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Bankers surprised at RBI’s unanticipated holding of rates

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Shaktikanta Das

Mumbai, Dec 5 : Bankers and industry were surprised and disappointed on Thursday at the RBI maintaining its key interest rates unchanged, when they had been expecting the repo, or the central bank’s short-term lending rate, to fall below the current 5.15 per cent even as the second quarter GDP growth has fallen to 4.5 per cent.

The country’s largest bank state-run State Bank of India (SBI) said the status quo was unexpected.

“The RBI decision for a status quo, though an unanticipated policy surprise, is the most appropriate as monetary policy works with a lag. The lowering of the GDP growth for FY20 and FY21 reflects continued growth conundrums and a slow recovery,” an SBI statement said.

Thursday’s policy announcements have also given further push for the development of the secondary market for corporate loans by creation of self-regulatory body (SRB) thereby matching the global best practices in this regard, it said.

“Decision to allow OTC currency derivative transactions upto $10 million without evidence of underlying exposure will provide a fresh breath of life to this market giving it much required depth going forward”, SBI Chairman Rajnish Kumar, who is also chairman of the Indian Banks Association, said.

Zarin Daruwala, CEO, India, Standard Chartered Bank said “the MPC took a pause from cutting the repo rate to take stock of rising inflation, the fiscal situation and the lagged impact of the recent measures announced by the government. The MPC continued with its accommodative stance to support growth and has left the door open for future rate cuts. Additionally, the impetus for creating a secondary market for corporate loans should strengthen the system and provide liquidity.”

“The Monetary Policy Committee (MPC) shocked expectations by keeping rates on hold. While not acting today, the MPC has nevertheless acknowledged monetary policy space for future action. It also reiterated continuation with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target”, said Suyash Choudhary, Head – Fixed Income, IDFC AMC.

The inflation trajectory was clearly a key reason for the pause. As per the RBI, retail inflation is likely to remain elevated in the fouth quarter due to food inflation, likely to taper off only after that.

“The RBI also cited many uncertainties between now and March 2020 with the upcoming Union Budget providing greater insight on the measures to be undertaken by the Government and its impact on growth and fiscal deficit”, Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank said.

Industry chamber Assocham said the temporary pause in cuts will leade to further transmission of lower rates.

“Temporary pause in softening interest rate cycle is to allow more transmission is a sensible approach by RBI”, Assocham said.

In a statement, Assocham President B.K. Goenka said that “temporary pause by the RBI to the policy interest rate reduction cycle, while keeping its stance accommodative, is understandable as long as it keeps nudging the banks to significantly pass the benefits of earlier rate combined Repo rate cuts of 135 basis points since February this year”.

He also said that by the RBI’s own assessment, against rate cuts of 135 basis points in the last 10 months, the transmission by the banks has been only 44 basis points.

“We agree with RBI Governor that there is no point announcing rate cuts mechanically, unless the actual transmission takes place at the ground level”. PHD Chamber said.

PHD Chamber of Commerce President D.K. Aggarwal said a significant cut in repo is expected in the coming bi-monthly monetary policy statements to induce demand and revive economic growth.

At least a 25 basis points cut was expected from the RBI to enhance the liquidity in the system and support demand in the economy , he said.

Industry chamber Ficci said it is disappointed that the central bank did not cut rates.

FICCI President Sandip Somany said: “The RBI has left the repo rate unchanged, which is contrary to what Ficci was expecting given the weakening growth scenario in the economy. We note with concern that the transmission of the earlier policy rate cuts has not happened adequately, and are disappointed with the decision to not cut the repo rate as there is need for continued action on the policy rate front.”

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Budget, Coronavirus to be key monitorables next week

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Stock Market Down

Mumbai, Jan 26 : The upcoming six-day trading week will keep investors on their toes due to the mega event of presentation of the Union Budget on Saturday. Much of the trading will also depend on the impact of the coronavirus outbreak, which has killed 56 people in China and dimmed the mood of investors globally.

Investors will take their cues most from the fiscal deficit target that the government sets for the next financial year. Amid tax collections falling below target, analysts say that the markets have already priced in the fiscal deficit to breach the target for the current year set at 3.3 per cent of the GDP.

