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RBI to raise up slack as India stimulus measures to fall short : Reports

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Recent stimulus measures announced by the Indian government will be insufficient to boost economic growth significantly, said a majority of economists in a Reuters poll who predicted two more interest rate cuts this year, in October and December.

To revive the ailing economy, the government in September announced a steep cut in the corporate tax rate – to 22% from 30% – triggering the biggest intraday gain in Indian stocks in more than a decade.

That along with other measures, including a rollback of a higher surcharge on foreign portfolio investment – introduced in the budget in July – led international investors to become net buyers of Indian assets in September.

But nearly 60% of around 50 economists who answered an additional question said those stimulus measures were unlikely to have a notable impact on the economy.

“While the cut in corporate taxes is sharp, its actual impact on growth is uncertain. Given that the current problem is of weak demand, a demand augmenting measure would have been more productive,” said Rini Sen, India economist at ANZ.

Although the economy is expected to have recovered last quarter from the sharp slowdown in the three months prior, economists downgraded their growth outlook for this fiscal year and next from three months ago.

The Sept. 24-30 poll of over 50 economists predicted gross domestic product growth to average 6.1% this fiscal year, the lowest since polling began for the period in April last year.

If realised, that would mark the slowest pace of growth in seven years.

The economy was then expected to expand 6.8% next fiscal year, a downgrade from 7.2% predicted in the July poll.

That weak outlook was driven by lack of clarity on when and how the U.S.-China trade war will end, which has already hurt business sentiment, manufacturing activity and the global economy.

But some economists argued recent measures announced by the Indian government, along with monetary policy easing, would likely boost Asia’s third-largest economy.

The Reserve Bank of India (RBI) has already eased policy by a cumulative 110 basis points this year.

It is now expected to cut its repo rate by 25 basis points on Friday, making it the fifth meeting in a row of easing, and is then predicted to follow that up by with another 15 basis points slice in December, taking the key rate to 5.0%.

But the RBI is then forecast to keep rates unchanged until 2021 at least.

“It looks like the authorities – both the government and the central bank – are firing up all cylinders to provide stimulus to the economy…with stimulus announced so far should start to revive growth going forward,” said Prakash Sakpal, Asia economist at ING.

When asked how many more rate cuts it would take to boost growth significantly, nearly 45% of economists said cumulative rate cuts up to 50 basis points will be needed.

Eleven said between 50 and 100 basis points would do the trick, while two said over a percentage point.

The outlook for further policy easing was also backed by subdued inflation, which is not expected to breach the central bank’s medium-term target of 4% until the fourth quarter of 2020.

“With inflation remaining under control, monetary stimulus in combination with the recent fiscal measures are likely to be growth supportive,” said Shashank Mendiratta, economist at IBM.

But not everyone agreed with that view.

Nearly 30% of respondents said boosting economic growth significantly is beyond the RBI’s immediate control.

“Not only monetary policy but also short-term measures that the government has taken so far, are used to sugar-coat the wrong policy trajectory from a structural point of view,” said Hugo Erken, head of international economics at Rabobank.

“Because what India really needs is a large-scale reform package on several fronts.”

A weak growth outlook, ongoing concerns about the U.S.-China trade war and the prospect of further RBI easing are all expected to hurt the Indian rupee in coming months.

After rallying as much as 3% against the dollar in September, the rupee is forecast to reverse most of those gains to trade at 72.50 per dollar in a year, compared to 70.70 on Monday.

“Despite the fact that both monetary and fiscal levers are now being deployed to prop up growth, a material recovery is still elusive,” added ANZ’s Sen.

“We therefore see limited scope for the current (rupee) rally to last unless demand sharply recovers. In addition, global risks including worsening in trade uncertainties or an oil price surge could add to rupee volatility.”

