Posts tagged policy rates

September inflation edges upto 8.6%

The WPI for the month of September 2010 stood at 8.62% compared to 8.5% in the previous month. The figure was almost in line with the market expectations which were pegged at around 8.5%. The central bank is sure to take the cues from these high figures in its monetary policy meeting scheduled on 2nd  November and is likely to take actions keeping inflation control as its primary agenda. RBI has already raised policy rates by 125 basis points in five equal hikes this calendar year and was expected to pause, but sticky inflation could force it to continue with monetary tightening.

  • The sub-group of primary articles rose by 17.45% y-o-y against 10.63% in Sep’09 while it rose marginally by 1.5%% on m-o-m basis mainly due to lower prices of fruits, vegetables, condiments and spices. However, the prices of pulses, cereals and eggs declined putting a cap on further rise in the food prices
  • In the same sub-group, the non-food articles increased by 18.2% y-o-y due to higher prices of raw silk, raw cotton, copra, flowers and fodder. However, in comparison to last month, prices of raw jute and certain varieties of oil-seeds declined. The index for minerals jumped by leaps and bounds to register a growth of 28.48% m-o-m due to increase in the prices of crude, barites, etc
  • The second sub-group of fuel, power, lights and lubricants increased to 11.06% y-o-y from -8.09% in Sep’09, continuing the uptrend since past few months. Ironically, it registered a degrowth of 0.27% m-o-m due to lower prices of turbine fuel, bitumen and naphtha
  • The third sub-group of manufactured products increased marginally to around 5% y-o-y compared to the last month’s growth. It registered a growth of 0.31% m-o-m mainly because of increase in the prices of textiles, rubber related products, rubber related products etc.
  • Food products rose by 0.72% m-o-m due to higher prices of oil-seed, oil-cake, vanaspati, vegetable seeds and copra. Sugar prices declined by 2.30% together with a decrease in the prices of salt, ghee, and gur. Cotton textiles and man-made textiles showed a huge increase compared to the previous y-o-y figures, which can be accounted for an increase in the prices of their raw-materials.

 

Author:Rahul Sonthalia, Research Head, Kredent

India to move to market movement based oil prices

The Empowered Group of Ministers (EGoM), headed by Finance Minister Pranab Mukherjee, have decided in the meeting just now that India oil prices such as petrol and diesel prices will be determined by market.

Details of the same, as to how this exactly will be carried out will be disclosed later and we will update you on the same.

As of now, diesel prices have been hiked by Rs 2/ liter but eventually they will be market linked.Petrol prices will be hiked by Rs 3.50/liter the same time, LPG prices have been hiked by Rs 35/cylinder and Kerosene prices by Rs 3/litre. New prices will be effective by mid-night today.

Before the meeting it was speculated that EGoM may either decide to raise the prices or may go ahead with Petroleum Minister Murli Deora’s suggestion of oil price decontrol.

The move has been taken to reduce the oil subsidy burden on the Govt. The government has provided only Rs 3,108 crore towards petroleum subsidy in the current year against an estimated fuel subsidy bill for 2010-11 of nearly Rs 90,000 crore at an average crude oil import price—popularly called Indian basket—of $80 a barrel. If the prices of petroleum products were not revised, the huge subsidy bill could easily eat up the bounty the government received from the 3G and broadband auction.

This move of EGoM is likely to affect inflation adversely. Inflation is already at a high level (To read our May inflation update, click here). WPI inflation for the month of May breached the 10% mark coming at 10.16%. Though food articles are largely blamed for high inflation, but fuel index is also catching up fast. This move of EGoM is likely to put more pressure on inflation. However, Oil minister was of the opinion that the hike will have marginal effect on inflation and the hike will be absorbed by the consumer. An increasing inflation will put pressure on RBI to raise policy interest rates (What are policy rates?), may be even before First quarterly review of Monetary Policy towards the end of July.

G-Sec markets experienced selling pressure after the release of news and yields on benchmark 10 year bond, 7.80% 2020 bond rose to touch a high of 7.6368 from the close of 7.5682 yesterday. Towards the end of the day, yields have risen to as high as 7.67%.

Equity markets have taken this as a very positive note for oil marketing companies particularly HPCL and BPCL, which jumped 5.4% and 5.5% respectively from yesterday’s close. HPCL finally ended 13.66% up whereas BPCL ended 12.8% up on Sensex.  Overall equity index have been on a negative side since morning and have not shown any significant movement to the news. Sensex was down 0.88% on the close of market.

Author:Praveen Bajaj