INFLATION AND ECONOMY IN INDIA

RBI cuts reserve ratio, scraps bond as markets tank
MUMBAI, October 10, 2008 (Reuters): The Reserve Bank of India (RBI) slashed its cash reserve requirement on Friday to free up some $12 billion in funds and ease a cash squeeze that drove overnight rates to an 19-month high and forced the government to cancel a bond auction. The Reserve Bank of India cut the reserve ratio by 1.5 percentage points to 7.5
percent, increasing the scope of the 50 basis point easing announced earlier this week.
The RBI sprung into action after overnight rates soared to as much as 23 percent in the money market, which reopened following Thursday's holiday. The rupee hit an all-time low and the main stock index plunged more than 9 percent, joining a global selloff on recession fears despite unprecedented coordinated action by the world's leading RBIs to stave off a crisis. Earlier on Friday the government called off an auction for $2 billion worth of government bonds, citing liquidity conditions.
Despite a global round of interest rate cuts on Wednesday and Thursday, Indian overnight lending rates more than doubled from Wednesday's closing levels of around 10 percent. "This is a short-term reaction to a huge panic crisis and a possibility of a run in the rupee. I think they will try their best to prevent the rupee from breaching 50 per dollar," said Abheek Barua, chief economist at HDFC Bank in New Delhi.
The partially convertible rupee hit an all-time low of 49.30 per dollar in early trade before it recovered some of the losses with state-run banks spotted selling dollars to underpin the local currency.India's RBI has assured the government it was keeping a close watch on the
market and would take appropriate steps, Finance Secretary Arun Ramanathan said.
Rising oil prices is the most influential factor to aid inflation
Oil prices have already breached the $146 a barrel mark, and economists as well as speculators warn that it could climb to the $170 level before year-end. Influential factor
Though there are several other factors that have aided inflation, Finance ministry officials point to the oil prices being the single most influential factor that has impacted severely on the figures.
There has been a steady and significant increase in global oil prices which have spiralled from just $101.15 a barrel on April 1 to over $145 now. Along with it, the price of the yellow metal, gold, has also risen, after an initial fall. The value of the rupee has fallen against the dollar, which has lost its shine in the current market. Bombarded by these factors, the BSE stock index continues to take a beating — its 700-point rise last Wednesday may have been a flash in the pan. After almost touching the 20000-level earlier, the Sensex was still above the 15000-mark on April 1 and even rose to test the 18000-level by the beginning of May. But after that, it has been a free fall.
Rising inflation shakes India Inc's business confidence: survey
New Delhi, July 04, 2008: Inflation raced to a new high of 11.63% to the week ended June 21, 2008, on the back of surging food and and commodity prices.
New Delhi, Jun 29 (PTI) Rising inflation, which may up go up further, has shaken India's business confidence with 64 per cent of industry representatives claiming the current situation to be worse than what it was six months ago. "Manufacturing inflation will go up in the months ahead and it would be a persistent trend throughout 2008," the Federation of Indian Chamber of Commerce and Industry (FICCI) said after conducting a survey of business confidence which has deteriorated in the last six months.
Manufacturing has a weightage of 63.75 per cent in the whole price index. Inflation touched a 13-year high of 11.42 per cent for the week ended June 14. The results of the survey conducted between May and June showed that performance of the economy, industry and at the firm level has further weakened.
"The Current Conditions Index is at its lowest level because of moderation in growth, rise in inflation and input costs," the chamber said. The pressure on industry on account of rising interest and input costs has breached the absorptive capacity for many companies, that are being forced to revise prices upward.
"India Inc has struck a note of nervous optimism and expressed deep concern at the current state of the economy," it said. Assessment of current industry performance shows that nearly 38 per cent of the companies witnessed deterioration in performance over the last six months. This figure stood at 29 per cent in the last survey. PTI
Inflation soars to a fresh 13-year high of 11.42%
NEW DELHI, June 27, 2008: Surging food and commodity prices pushed inflation further up to 11.42 per cent for the week ended June 14, 2008, from 11.05 per cent in the previous week.
Inflation for the week ended April 19 was revised upwards to 8.23 percent from 7.57 percent. The annual inflation rate was 4.13 percent during the corresponding week of the previous year.
While food articles and textiles were up 0.7 per cent, primary articles rose by 0.2 per cent, and fuel, power and energy were up by 0.1 per cent. A steep rise of 3.6 per cent was recorded in minerals, while tea was up by 3 per cent. Non-food articles, however, were down by 0.5 per cent.
Inflation had already raced to a 13-year high of 11.05 per cent for the week ended June 7, driven by a 7.8 per cent rise in fuel, power and lubricants prices and a 14 per cent surge in ATF prices.
Sadly, however, there is no respite in sight from this soaring inflation. Even finance minister P Chidambaram has admitted that double-digit inflation would continue for some more weeks.
Experts too are of the opinion that double-digit inflation is here to stay for some more time, but could trend down in September. With prices of crucial commodities like steel likely to rise further, inflation is expected to stay over 11 per cent before it peaks around September, they say.
It is estimated that steel and steel products (used in industries like auto, housing, white goods, capital goods etc) contribute almost 21 per cent to inflation. Cement prices are expected to remain soft, thanks to capacity addition.
Earlier this week, the RBI raised the cash reserve ratio (the proportion of bank deposits parked with the RBI) to 8.75 per cent and the repo rate (the rate at which RBI lends to banks) to 8.5 per cent as part of monetary tightening to check inflation.