Anindya Banerjee of Kotak Securities said: “Fear of fiscal slippage in the Union Budget has caused an outflow nearly 1.6 billion from the debt market over the past 3 weeks.”

At the same time, relentless intervention from the central bank has not allowed the rupee to appreciate as much as its peers in Asia. These are the major reasons why the rupee has become one of the weakest currencies in Asia, Banerjee added.

While the Economic survey report on Friday will provide further evidence on the extent of economic slowdown in India, expected measures to kickstart the economy in the Union Budget will provide direction to the equity markets, experts say.

Besides, investors will keep an eye during the upcoming week on the quarterly numbers of heavyweights like HDFC, Maruti Suzuki, the Bajaj twins, Bharti Airtel, SBI, ITC, Power Grid, HUL and Tech Mahindra.

Vinod Niar of Geojit Financial Service said that the market direction will depend on the actual budget announcements and the third quarters results, and that the broad market is still very solid in expectation of re-rating of valuations.

“The Q3 result had solid expectations but actual results are marginally below expectation for sectors like IT and banks, leading to cautiousness in the market. We feel that this cautious trend will be maintained in the near-term,” Nair said.

The Indian stock markets will be open for normal trading on February 1, which is a Saturday, when the Union Budget is presented to the Parliament by Finance Minister Nirmala Sitharaman.

(Ravi Dutta Mishra can be contacted at [email protected])

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Global markets under pressure over fear of coronavirus spread

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Stock Market Down

Mumbai, Jan 24 : Fears that the outbreak of coronavirus in China may disrupt economic activity and global growth has sent the stock markets tumbling.

Chinese health authorities on Friday said that 830 cases of pneumonia caused by coronavirus were confirmed in 29 provincial-level regions in the country. The pneumonia has so far claimed 25 lives.

A sharp adverse reaction from Asian, US and European markets was witnessed because China is entering one of its busiest travel periods on account of its Lunar New Year holiday. The virus outbreak could hurt demand.

On Thursday, Chinese stock markets logged its biggest slide in eight months. However, Indian markets closed higher as the oil prices plunged significantly. The global oil benchmark, Brent slipped to $62 a barrel as the virus outbreak in China may dent fuel demand.

Meanwhile official sources told IANS that though over 500 Indian students study in Wuhan city’s medical colleges and universities, most of them had left for home for the Chinese New Year holidays.

Deaths due to the virus have revived memories of the SARS epidemic, caused by a coronavirus, which killed nearly 800 people and infected more than 8,000 others across the world in 2002-2003.

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SC stays NCLAT order on RoC plea for changes in Tata-Mistry verdict

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Cyrus Mistry

New Delhi, Jan 24 : In a major development in the Tata Sons-Cyrus Mistry row, the Supreme Court on Thursday stayed the National Company Law Appellate Tribunal’s (NCLAT) order dismissing the Registrar of Company’s (RoC) plea to modify its verdict on the Tata Sons matter.

Tata Sons had challenged in the apex court the NCLAT’s January 6 order on conversion of Tata Sons from a public to a private company.

Agreeing to hear the Tata Sons’ plea, the apex court on Friday issued a notice to the parties concerned. The three judge bench headed by Chief Justice S.A. Bobde will hear the matter along with the main plea filed by Tata Sons against NCLAT’s verdict.

The National Company Law Appellate Tribunal (NCLAT) had on January 6 rejected the plea by the RoC to modify the appellate tribunal’s judgement in the Tata-Mistry case.

The NCLAT had in its December 18 verdict termed the RoC’s decision to allow conversion of Tata Sons from a public to private company as illegal, while the RoC had filed a plea at the appellate tribunal to remove the word “illegal” from its verdict, among other observations.

The two-judge bench headed by NCLAT Chairman Justice S.J. Mukhopadhaya had observed that the judgment did not cast any aspersions on the RoC.

Posting the matter for hearing after four weeks, the Supreme Court had, on January 10, stayed the NCLAT order reinstating Cyrus Mistry as Tata Sons Chairman. Chief Justice S.A. Bobde said the NCLAT had granted a prayer not made.

However, Mistry has already made a statement that he is no longer interested in taking up the chairmanship of Tata Sons.

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