Tag: CPI

RBI likely to go for 25 bps rate cut in 2017: Citigroup

10/01/2017 14:15

The Reserve Bank of India is expected to go for only a 25 bps rate cut this year and the likelihood of an easing in April is more than in February, says a Citigroup report.

According to the global financial services major, the monetary easing support to rates is waning as the mantle is passed on to the fiscal policy.

“On balance, and given our baseline assumption of a deviation in fiscal deficit roadmap (from 3 per cent of GDP to 3.4 per cent of GDP in 2017-18), we expect MPC to cut policy rate by only 25 bps in 2017,” the report said.

It added that the rate cut would be more effective after the re-monetisation exercise is concluded fully and there is absolute clarity on the increase in lendable resources for banks.

“This makes the April rate cut, a tad more likely than the February rate cut,” it said.

On December 7, the central bank kept interest rate unchanged despite calls for lowering it and also lowered the economic growth projection by half a percentage point to 7.1 per cent in the first policy review post demonetisation.

The central bank will hold its next monetary policy meet on February 8.

Though the CPI inflation has stayed within RBI’s target range for over 2 years and the average CPI inflation has declined every year since 2012-13, reflationary risks are setting in as commodity prices rise and dollar strength continues, the report said.

Citigroup expects 2017-18 average inflation at 4.9 per cent up from 4.6 per cent in 2016-17.

Along with global factor like crude prices (crude price is likely to go up to USD 65/bbl by December 2017), domestic factors are also turning adverse like MSP and rural wages, the report added.

6 Risk Events investors need to watch out for this month (July 2015)

6 Risk Events investors need to watch out for this month (July 2015)

Investors, beware of these six events.

The Greek Economy is coming down crashing like nine pins and a recent report by BoFA-ML suggests there are at least 6 event risks investors need to be aware of and prepare in case need be.

India economists, Indranil Sen Gupta and Abhishek Gupta at Bank of America suggests that there would be no immediate resolution of the Greek Crisis with rising Grexit risks.

Here are the six events that BofA-ML lists:

May IIP: BofA-ML estimates that May industrial growth will slow to 2.8 per cent on July 10 from 4.1 per cent in April. The report also suggests that the recovery shoud be back-ended as lending rates take about six months to support growth. They also comprehend GDP (gross domestic product) growth slowly bottoming out to 6 per cent (in the old series) in FY16 from 5.5 per cent in FY15.

June Inflation: BofA-ML pegs consumer price inflation (CPI) at 5.4 per cent, higher than May’s 5 per cent, which will be driven by higher prices of pulses; increase in service tax could raise CPI inflation by around 20 bps (basis points); and fall in petrol deflation to -2.6 per cent in June from -8.9 per cent in May that could impact CPI inflation by 10-15 bps. In this backdrop, they expect the Reserve Bank of India (RBI) cut rates by 50 bps by early 2016 with inflation well on track to its ‘under’-6 per cent January 2016 target.

Monsoons: Let’s face it, monsoons are unpredictable. So even if June runs smoothly, the standard monsoon accounts for only 15.2 % of the seasonal rainfall. So be on your toes, as a clearer picture can only be expected by mid-July according to the report.

Parliament Session: According to BofA, the recent controversies in the political scenario do not send positive signs for a seamless passage of GST or amendments to Land Acquisition Act during the upcoming monsoon session of Parliament beginning 26 July. Currently, the market is over rating the contribution of either legislation to grow.

BofA comments, “We believe that lending rate cuts, rather than reforms, hold the key to an immediate cyclical recovery by say, end-2015. Reforms will support growth only over, say, 5 years and so, it does not really matter where they are legislated in this parliamentary session or next,” in the report.

Corporate results: Though overall turnaround is expected around September onwards, analysts at BofA-ML expect Sensex profit growth to recover to about 4 per cent in the June quarter from -0.1 per cent in March on standalone basis.

FOMC meet: “Despite improving data, the bond market is pricing in only about a one-in-five chance of a rate hike in September,” BofA-ML says. The reports also suggests, the US Federal Reserve (US Fed) could give clues to the possibility of a hike in interest rates in the upcoming policy meet on 28/29 July.