RBI Holds Interest Rates Again

The Reserve Bank held interest rates and left them unchanged for the sixth consecutive time as it seemed to take a larger call on growth being strong to support the current levels of 6.5% being the repo or repurchase rate

9 Feb 2024 12:00 PM GMT
On today’s episode, financial journalist Govindraj Ethiraj talks to Aditi Nayar, Chief Economist of ICRA Ratings in Delhi. We also feature an excerpt from our upcoming weekend edition featuring BPCL Chairman and Managing Director, Krishnakumar Gopalan.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (00:50) Reserve Bank of India holds interest rates again, but its body language is different.
  • (09:09) India’s oil consumption jumps 8% in January as brent crude prices rise.
  • (10:37) The RBI’s messaging on PayTM and the many interpretations.
  • (16:03) Why the petrol pump attendant insists you note the zero setting.
  • (22:40) How analysts are backtracking from sell calls on Toyota Motor.

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


Interest Rates & Markets

The Reserve Bank held interest rates and left them unchanged for the sixth consecutive time as it seemed to take a larger call on growth being strong to support the current levels of 6.5% being the repo or repurchase rate.

The RBI has said the economy will grow at 7% in 2024-25 and is projecting consumer inflation at 4.5% in 2024-25. The current year’s inflation is projected at 5.4%.

Foreign exchange reserves by the way are at $622 billion.

I will come to a broader take on the credit policy and what the body language reflects rather than the numbers themselves shortly.

Meanwhile, the stock markets fell most likely because they were expecting a rate cut since they swung after the announcements. The Sensex closed down 723 points at 71,428 while the Nifty50 closed down 212 points at 21,717.

Both indices were up about 0.2% before the RBI’s rate announcements.

Elsewhere in the region, China’s consumer prices have fallen at their steepest pace in more than 14 years as it now grapples with persistent deflation.

China is fighting a different problem, of low confidence in the economy, low growth and low inflation. Most developed countries are fighting higher inflation and are thus not cutting interest rates because they want to see it come down, as the US Federal Reserve also has hinted. India too is trying to bring down inflation similarly.

A deflationary situation means that consumers can slow down buying or consuming which can obviously have a cascading effect on production.

Just to put things in context, China is grappling with problems that were triggered or accompanied by its Covid curbs in late 2022, including of course a real estate meltdown.

The rupee is holding below Rs 83 now, closing at Rs 82.96 after touching a low of Rs 83 against the US dollar.

Back to interest rates and the RBI’s pronouncements yesterday.

While interest rates have been unchanged, what was the sub text or the underlying message in the policy statements yesterday. To discuss that, I reached out to Aditi Nayar, Chief Economist of ICRA Ratings in Delhi and I began by asking her if she was seeing a shift in narratives?


Elsewhere in the markets, shares of ITC hit a 8-month low after its largest shareholder British American Tobacco said it could sell some of its stake in the company.

BAT might do that, but reports of that happening, like Mark Twain’s famous quote that reports of his death were highly exaggerated, have been around for several decades now.

Am not saying BAT won’t sell, but the reports have been doing the rounds for at least 30 years if not more.

Anyway, one of the companies which owns the shares in ITC is called Rothmans International which owns the Rothmans brand of cigarettes which you may have heard of, even if you do not smoke.

BAT’s CEO while announcing its latest results said the company regularly reviews its stake in ITC. Like I said, it seems like several decades of reviewing so far.

Oil Prices Are Rising Again

India's fuel consumption rose 8.2% year-on-year in January, government data showed on Thursday, helped by strong industrial activity, reported Reuters.

India is the world's third largest oil consumer and total consumption, a proxy for oil demand, totalled 20.04 million tonnes in January, up from 18.51 million tonnes a year earlier, data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry showed.

Yesterday, we quoted the International Energy Agency saying India is expected to be the largest driver of global oil demand growth between 2023 and 2030, taking the lead from top importer China.

