zone. So going by the thrust of the January policy and also the rhetoric that we are hearing from the government, one should expect some sort of tightening action and nothing should be ruled out at this point of time.
Q: We have already seen the government announce a lot of export discouraging steps in terms of withdrawing those DEPB benefits for cement and metals, do you think that the frisk will be rather used than the monetary policy or, do you actually expect that the repo-rate would go up to 8% or the reverse-repo could be hiked from these levels?
A: As far as the fiscal steps go, they are in the right direction and it's kind of trying to target the different incentives that those segments have, where prices have gone up. On the other hand I think, possibly the RBI might feel for some sort of the signal to the markets that it won’t tolerate this kind of number or inflation and in order to make sure that inflation expectations don’t get out of hand. So at this point of time, it's really a question of signaling and nobody expects that by hiking the repo-rate or CRR, indirectly the inflation is going to come down; but it's more of a signal.
Q: Which one you think would be a signaling device, would it be the CRR or will it be rates?
A: CRR definitely - because I think, anyway everyone knows that liquidity is going to come back in the system in the form of government spending, and as you were saying, Forex flows are also picking up. That means a lot of liquidity is going to slosh around the system in April. So I would put my money on CRR.
On rates, it’s slightly problematic because I think this is a problem with having this kind of corridor, which at one point if time the RBI touted as a great kind of a tactic. But at this point of time, having this kind of a corridor is completely unviable. You can hike the repo-rate to 8%, but the overnight rates will be at 6%; come April. So what are you achieving? So it’s going to be problematic. Ideally they should hike the reverse repo-rate. But with the kind of growth numbers we are seeing and the growth slowing down, I don’t know whether RBI is prepared to do that.
Q: What would be your guess on the interest rates for the real economy, would you actually expect banks to push up interest rates if the CRR hike really came and then what would be the impact on your GDP forecast?
A: At this point of time, I don’t see lending and deposit rates going up immediately. Probably a few banks which had cut rates post January policy -they might be forced to take a re-look. But immediately, I don’t see a reaction if it's only a CRR hike. But if you are looking at the rate hike, then there could be some rise in rates.
At this point in time, I am not taking a re-look at my GDP forecast; it’s already my estimate of 7.5%, which I would say is the lower end of the consensus in the market. So I am not looking to revise it.
|
 |
|  |
| Related links: | |
 |
 |
 |
523.55 3.99%