Tag: interest rates

RBI cuts interest rates by 25 bps to 5-year low

RBI cuts interest rates by 25 bps to 5-year low

05/04/2016 11:31

As expected, the Reserve Bank of India (RBI) on Tuesday delivered an interest rate cut, its first in six months while signaling a continued accommodative monetary policy stance to help power growth in Asia’s third biggest economy.

The central bank lowered the repo rate by 25 basis points to the lowest level since March 2011 at 6.5 per cent from 6.75 per cent. The RBI increased the reverse repo rate by 25 basis points to 6 per cent.

Raghuram Rajan, the RBI governor indicated that further interest rate cuts will hinge upon macroeconomic developments including the monsoon rains which could dictate the near-term inflation outlook and financial developments.

“The stance of monetary policy will remain accommodative,” Rajan said in the statement.

“The Reserve Bank will continue to watch macroeconomic and financial developments in the months ahead with a view to responding with further policy action as space opens up”, he added.

The government’s vow to stick to its budget deficit goals, easing inflation and a recent reduction in the interest rates on small savings instruments have given the apex bank additional room to bolster monetary easing in a bid to buoy demand and revive investments in the country’s economy.

The RBI kept unchanged its gross-value added growth projection for FY 2017 at 7.6 per cent while inflation is expected to decelerate at a modest rate to hover around the 5 per cent mark through March 2017.

RBI policy review: Rajan faces calls to pull the trigger

RBI policy review: Rajan faces calls to pull the trigger

05/04/2016 00:10

The Reserve Bank will unveil its first bi-monthly policy review for this fiscal today amid expectations of a 0.25-0.50 per cent cut in interest rates to boost industrial growth and economy, said the PTI report.

Finance Minister Arun Jaitley had pitched for policy easing, saying high rates could lead to a sluggish economy.

Bankers and experts too are expecting lower borrowing costs as the inflation trajectory is down and the government has pledged to stay on the fiscal consolidation path.

Keen to show that it means business, the government has pared the small savings interest rate by up to 1.3 per cent, providing cushion to the Reserve Bank for lowering the policy rate and for banks to pass on its benefits to consumers.

Bank of Maharashtra CMD Sushil Muhnot said: “There is possibility of RBI reducing rate by 0.25 per cent as inflation has eased.”

According to a senior official from a state-owned bank, although a 0.25 per cent rate cut has been factored in by the market, there is also a high possibility of RBI slashing it by 0.50 per cent.

Jaitley said: “The government has stuck to fiscal deficit commitments and inflation has been under control. I do hope that this movement will continue in order to make our economy more competitive with more competitive interest rates.”

Industry chambers on their part are pitching for 0.5 per cent reduction in the key interest rate.

“A 0.25 per cent cut in the policy rate is almost given, but the real impact of falling lending cost can be felt only if the central bank goes in for a bold reduction of at least 0.50 per cent,” industry body Assocham said.

Retail inflation as measured by the consumer price index eased to 5.18 per cent in February as food prices rose at a slower pace while the wholesale price index stayed in the negative territory for the 16th month in a row.

RBI Governor Raghuram Rajan had last month said the government sticking to the fiscal consolidation road map in Budget was comforting, a statement which raised hopes for a rate cut in April 5 monetary policy.

RBI, in 2015, had lowered interest rates by 1.25 per cent.

RBI expected to cut rates by 25 bps: BofA-ML

RBI expected to cut rates by 25 bps: BofA-ML

29/03/2016 14:31

A report has said that India’s retail inflation for March is expected to be around 5 per cent and the Reserve Bank is likely to cut its key rate by 25 basis points each at its policy reviews on April 5 as well as in August.

According to Bank of America Merrill Lynch (BofA-ML), its inflation indicator is tracking March CPI inflation at 5 per cent, slightly lower than February’s 5.2 per cent.

Commenting on the issue, a BofA-ML Official told the media, “We continue to expect the RBI to cut rates 25 bps on April 5 and in August.”

The declining inflation and negative industrial outlook have strengthened the case for RBI cutting interest rate in its first bi-monthly monetary policy for 2016-17 on April 5.

RBI Governor Raghuram Rajan on February 2, left the key interest rate unchanged citing inflation risks and growth concerns.

RBI to cut rates by 25 bps on Apr 5, 50 bps in FY17: BofA-ML

RBI to cut rates by 25 bps on Apr 5, 50 bps in FY17: BofA-ML

23/03/2016 01:12

Reserve Bank is likely to go for a 50 basis points rate cut next fiscal year and out of this 25 bps cut may be affected in the policy review meet next month amid slackening economic recovery, said a report.

The financial services major said it estimated that old GDP growth slipped to 4.6 per cent in the December quarter, well below our calculated 7-7.5 per cent potential. Our lead industrial indicator is slipping as industrial production contracted for three consecutive months through January.

Declining inflation and negative industrial outlook have strengthened a case for RBI cutting interest rate in its first bi-monthly monetary policy for 2016-17 on April 5.

“We have raised our RBI rate cut forecast to 50 bps in FY17 from 25 bps earlier. We see 25 bps cuts on April 5 and in August. After all, the recovery is slackening,” Bank of America Merrill Lynch (BofA-ML) said in a research note.

