Major Takeaways from RBI:Third Bi-monthly Monetary Policy, 2017-18

In the third Bi-monthly Monetary Policy review by the RBI, the Repo rates under the Liquidity Adjustment facility has been cut by 25 bps.

The rates as of now are:
Repo Rate: 6.0%
Reverse Repo Rate: 5.75%
Marginal Standing Facility Rate: 6.25%
Bank Rate: 6.25%

Inflation targeting, as always, played a major role in this decision as the policy decision seemed to be in line with the objective of achieving inflation target of 4 per cent within a band of +/- 2 per cent, while supporting growth.
The inflation projections of RBI are given in the chart below:

 Inflation is set to be affected by the following factors and their interactions:
(a) The impact on the CPI of the implementation of house rent allowances (HRA) under the 7th central pay commission (CPC);
(b) The impact of the price revisions withheld ahead of the GST ;
(c)  Implementation of farm loan waivers by States may result in possible fiscal slippages and undermine the quality of public spending and affect inflation;
(d) If States implement the allowances and salaries similar to Central, then RBI projects inflation to increase by 100bps over 18-24 months;
(e) A normal monsoon may keep food inflation under check;
(f) Farm loan waivers are likely to compel a cutback on capital expenditure;
(g) High levels of stress in twin balance sheets – banks and corporations – are likely to deter new investment; and
(h) The international commodity price outlook is fairly stable.

FOREX Reserves: US$ 392.9 Billion
Foreign Portfolio Investment: US$ 15.2 Billion ( Debt+Equity )
FPI remain bullish on the outlook for the Indian Economy.
Surplus Liquidity: There is surplus liquidity in the system which is exacerbated by the budgetary spending of Government.RBI seems to be actively monitoring the situation and actively managing the excess liquidity as is stated in the policy statement:"Surplus Liquidity of Rs. 1 trillion was absorbed through issuance of treasury bills (TBs) under the Market Stabilisation Scheme( MSS), and Rs. 1.3 trillion through Cash Management Bills (CMBs) so far this fiscal year".
Export-Import:
The export growth subdued as the value of commodities exported either slowed or declined.
Import growth on the other hand remained high due to two main reasons: Surge in Oil Imports, and stockpiling of Gold imports ahead of GST implementation.





 

Ripples: Demonetisation, Trump and OPEC Part-3

This is the third part of ripples series. For the previous parts click on :-
PART 1
PART 2

The oil prices have been under pressure for quite some time due to the supply glut. This has diminished the profit margins of many oil exporting countries. 

The organization finally attempted its first production cut since 2008. Despite many political difficulties, a September 2016 decision to trim approximately 1 million barrels per day was codified by a new quota agreement at the November OPEC conference. The agreement (which exempted disruption-ridden members Libya and Nigeria) will be in effect for the first half of 2017 – alongside promised reductions from Russia and ten other non-members, offset by expected recoveries in the US shale sector, Libya, Nigeria, and spare capacity.

International oil prices rose to an 18-month high of more than $58 a barrel after the Organization of Petroleum Exporting Countries and several non-members agreed on Dec. 10, 2016  to end two years of unfettered production and instead cut output to increase price in the market. 

Despite this agreement to cut oil production and thereby reducing supply Crude still slipped about 5% from that peak as traders await proof that OPEC will follow through on the deal. Producers have already removed 1.5 million barrels a day of supply from the market, Saudi Minister of Energy and Industry said in Vienna. 

Representatives of OPEC and several other major oil producers met in Vienna for their first meeting to monitor compliance with an agreement to cut output. It remains to be seen as to how effective this agreement is in bringing down the supply and increasing prices of crude oil. 

With the prices slipping again it will become imperative for the OPEC to prove  that the group is serious about finally eliminating a three-year crude oversupply and dispel skepticism stemming from previous unfulfilled promises. The outcome will depend on the degree of compliance.

Whatever be the out come on the compliance front, this decision by OPEC is bound to create Ripples in the global markets.