Thought for the day
" Life
is really simple, but we insist on making it complicated."
-
Confucius (Chinese,
551-479BCE)
Word for the day
Criticaster (n)
An incompetent critic.
(Source: Dictionary.com)
Malice towards none
In all likelihood that Nestle will eventually win the Maggi
battle.
It may however not press for compensation as a gesture of
goodwill towards the government.
But I will certainly seek compensation for the deprivation
my kids are suffering due to this unsavory ban.
No enthusiasm for rate cut
As the date for RBI's periodic policy review date draws closer the
anticipation regarding the likely move on policy rate is rising. Like most
preceding policy reviews, the opinion is divided this time also.
Many believe that strong fiscal correction measures taken by the
government, trending lower commodity prices and poor core sector growth should
lead the governor to cut another 25bps before hitting a pause button.
While there are others who find the erratic monsoon and rising
food & vegetable prices a deterrent to any rate cut on August 4.
Not joining any camp, I continue to strongly feel that RBI is
running way behind the curve and any marginal measure (25bps cut) or absence of
that is unlikely to have any material impact on the economy.
Nonetheless, I feel that RBI today has little leverage in cutting
rates. The failure of last auction indicated that there may not be much demand for
government paper at lower yield.
Moreover, the government appears keen to upfront the borrowing program
to gather adequate resources for plan expenditure. Lower yields may defeat that
purpose. Narrowing of gap with other EM yields with risk of further relative appreciation
in INR might impact foreign debt flows also.
In my view, the rate decision of Gov Rajan next month will be
driven more by "INR" than "Industry".
Given the elevated level of stress on corporate balance sheets, as
evident from the FY15 annual accounts, low demand environment, and poor credit
growth despite comfortable liquidity conditions three things are more than
clear -
(a) few bankers want to
take risk of giving fresh money to a stressed corporate or even a new project;
(b) few corporate balance
sheet will justify further lending even if rate fall by 25bps; and
(c) some aggressive
bankers may be chasing households with high priced relatively small ticket
consumer loans, compromising prudent norms and laying foundation for a credit
bubble 4-5yrs down the lane.
Besides, in recent days the short term money markets have anyways been
close to or even below the policy rates.
Under these circumstances a 25bps repo cut would be mostly
redundant, in my view.
Gov. Rajan would not like to make a bigger cut, as it would risk
further strengthening of already strong INR; force more liquidity infusion for
buying USD; and thereby weakening the fight against price rise.
From market perspective I am not be too enthusiastic about a rate
cut in next policy announcement.
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