20 Mar 2009, ET Bureau
NEW DELHI: India’s inflation rate skidded to a record low of 0.44% in the first week of March, well on course for a widely expected move into Financial crisis negative territory, triggering hopes authorities would be forced to intervene with steps to shore up demand in the economy.
The inflation rate as measured by the wholesale price index fell from 2.43% in the preceding week, led by plunging food prices and cheaper fuels. Very soon, buyers in wholesale markets may be paying less for most items, except food, than what they paid last March.
Economists say there is a good chance prices may continue falling longer than expected unless the government moves quickly to rev up demand. They expect Reserve Bank of India (RBI) to infuse more liquidity to counter this trend, besides cutting policy rates further.
“The higher base effect along with low demand in the economy is expected to keep inflation in negative territory for five to six months. Inflation will turn negative starting from April and will remain so until the end of 2009... We expect the Reserve Bank to ease liquidity to support growth,” said economist Tushar Poddar at Goldman Sachs.
Given the inflation outlook and macro environment, Goldman Sachs expects a 150 basis point cut by June in the cash reserve ratio, the funds banks have to keep with the RBI. Analysts say further infusion of funds through increased lending by banks may keep the system flush with liquidity.
“We expect continued policy action, including unconventional measures, to stem the deceleration in growth,” Citi analyst Rohini Malkani said in a research note. But the government maintained that though prices may drop to below 2008 levels, demand continues to remain strong. “I do not see any signs of deflation as demand for certain core sectors like steel, cement and automobiles is picking up, along with rural demand,” said cabinet secretary KM Chandrasekhar, who is the government’s seniormost bureaucrat. “Only those sectors that are heavily dependent on overseas demand will take time to pick up,” he added.
When prices decline, consumers typically postpone purchases in anticipation of catching the bottom. This causes further shrinkage of demand. Even so, companies manufacturing household electronic items say they are not worried.
“We are observing a slight easing of consumer spending and with the inflation coming down, we expect a positive impact on consumer spending,” said R Zutshi, deputy managing director of Samsung India.
One reason why companies remain optimistic is that prices in the retail market continued to rise faster than before in the week ended March 7. Retail inflation, measured by various consumer price indices (CPI), is still high. CPI for industrial workers has moved to 10.45% in January, the highest in over a decade.
But even retail inflation may eventually cool, if food, especially fruits and vegetables, become substantially cheaper in the coming months. They are already less expensive compared to January. Annual food inflation index has dropped to 7.24% from a 10-year high of 11.64% in January.
Prices of manufactured products, with a 64% weight in the WPI, did not change over the week. Inflation in this category could fall further if demand for manufactured goods does not pick up. While auto, cement, steel and retail sales in February beat market expectations, sectors such as real estate, freight and port traffic continue to be a cause of concern for policymakers.
The International Monetary Fund said this week that India should rely more on monetary policy to support the economy because it has already exhausted options such as additional spending and tax sops.
Friday, March 20, 2009
Sunday, March 8, 2009
Obama vows to bring 'all pillars' in place to boost economy
New York (PTI): U.S. President Barack Obama has assured Americans that he will bring "all the pillars in place" this year for speedy economic recovery of the nation and asked people to allay their fears about future.
"I don't think that people should be fearful about our future. I don't think that people should suddenly mistrust all of our financial institutions," Mr. Obama said.
However, he could not assure Americans on whether economy will begin growing again this year and urge Americans not to "stuff their money in their mattresses".
In an interview published in the New York Times on Sunday, Mr. Obama indicated that the end was not in sight when it came to the economic crisis and suggested that he expected it could take another $750 billion to address the problem of weak and failing financial institutions beyond the $700 billion already approved.
As he pressed forward with ambitious plans at home to rewrite the tax code, expand health care and curb climate change, Mr. Obama dismissed criticism from conservatives that he was driving the country toward socialism, the paper said.
After the interview, Mr. Obama called reporters from the Oval office to assert his actions have been "entirely consistent with free-market principles" and pointed out that large-scale government intervention in markets and expansion of social welfare programmes began under President Bush.
