Message from MD
Oil has been on a free fall as OPEC did not
review, decided to keep the policy repo rate
restrict production. Iraq and Saudi Arabia
under the liquidity adjustment facility (LAF)
have pumped at record levels this year, while
unchanged at 6.75 per cent and the cash reserve
oil
the
ratio (CRR) of scheduled banks unchanged at
appearance of additional oil from Iran, when
4.0 per cent of net demand and time liabilities
sanctions linked to its nuclear programme
(NDTL). It also decided to continue to provide
are expected to be lifted next year. Russia
liquidity under overnight repos at 0.25 per cent
has been increasing its supply due to a bad
of bank-wise NDTL at the LAF repo rate and
domestic economy. The slowdown in China
liquidity under 14-day term repos as well as
also helped in reducing global demand for
longer term repos of up to 0.75 per cent of NDTL
energy. In recent times, oil has been hovering
of the banking system through auctions; and
at a level closer to the financial crisis-era low
will continue with daily variable rate repos and
of $36.20 (Brent) reached on Dec 20, 2008,
reverse repos to smooth liquidity.
market
participants
are
eyeing
amid increased expectations of persistent
global oversupply. A mild start of winter as
well
as
prediction
of
above-average
temperature will reduce demand for natural
gas. Cheaper energy costs are a boon for
consumers and the broader economy. The
emerging market economies like India with a
huge oil import bill are likely to benefit from
low oil prices and it will give the Government
some leeway to manage the general prices in
a more structured manner.
There has been moderation of growth forecast
for next year and GDP is likely to grow at about
7% to 7.5%. CPI inflation for November 2015
rose to 5.4% YoY (compared with 5% YoY
recorded in October 2015) mainly owing to an
80bps sequential pick-up in food price inflation
(which in turn was driven by steep rise in the
prices of pulses). Despite the pick-up, this
trajectory remains below the RBI's inflation
target of 6% YoY. RBI in its policy statement
highlighted downside risks to both its inflation
After a long period of easy money policy, Fed
and GDP forecast and made the point that it
finally decided to increase interest rate
does not expect the Government to deviate
admitting that US economy has rebounded to
from its fiscal commitments despite the Pay
support such rate hike. The markets have
Commission reward.
been expecting this hike which has been
factored in the asset prices. Accordingly,
there was mute response to the Fed hike in
most of the markets. However, any
subsequent rise in Fed Rates may cause
serious policy issues in emerging markets.
Keeping
in
line
with
the
market
expectations, RBI in its bi-monthly policy
Bond market is showing lesser activity in recent
months though yields are stable. Hopefully the
new-year will bring more clarity to the market
about the future policy actions by Fed and
other central banks and this may result in
higher level of activity in the market.
R. Sridharan