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CRR up 0.5 pc, key rates unchanged
Mumbai, October 30
The Reserve Bank of India (RBI) has hiked the cash reserve ratio (CRR) by 50 basis points to 7.5 per cent while leaving other major rates unchanged. The hike comes into effect from November 10, RBI Governor Y.V. Reddy said here today. 
RBI Governor Y.V. Reddy delivers his address at the RBI headquaters in Mumbai Monetary Policy Highlights

RBI Governor Y.V. Reddy delivers his address at the RBI headquaters in Mumbai on Tuesday.
— AFP photo

Economy on strong growth momentum,
says RBI

Mumbai, October 30
Highlighting the macro-economic and monetary developments during 2007-08, RBI said the country's economy has shown strong growth momentum during the first quarter of 2007-08. The apex bank noted that the country's manufacturing and services sectors have show strong performances.





EARLIER STORIES

 
A Casio Computer employee displays the prototype model of the world's fastest-shooting consumer digital camera, which shoots 60 images per second at 6.0-mega pixel resolution and also capable of recording 300 frames per second VGA movies, in Tokyo
A Casio Computer employee displays the prototype model of the world's fastest-shooting consumer digital camera, which shoots 60 images per second at 6.0-mega pixel resolution and also capable of recording 300 frames per second VGA movies, in Tokyo on Tuesday. The camera, expected to be launched in 2008, is to feature a 7.4-88.4mm/F2.7-4.6 zoom lens (x12) equivalent to a 35-420mm in 35mm. — AFP

CRR hike may hurt credit offtake: Assocham
New Delhi, October 30
Industry chambers today apprehended that the RBI’s decision to increase the CRR by 50 basis points will impound the bank liquidity thus reducing the lendable resources of the banks and hoped that it will not have an adverse impact on the lending rates.

RBI’s move to suck out excess liquidity: FM
New Delhi, October 30
Union finance minister P Chidambaram today said the RBI’s move to hike CRR by 50 basis points was to curb surplus money supply in the system and hoped that the economic growth would be more than the central bank’s projection of 8.5 per cent for the current fiscal.

Interest rates likely to remain stable
Mumbai, October 30
Bankers today hinted at a stable interest rate regime despite the Reserve Bank's move to suck out excess liquidity by raising the amount of depositors money commercial banks should keep in reserve.

Chidambaram calls for regulating capital flows
New Delhi, October 30
Union finance minister P. Chidambaram underlined the need for managing the enormous capital flows requiring appropriate regulations as well as risk management systems to avoid any potential shocks.

Airbus in talks with AI for A380s
New Delhi, October 30
After having already signed up with Kingfisher Airlines for the supply of A-380 European, the Airbus industry is now in talks with flag carrier Air India for sale of up to 12 similar aircraft.

Infosys eyes $1,500-m overseas deals
New Delhi, October 30
IT major Infosys has said it is pursuing 15 overseas deals each worth $100 million and above, while it expects to earn more than five per cent of its total revenue over the next five years from the country.





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CRR up 0.5 pc, key rates unchanged
Shiv Kumar
Tribune News Service

Mumbai, October 30
The Reserve Bank of India (RBI) has hiked the cash reserve ratio (CRR) by 50 basis points to 7.5 per cent while leaving other major rates unchanged. The hike comes into effect from November 10, RBI Governor Y.V. Reddy said here today.

CRR is the money commercial banks have to park with the central bank. However, RBI has left the key lending and borrowing rates — repo, reverse repo and bank rates unchanged.

Explaining the new policy, RBI Governor said the apex bank's policy aimed to ensure price stability, credit quality and orderly conditions in the financial market. Dr Reddy said the RBI expected the country's GDP to grow at earlier forecast rate of 8.5 per cent throughout the current financial year assuming that international crude prices did not escalate further.

Dr Reddy said the apex bank expects inflation to be contained in the 4-4.5 per cent, with a medium-term objective of containing inflation at around 3 per cent. He added that the apex bank would respond 'swiftly with all possible measures' to deal with global or domestic situation impinging on inflation expectations, financial stability and growth momentum.

The apex bank has now allowed oil companies to hedge foreign exchange exposures by using overseas over-the-counter (OTC) / exchange-traded derivatives up to a maximum of one year forward.

He said the mid-term review of the credit policy aimed to liberalise forex transactions, strengthening risk management in banks and ease migration to Basel II norms.

Dr Reddy said RBI would set up a working group to lay down the roadmap for adoption of a suitable framework for cross-border supervision and supervisory cooperation with overseas regulators.