ECONOMY

No economic slowdown as 3 movies earned Rs .120 crore : Ravi Shankar Prasad

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Union Minister Ravi Shankar Prasad on Saturday cited the earnings of three blockbuster movies to dismiss the economic slowdown. Addressing a press conference, Ravi Shankar Prasad said three movies collectively earned Rs 120 crore on October 2 and so, there’s no economic slowdown at all.

When Ravi Shankar Prasad was asked for his comments on the economic slowdown, he dismissed it with a laugh, referred to the movie’s data and said that the economy is sound that’s why the country earned Rs 120 crore from three movies.

“I was Information and Broadcasting Minister in former Prime Minister Atal Bihari Vajpayee’s government and I am fond of movies. Movies have been doing huge business. Three movies released on October 2 and film critic Komal Nahta told me that the national holiday [Oct 2] saw earning of Rs 120 crore by three movies. rs 120 crore comes in a country which has a sound economy,” Ravi Shankar Prasad said.

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ECONOMY

Gold rate rose by Rs 126 taking it Rs 39160 per 10 gm

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Gold prices on Friday rose Rs 126 to Rs 39,160 per 10 gram in the national capital on a weaker rupee and festive demand, according to HDFC Securities.

The yellow metal had closed at Rs 39,034 per 10 gram on Thursday.
Silver prices also jumped Rs 380 to Rs 46,900 per kilogram from Rs 46,520 per kilogram in the previous trade, according to the data from HDFC Securities.

“Spot gold prices for 24 karat in Delhi was trading up by Rs 126 as festival demand kicks in and on weaker rupee which fell by around 17 paise against the dollar from the opening levels,” HDFC Securities Senior Analyst (Commodities) Tapan Patel said.

In the international market also, gold prices were trading higher at USD 1,502 an ounce and silver at USD 17.71 per ounce.
Gold prices traded higher on Friday with COMEX international spot gold prices recovering to USD 1,502 on weaker dollar index and geopolitical risks, he added.

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FinMin Nirmala Sitharaman assures to talk to RBI on PMC Bank crisis

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Finance Minister Nirmala Sitharaman said she will speak with the RBI Governor this evening on the Punjab Maharashtra Co-operative (PMC) Bank crisis. She met a group of angry customers of the cooperative bank in Mumbai this afternoon just addressing a press conference.

Several customers were protesting outside the BJP office where Ms. Sitharaman, the venue of her press conference.

“I will once again talk to the Governor of Reserve Bank this evening to convey the distress of PMC clients,” Ms Sitharaman. “I’ve asked the secretaries of the ministry to study in detail as to what is happening. Representatives of the RBI will also be there to understand shortcomings, what happened and also to therefore, if necessary, look at the ways in which the respective acts will have to be amended,” the Finance Minister added.

On Wednesday, PMC customers, who have argued that the revised Rs. 25,000 limit on withdrawals imposed by the Reserve Bank of India (RBI) is still too little,protested outside a Mumbai court. Carrying placards that read “No Bail, Only Jail”, they accused the RBI of not taking strict action against the erring officials and appealed to Prime Minister Narendra Modi to intervene in the matter.

Last week Rakesh and Sarang Wadhwan, the promoters of the crisis hit real estate firm HDIL were arrested  by the Economic Offences Wing of the Mumbai Police after their firm set off a crisis at PMC Bank by defaulting on loans worth Rs. 6,500.

Enforcement Directorate filed a money-laundering case against the Wadhwan brothers and carried out raids at six places in Mumbai, including the HDIL office in Bandra (East) and the Wadhwan residence in Bandra (West).

The PMC case has sparked renewed concerns about the health of India’s troubled banking sector, which has been rocked by a multi-billion dollar fraud at a state-run lender, the collapse of a major infrastructure lender, bad loan issues at state-run banks and a liquidity squeeze that has hit shadow lenders.

The RBI has responded to allay fears over the crisis.

“There are rumours in some locations about certain banks including cooperative banks, resulting in anxiety among the depositors. RBI would like to assure the general public that Indian banking system is safe and stable and there is no need to panic on the basis of such rumours,” the RBI said in a tweet on October 1

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