"I wish I had the luxury of just dealing with a modest recession or dealing with health care or with energy or Iraq or Afghanistan," Mr. Obama said adding that "I don't have that luxury, and I don't think the American people do, either."
The budget plan he released last month included a placeholder estimate of $250 billion for additional bank bailouts an amount that represents the projected long-term cost to taxpayers of a $750 billion infusion into the financial sector. Mr. Obama indicated that those figures were what he was likely to seek from Congress. "We have no reason to revise that estimate."
Addressing the fear and uncertainty among Americans as job losses mount and stock markets sink, Mr. Obama urged Americans to "be prudent" in their personal financial decisions, but not to hunker down so much that it would further slow the recovery.
"What I don't think people should do is suddenly stuff money in their mattresses and pull back completely from spending," he said.
Still, the paper said, he avoided guessing when the situation might begin to turn around.
"Our belief and expectation is that we will get all the pillars in place for recovery this year. How long it will take before recovery actually translates into stronger job markets and so forth is going to depend on a whole range of factors," Mr. Obama said.
He added that "part of what you're seeing now is weaknesses in Europe that are actually greater than some weaknesses here, bouncing back and having an impact on our markets." Mr. Obama's uncertain forecast about when the economy will begin to rebound contrasted with the projections embedded in the budget he recently released, the paper noted.
That plan, the paper said, rested on the assumption that the economy would shrink by 1.2 per cent this year, a projection that many economists, including some in his administration, consider overly optimistic because it implies the economy would bounce back in the second half of this year.
"I don't think that people should be fearful about our future. I don't think that people should suddenly mistrust all of our financial institutions," Mr. Obama said.
However, he could not assure Americans on whether economy will begin growing again this year and urge Americans not to "stuff their money in their mattresses".
In an interview published in the New York Times on Sunday, Mr. Obama indicated that the end was not in sight when it came to the economic crisis and suggested that he expected it could take another $750 billion to address the problem of weak and failing financial institutions beyond the $700 billion already approved.
As he pressed forward with ambitious plans at home to rewrite the tax code, expand health care and curb climate change, Mr. Obama dismissed criticism from conservatives that he was driving the country toward socialism, the paper said.
After the interview, Mr. Obama called reporters from the Oval office to assert his actions have been "entirely consistent with free-market principles" and pointed out that large-scale government intervention in markets and expansion of social welfare programmes began under President Bush.
"I wish I had the luxury of just dealing with a modest recession or dealing with health care or with energy or Iraq or Afghanistan," Mr. Obama said adding that "I don't have that luxury, and I don't think the American people do, either."
The budget plan he released last month included a placeholder estimate of $250 billion for additional bank bailouts an amount that represents the projected long-term cost to taxpayers of a $750 billion infusion into the financial sector. Mr. Obama indicated that those figures were what he was likely to seek from Congress. "We have no reason to revise that estimate."
Addressing the fear and uncertainty among Americans as job losses mount and stock markets sink, Mr. Obama urged Americans to "be prudent" in their personal financial decisions, but not to hunker down so much that it would further slow the recovery.
"What I don't think people should do is suddenly stuff money in their mattresses and pull back completely from spending," he said.
Still, the paper said, he avoided guessing when the situation might begin to turn around.
"Our belief and expectation is that we will get all the pillars in place for recovery this year. How long it will take before recovery actually translates into stronger job markets and so forth is going to depend on a whole range of factors," Mr. Obama said.
He added that "part of what you're seeing now is weaknesses in Europe that are actually greater than some weaknesses here, bouncing back and having an impact on our markets." Mr. Obama's uncertain forecast about when the economy will begin to rebound contrasted with the projections embedded in the budget he recently released, the paper noted.
That plan, the paper said, rested on the assumption that the economy would shrink by 1.2 per cent this year, a projection that many economists, including some in his administration, consider overly optimistic because it implies the economy would bounce back in the second half of this year.
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