The bank rate has been kept unchanged at 6 per cent. The repo rate under the LAF is kept unchanged at 7.75 per cent. The reverse repo rate under the LAF is kept unchanged at 6 per cent.

The Reserve Bank said it has the flexibility to conduct repo/reverse repo auctions at a fixed rate or at variable rates as circumstances warrant.

The RBI retains the option to conduct overnight or longer-term repo/reverse repo under the LAF depending on market conditions and other relevant factors. The Reserve Bank will continue to use this flexibility including the right to accept or reject tender(s) under the LAF, wholly or partially, if deemed fit, so as to make efficient use of the LAF in daily liquidity management.

Domestic developments

According to RBI, the real GDP growth during the first quarter of 2007-08 is placed at 9.3 per cent as against 9.6 per cent in the corresponding quarter a year ago.

The year-on-year (Y-o-Y) wholesale price index (WPI) inflation eased from its peak of 6.4 per cent on April 7, 2006 to 3.1 per cent by October 13, 2007.

The average price of the Indian 'basket' of international crude has increased to $ 80.0 per barrel as on October 23, 2007 from $ 72.1 per barrel in July-September, 2007.

The Y-o-Y CPI inflation for industrial workers showed a sharp increase to 7.3 per cent in August 2007 as against 6.3 per cent a year ago.

The Y-o-Y growth in aggregate deposits at Rs 5,69,061 crore (24.9 per cent) was higher than that of Rs 3,88,528 crore (20.4 per cent) a year ago.

Total credit exhibited a Y-o-Y growth of Rs 3,81,333 crore (23.3 per cent) as on October 12, 2007, on top of an increase of Rs 3,66,463 crore (28.8 per cent) a year ago.

Banks' holdings of government and other approved securities increased to 30 per cent of their net demand and time liabilities (NDTL) as on October 12, 2007, from 28 per cent at end-March 2007.

During the second quarter of 2007-08, financial markets remained generally stable with conditions of abundant liquidity and interest rates moderated in almost all segments of the financial system.

During April-October 2007, public sector banks (PSBs) decreased their deposit rates, particularly at the upper end of the range for various maturities, by 25-60 basis points.

During April-October 2007, the benchmark prime lending rates (BPLRs) of private sector banks moved from a range of 12.50-17.25 per cent to 13-16.50 per cent.

Merchandise exports rose by 18.2 per cent in US dollar terms during April-August 2007 as compared with 27.1 per cent in the corresponding period of the previous year while import growth was higher at 31 per cent as compared with 20.6 per cent in the previous year.

External developments

Non-oil imports rose by 44.3 per cent (10.9 per cent a year ago); oil imports, however, slowed down to 6 per cent (44.5 per cent), mainly on account of moderation in the price of the Indian basket of crude oil by 0.5 per cent during April-August 2007.

India's foreign exchange reserves increased by $ 62 billion during 2007-08 and stood at $ 261.1 billion on October 19, 2007.

The rupee appreciated by 10.3 per cent against the US dollar, by 2.4 per cent against the euro, by 5.4 per cent against the pound sterling and 7.1 per cent against the Japanese yen during the current financial year up to October 26, 2007.

Monetary Policy Highlights

  • CRR hiked by 0.5 pc to 7.5 pc from Nov 10
  • Bank, repo, reverse repo rates unchanged
  • GDP growth outlook unchanged at 8.5 pc for 2007-08
  • Inflation to be contained close to 5 per cent in FY'08
  • Inflation expectation in range of 4-4.5 per cent
  • Medium term objective on inflation is 3 per cent
  • Oil companies permitted to hedge foreign exchange on overseas OTC exchange.
  • Importers and exporters allowed call, put options
  • Authorised dealers permitted to offer American Options
  • Working group on RRB, core banking roadmap
  • Financial aid to RRBs for IT implementation
  • Action plan for National Electronic Clearing Service
  • Hi-level committee to review lead bank scheme

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Economy on strong growth momentum, says RBI
Tribune News Service

Mumbai, October 30
Highlighting the macro-economic and monetary developments during 2007-08, RBI said the country's economy has shown strong growth momentum during the first quarter of 2007-08. The apex bank noted that the country's manufacturing and services sectors have show strong performances.

According to the estimates released by the Central Statistical Organisation (CSO) in August 2007, real GDP growth was 9.3 per cent during the first quarter of 2007-08 as compared with 9.6 per cent during the same period in 2006-07.

The apex bank also indicated that the country's agriculture sector would also show strong growth.

During April-August 2007, the index of industrial production rose by 9.8 per cent as compared with a growth of 11.0 per cent recorded during the corresponding period of the previous year. The manufacturing sector registered a growth of 10.3 per cent during April-August 2007 on top of 12.2 per cent during April-August 2006.