RBI Governor Raghuram Rajan on February 2, left the key interest rate unchanged citing inflation risks and growth concerns.

According to the global brokerage major, the onus of recovery is now on the central bank, as the government has stuck to its fiscal roadmap.

“The onus of recovery is now on RBI, with Finance Minister Jaitley cutting his FY17 fiscal deficit target to 3.5 per cent of GDP, in line with the pre-committed fiscal path,” the report said adding that small saving rate cuts should also help the monetary policy transmission.

The report, however, noted the scope for further RBI rate cuts is limited, as the repo rate, at 6.25 per cent, would be well below medium-term average 7 per cent CPI inflation.

Meanwhile, Rajan on March 12 said the government sticking to fiscal consolidation roadmap of reducing deficit to 3.5% of the GDP in 2016-17 was comforting. On how that would feed into monetary policy, he had said “wait and see”.

What Lies In Store for the Global Economy In 2016

What Lies In Store for the Global Economy In 2016

Every New Year brings with it various economic events which tend to catch people by surprise. No matter how carefully you consider the data presented, it is not always possible to make an accurate prediction. For example, there weren’t many people who foresaw the slump in oil prices that began in the 2014 summer. Neither were they able to predict the sharp fall of the Chinese economic growth.


However, there are still other events that you can make a reasonable prediction based on careful consideration of economic data. As such, here are a few economic trends that might come to the fore in 2016 and thereby shape global economy.


The State of the Chinese Economy

For the last few years, China kept stunning the world with its economic growth rates. Sometimes, they were three times more than what the United States enjoyed. Of course, the capital investment directed by the government had a major role to play in this matter. When the global financial crisis stuck, China remained more or less unfazed thanks to the huge boost provided by the government

Unfortunately, most of this investment was made possible by growing the debt instead of profits. Now, China will have to shift the wealth from the powerful to the common Chinese household. Suffice to say, that will neither be politically easy nor fast. This trend is likely to be a recurring theme in 2016 and more.


The American Economy will affect the Global Economy

It may come as a surprise to many but it is a fact that the performance of the US economy is currently the best in its class. After all, the rest of the developed world is experiencing a slower growth compared to America, especially with the decline that China is experiencing.

More importantly, the largest trade deficit in the world currently belongs to the United States. In other words, the other major economies in the world such as China, Japan and Germany are depending on the demand in the United States in order for their economies to experience growth. This situation is likely to continue through 2016 where the global economy leans on the consumer in America.


The Indian Economy Can Experience Major Growth

The International Monetary Fund believes that the Indian economy is poised to grow at a rate of 7.3% in 2016. That will be faster than even what the Chinese can muster up with the inflated numbers produced by its government. It is likely that 2016 will become a turning point. India may not be as technologically advanced as China but it may turn out to become the fastest growing economic in the large sector.

India has also been affected by the same issues that have slowed down economies in other emerging markets. However, demographics have proven to be India’s advantage. In the coming decade, the Indian workforce may grow up to be bigger than even the Chinese.


Of course, nothing can be said to be certain about the future of the global economy. Europe might end up on the edge of an economic crisis, for example. One can only hope for the best.

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.

The truth about zero percent finance schemes

The truth about zero percent finance schemes

Day in day out we see ads all over offering everything from a toaster to a car at zero percent finance. And with the advent of EMIs (Equated Monthly Installments), even the middle class can now dream of owning a car; the big and bold 0% finance just makes it all the more tempting.

However, there may be a lot more to the zero percent schemes than meets the eye. What you initially think is a great offer, may end up costing you more money in the long run. Remember, the popular saying: “There is no such thing as a free lunch!”

How does the zero percent scheme work?

At the outset, what you need to know is that there are ALWAYS hidden costs inbuilt in such schemes. You will also be paying a transaction or processing fee under the zero percent scheme and consequently more money through advance EMIs.

For example, you decide to buy a 39-inch LED Full HD television that costs around Rs. 48,000. And of course, the zero percent finance scheme is too tempting to refuse. So, as per this scheme you are required to pay the entire cost in 6 EMIs of Rs. 8,000 each with Rs. 1000 as processing fees. This is a standard charge that all finance companies will charge.

What most consumers don’t know is that cash payment entitles the customer to a discount. Let’s say, in this case it is Rs. 2,000.

Now here’s how you end up paying more: To begin with you pay a processing fee of Rs. 1,000. And since you are buying the TV on a zero percent finance scheme you are not entitled to the cash discount of Rs. 2,000! So, overall, you will end up paying Rs. 3000 more.

Extra charges:

By chance if you end up missing an EMI, the interest charges are back-breaking! Yes, companies actually charge anywhere between 24% to 36% as interest charges. To put things in perspective, a car loan is available at around 11.5% and a home loan at around 11%. This is topped with late payment fees and taxes. If you purchase a product on an EMI scheme offered by your credit card company, it is most likely that there will be a pre-closure penalty in the range of 2.5% to 3%.

How to decide if the scheme is actually zero percent?

It is always better to ask some basic questions to find out if the zero percent schemes are actually zero percent. Find out if you are eligible for any discount if you pay the full amount and if there are any transaction charges for the finance scheme. If the answer is ‘no’ for both the questions then you might consider yourself lucky that the zero percent schemes is actually zero percent. This is as rare as a blue moon though.