Centre Caps FDI

FINANCE// All hopes of an interest rate cut by the Reserve Bank of India (RBI) in 2013 fast evaporated as sliding currency and rising crude oil prices kept inflation high. Bonds prices fell and the Rupee fell the most in nearly two weeks despite the noise from the Centre about measures to shore up the currency with options including US Dollar Bond issue by the sovereign. “As long as the CPI inflation remains close to double-digits and the balance of payments is at risk, we expect the RBI to keep on hold rate cuts, including at the July 30, 2013, policy meeting,” said Sonal Varma, economist at Nomura Securities. Indian bond yields rose 6 basis points to 7.58 per cent, up almost 50 BPS since its low June. Food prices continued to rise despite hopes of increased output due to good monsoon. Consumer prices remain stubbornly high it rose 9.87 per cent in June, up from 9.31 per cent May. The Rupee could resume its slide beyond its all-time low of 61.21 recorded on July 9, 2013. Given the RBI’s declining forex reserves, and short-term debt redemptions worth $172 billion, India has become more sensitive to possible capital outflows. India’s forex reserves fell to three-year low of $288 billion as on July 5, 2013. Asserting that Rupee price will be market determined, FM P. Chidambaram said RBI measures had nothing to do with the upcoming monetary policy review and may not impact interest rates of banks. “These measures should not be read as prelude to any policy rate changes,” Chidambaram said. RBI announced a slew of measures like raising cost of borrowing by banks by 2 per cent to 10.25 per cent and announcing sale of bonds worth `12,000 crore through open market operations to suck liquidity to check rupee slid, which had earlier in the month touched a all low of 61.21 to a dollar. “Measures are taken to curb excessive speculation and reduce volatility and stabilise the rupee,” Chidambaram added. The value of rupee, he said, will depend upon “how much foreign exchange we earn and how much foreign exchange we spend”. Admitting that there will be some depreciation of Rupee in view of high current account deficit and inflation, Chidambaram said the value of domestic currency will be market determined and it will find its price. RBI is scheduled to announce first quarter monetary review on July 30, 2012, amid demand from industry to cut interest rates to boost sagging growth. Ruling out the possibility of ban on import of gold, the FM appealed to the people to reduce consumption of the precious metal which was costing nation $50 billion in foreign exchange. Referring to growth, Chidambaram stressed that the measures taken by the RBI “will in no way affect our commitment to growth. We must increase credit delivery and must stimulate growth”. Referring to the Food Security Bill, Chidambaram said it would be the first item on agenda in the Monsoon Session of Parliament beginning on August 5, 2013. He said the ambitious scheme would be rolled out in the next six months in all the states. “Ordinance (on Food Security) will go to Parliament. Parliament will have to approve the law within six weeks after the session begins. The session is beginning on August 5, 2013. It will be the first item before the Monsoon Session,” he said. Chidambaram expressed confidence that all political parties would vote for the Food Security Bill in Parliament. Justifying the government's decision to come out with an Ordinance on the Food Bill, he said, “how long can we wait to make this into a law?” He further said the government would endeavour to get bills on real estate sector, street vendors and land acquisition passed in the Monsoon Session.