Infra growth slows

However, the infrastructure sector recorded a growth of 6.6 per cent as compared with 8.3 per cent a year ago, with five of the six core infrastructure industries registering a deceleration. The electricity sector was the only sector which recorded a higher growth than a year ago.

The services sector continued to record double-digit growth (10.6 per cent) in April-June 2007.

Available information on central government finances for 2007-08 (April-August) indicates that gross fiscal deficit (as proportion of the budget estimates) was placed higher than a year ago. Revenue deficit (adjusted for profit on sale of Reserve Bank's stake in SBI) was 122.9 per cent of the full year budget estimates. Tax revenue remained buoyant, rising by 22 per cent over that during April-August 2006.

Price situation

Headline inflation generally edged up in major economies during the quarter ended September 2007 as compared with the previous quarter.

Many central banks further tightened monetary policy during the second quarter of 2007-08 against the backdrop of persistent inflationary pressures represented by core inflation, especially in view of continued strength of demand, ample liquidity and possible pass-through from past and present increases in oil and other commodity prices.

Monetary and liquidity conditions

Growth in broad money (M3) year-on-year (y-o-y) was 21.8 per cent (Rs 6,41,464 crore) on October 12, 2007, as compared with 18.9 per cent (Rs 4,66,603 crore) a year ago.

Aggregate deposits of banks increased by 23.4 per cent (Rs 5,83,198 crore) on October 12, 2007 as compared with 19.2 per cent (Rs 4,01,717 crore) a year ago.

Liquidity conditions continued to be influenced by movements in capital flows and cash balances of the governments.

Financial markets

During the second quarter of 2007-08, international financial markets turned volatile as uncertainties about the size and distribution of losses from the US sub-prime mortgage market made investors to adjust their positions. Emerging market economies have generally been less affected by developments in the advanced economies.

Indian financial markets remained orderly for the most part of the second quarter of 2007-08.

In the foreign exchange market, the Indian rupee generally appreciated vis-a-vis all major currencies (US dollar, euro, pound sterling and Japanese yen) during the quarter.

External economy

India's balance of payments position has remained comfortable during 2007-08 so far. The merchandise trade deficit, on balance of payments basis, increased from $16.9 billion in April-June 2006 to $ 21.6 billion in April-June 2007. Net surplus on the invisibles account exhibited buoyancy during the first quarter of 2007-08, led by exports of software, business services and private remittances, and continued to finance a large part (78.2 per cent) of the merchandise trade deficit.

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CRR hike may hurt credit offtake: Assocham
S. Satyanarayanan
Tribune News Service

New Delhi, October 30
Industry chambers today apprehended that the RBI’s decision to increase the CRR by 50 basis points will impound the bank liquidity thus reducing the lendable resources of the banks and hoped that it will not have an adverse impact on the lending rates.

Meanwhile, Federation of Indian Export Organisations (FIEO) said the increase in CRR and no reduction in the cost of credit will adversely impact small and medium enterprises (SMEs).

Ficci president Habil Khorakiwala, while reacting to the RBI’s monetary policy, said, “We hope that the CRR increase will not have an adverse impact on the lending rates, which are already at a high level. While we do appreciate RBI’s predicament to control liquidity, any increase in lending rate would have a serious impact on the corporate profitability.” He, however, welcomed the measures announced by the RBI in its credit policy permitting the exporters to earn interest on the EEFC balance to the extent of $1 million.

Reacting on mid-term review, Assocham said bank rate should have been reduced as per requirements of industry to arrest implications of slow down in global economy and described the statement as giving more weightage to inflation.

Assocham president Venugopal Dhoot said “the industry is already reeling under pressure due to high interest rates and CRR hike may further hurt the credit offtake.”

PHDCCI president Sanjay Bhatia said the RBI should have avoided an increase in CRR in the backdrop of inflation remaining under check.

“The CRR was already high at 7 per cent compared to target level of 3 per cent. Since the credit off take is low, the increase in CRR may further impact the BPLR,” he said adding the CRR hike may not have the desired impact on inflation.

CII, on the other hand, said the RBI, keeping in mind the international trends in interest rates and particularly the indications coming in from the US, could have considered an interest rate (repo rate) cut to go along with the CRR hike of 50 bps.

While appreciating the RBI Governor’s difficulties in dealing with the challenges of managing liquidity and consequent inflationary expectations and boosting demand and hence growth, CII wondered how the RBI would react in the eventuality of the US Federal Reserve cutting interest rates tomorrow, since another round of interest rate cut would increase the propensity of more foreign funds coming into India through the ECB route.

Expressing disappointment that “no significant measures” had been taken to reduce the cost of credit to the SME export sector, especially in view of the appreciating rupee, FIEO felt that the hike in CRR would further restrict credit for the SME sector, which would adversely affect trade and industry.

“This was an opportune time for the RBI to cut lending rates as inflation is at 3.2 per cent and the industrial production had picked up to 13.2 per cent in August from a single digit level of 7.6 per cent in July,” FIEO president Ganesh Kumar Gupta said.

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RBI’s move to suck out excess liquidity: FM
Tribune News Service

New Delhi, October 30
Union finance minister P Chidambaram today said the RBI’s move to hike CRR by 50 basis points was to curb surplus money supply in the system and hoped that the economic growth would be more than the central bank’s projection of 8.5 per cent for the current fiscal.

“RBI's mid-term monetary policy is a continuation of its policy announced last time, except that it has realised that there is excess liquidity and raised the requirement for banks to keep cash with the central bank by 0.5 per cent,” he told newspersons here minutes after RBI Governor Y. V. Reddy released the mid-year monetary review.

Pointing that the RBI has said “we are ready” to respond with short-term, medium-term and long-term measures, if there are domestic or global developments, the finance minister said he was sure that the banks would draw correct message from the policy. He also felt that the measures announced by the RBI would help suck out the excess liquidity in the system.

Commenting on the RBI’s projection of 8.5 per cent growth rate in the current fiscal, the finance minister said “I expect it to be slightly higher.” On real estate prices, he said “there is some rise in real asset prices, but reports have said that it has moderated. I still think they are still on the higher side.”

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Interest rates likely to remain stable

Mumbai, October 30
Bankers today hinted at a stable interest rate regime despite the Reserve Bank's move to suck out excess liquidity by raising the amount of depositors money commercial banks should keep in reserve.

Two of the country's largest lenders said interest rates were unlikely to change and that the hike in cash reserve ratio (CRR) could be absorbed.

"SBI will not change any rates for the time being and whether interest rates will come down or go up is for individual banks to decide," State Bank of India CMD O P Bhatt told reporters here.

ICICI Bank joint managing director Chanda Kochhar said: "This amount of CRR hike could be absorbed... there should not be much change in the interest rates" despite some pressure on net interest margins.

"The policy has to be seen in the context of what has happened this quarter...that huge liquidity is there and continues to pour in is a matter of concern," Bhatt said.

The bankers, however, felt that it was for individual banks to decide whether to absorb the hike, which translates into an outgo of about Rs 15,000 crore, or pass it on to borrowers. Inflation seems under control but there are suppressed pressures such as high global oil prices and food prices, he said.

Bhatt too admitted that there were pressures on net interest margins of the bank.

Public sector UCO Bank CMD S K Goel said there maybe a possible reduction in deposit rates to reduce the cost of funds.

"It is a clear signal that there was quite a lot of liquidity in the system and there was a need for stability," Kochhar added.

The 0.5 per cent hike in CRR to 7.5 per cent in one tranche will be effected from November 10. The central bank left other key short-term lending and borrowing rates (repo and reverse repo) and bank rate unchanged.

Another public sector major Bank of Baroda too said it was not looking at lending rate hike, while declining to comment on whether the bank will reduce deposit rates.

BOB chairman and managing director Anil Khandelwal said bankers have asked Reserve Bank to make any further hike in CRR applicable only on incremental liabilities.

"Otherwise their (banks) net interest margins will be severely affected and banks have a only a limit up to which they can absorb such hikes," he said. — PTI

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Chidambaram calls for regulating capital flows
Tribune News Service

New Delhi, October 30
Union finance minister P. Chidambaram underlined the need for managing the enormous capital flows requiring appropriate regulations as well as risk management systems to avoid any potential shocks.

"This is a completely new situation for us. We welcome capital, but we must learn how to absorb capital," Chidambaram told captains of industry at the maiden Fortune Global Forum here today.

The minister said India has seen foreign institutional investments surge to a record $17 billion this year. In October alone, FIIs have pumped in nearly $8 billion. The flows soared after the US Federal Reseve cut a key rate on September 18.

Noting that the huge inflow of capital has pushed up forex reserves to $261 billion, the minsiter said it had also resulted in more than a 12 per cent rise of the rupee against the dollar since January thereby hitting exports.

"We don't want regulation to fall behind innovation...regulation and derisking the system have to be one step ahead of innovation and human inventiveness... we cannot afford shocks," Chidambaram stressed.

Union commerce minister Kamal Nath said the global trade negotiations are closer than ever before to concluding the Doha Round of of WTO talks. At the same time, he made it clear that India will not compromise the interests of its poor farmers to strike a deal.

He said India's main concern pertained to agriculture and unless its sensitivities were taken on board, it would not be able to exercise flexibility in other areas.

India, Brazil and other deveoping countries have been asking the rich nations like the US and the European Union to cut farm subsidies while resisting the pressure mounted on the developed countries for reducing industrial tariffs. The Doha Round is way behind schedule as the rich and poor nations have failed to reach a consensus on the controversial issues.

It is for the first time that the Fortune Magazine's annual conclave spread over two days is being held in India and attended by top global CEOs, economists and policy makers from across the world. The event is open solely to chairmen, presidents and CEOs of large multinational companies.

The forum will debate issues relating to "Mastering the Global Economy." Dell chairman and CEO Michael Dell maintained that simplicity will drive the growth of global industry by enabling cost reductions and creation of new systems.

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Airbus in talks with AI for A380s
Tribune News Service

New Delhi, October 30
After having already signed up with Kingfisher Airlines for the supply of A-380 European, the Airbus industry is now in talks with flag carrier Air India for sale of up to 12 similar aircraft.

Flanked by chief operating officer John Leahy and Airbus (India) president Kiran Rao, Airbus CEO Tom Enders said his company hoped to expand its relationship with India, which he termed as the fastest growing market.

Leahy said Airbus was holding talks with Air India for sale of about 12 A-380 Aircraft. So far only Kingfisher Airlines has placed orders for purchase of A-380s, delivery of which will begin from 2010-11.

Rao said the company had so far sold more than 100 aircraft this year. The estimate was that India would require 1,100 aircraft worth $105 billion in the next 20 years.

Airbus industry’s relation with India is not limited to the sale of aircraft and the company has extended cooperation in the IT sector to set up a training service institute in Bangalore and entered into a partnership with the Hindustan Aeronautics Limited (HAL), which builds 50 per cent of doors for Airbus A-320 planes.

Jet to double its revenues

Meanwhile, Jet Airways said today it expects to more than double its revenues to $3 billion in the next three years.

With the bilateral agreement between India and Belgium being reviewed, it would increase Jet’s flight frequencies to Brussels. The company has already announced its intention to establish the Belgian capital as its European hub.

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Infosys eyes $1,500-m overseas deals

New Delhi, October 30
IT major Infosys has said it is pursuing 15 overseas deals each worth $100 million and above, while it expects to earn more than five per cent of its total revenue over the next five years from the country.

“We are in the reckoning for 15 deals of $100 million plus outside India,” Krish Gopalakrishnan, managing director and CEO, Infosys Technologies said here.

The company, which has recently set up a special business unit to drive its revenues from India - currently at three per cent, aims to have significant revenues from the local market.

“India will be a significant part of our revenue profile. By significant, I mean it is over five per cent,” Gopalakrishnan said.

He added that the Indian IT services market is worth about $5-6 billion. — PTI

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BRIEFLY

UB plan
Mumbai, October 30
United Breweries Limited has said it will raise Rs 1,320 crore through issue of securities in the domestic and international markets. The board of directors has approved raising of Rs 600 crore by way of domestic and international offering of shares or global depository receipts through public issue or on private placement basis. The board of directors has approved a dividend of 10 per cent for the year ended March 31. — PTI

HDFC tie up
New Delhi, October 30
HDFC Ltd has announced Ergo International AG as the new joint venture partner for its general insurance business. Ergo, under the agreement reached, would pick up 26 per cent stake in HDFC General Insurance Ltd. The new company will be named as HDFC Ergo General Insurance Ltd. — PTI

RP Infosystems
Kolkata, October 30
RP Infosystems will invest Rs 1,000 crore for setting up of a hardware component manufacturing at Baruipur near Kolkata, which is expected to come up in two years time. The proposed factory would produce computer mother board, ram, key board, cabinet and mouse, among other components. — UNI

HCL Tech
New Delhi, October 30
HCL Technologies has said it has entered into a partnership with global software firm Misys to jointly market the latter’s banking products in India, Singapore and Malaysia. Under the agreement, HCL would jointly market Misys’ banking, treasury and capital markets solutions like Misys Opics, trade innovation, summit and trade portal in the three countries. — PTI

Birla Sun Life
Chandigarh, October 30
Birla Sun Life Insurance (BSLI) has launched ‘saral jeevan plan’- a unit linked life insurance plan, which provides immediate life insurance cover. Vikram Mehmi, president and CEO, BSLI said: “The plan has a simple three-step process involving completion of a simple application form, including signing sales illustration, agreement to insurability declaration, payment of policy premium and submission of required documents.” — TNS

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