Meanwhile, Bloomberg is reporting that a gauge of oil-market volatility fell to the lowest level since October, as crude prices struggle to break out of a $10-a-barrel band they’ve traded so far this year.

US crude futures traded little changed near $74 on Thursday, but have generally been range bound since the start of January.

So the good news is that volatility is reducing, despite all the geopolitical and some economic bad news. Crude is up about 3% this year. And Brent crude is right now just over $80 a barrel.

Today’s energy segment was supported by India Energy Week, in Goa right now. For more details, log onto www.indiaenergyweek.com

Persistent Non Compliance

If some of the commentators were to have it their way, the Reserve Bank of India should have, as it pursued inquiries and investigations into a certain entity, kept them informed all through with regular mails, briefings and maybe even over tea and generous lunches, over the last year if not longer.

The fact that the RBI announced it was asking PayTM to stop accepting deposits in its mobile wallets with a month’s notice seemed not enough for many.

Roughly 20 years ago, a governor of the RBI called a handful of journalists for a closed door, purely background meeting to present his and the central bank’s point of view on the seeming delay in a shotgun marriage that eventually happened between two banks.

He brought our and my attention to the sudden move to force a certain private bank to merge a public sector bank who also got merged into a larger public sector bank. The large bank is Punjab National Bank if you really want to work backwards but it is not important.

The Governor took some time to explain how the process worked, primarily to address the allegation and question that the RBI had been sleeping while the bank in question’s financials were going from bad to worse in previous years.

While I still feel, looking back, the RBI was not as prompt as they could or should have been, I did not disbelieve him on the exact sequence of events in the final days.

Apparently, the brass in the central bank worked literally night and day to procure documents, call in the bank’s management and then try to understand how bad the problem was even as they took the call that the private bank, despite the massive mess it was in, had to be saved.

The only way to do that was a merger. And then began the challenge to find a suitor. If I remember right, a host of banks were called up and detailed discussions had included right through one weekend to see which one would agree.

As the governor described it, many of the private banks said no or begged off and so did many of the public sector banks. The tone and response of each one may have differed but the outcome was the same.

Eventually a suitor was found and the announcement was made. All this while, the RBI’s biggest concern, as is usually its concern in such situations, was how to prevent a panic run on the bank’s deposits.

There have actually been several such situations in the RBI’s history, including more recent and will be in the future as well. Such is the nature and fragility of the financial system.

But a few things stood out from then.

For one, the RBI, however it may word its releases, agonises over its decisions for a long time. Before taking them and pronouncing them publicly.

There is much discussion and debate up and down and several, I won’t be surprised, sleepless nights as well. That has surely happened in some cases.

The agonising stems from RBI’s biggest institutional fear, which is what happens to a depositor’s money and savings if something were to go wrong.

In the PayTM case, I am reasonably sure, though I don’t know for a fact, files must have gone up and down between the Ministry of Finance and the RBI for weeks, if not months. Note how the MoF deflected all questions back to the RBI when asked about PayTM.

For the simple reason that the decision was taken and it was also clear who would be the owner of this, as of course the RBI should be, being the banking regulator.

And finally, the RBI as an institution has considerable teeth, more than many others and there is a tendency even amongst those inclined to fiddle with its operations to leave it alone. At least largely, except in, perhaps, the case of demonetisation where the decision flow was evidently quite different.

On Thursday, we were reminded of the process when the RBI said it’s action was taken as a result of persistent non-compliance with regulations and that they took action after giving the company ample time to comply.

The RBI last week ordered Paytm Payments Bank to stop accepting new deposits in its accounts or digital wallets from March, citing supervisory concerns and non-compliance with rules.

"We give sufficient time to every regulated entity ... to comply with the regulatory requirements," RBI Governor Shaktikanta Das said at a press conference following the central bank's monetary policy review.

Deficiencies in compliance are discussed bilaterally and companies are nudged to take corrective action, he said.

"When such constructive engagement does not work or when the regulated entity doesn't take effective action, we go for imposing supervisory or business restrictions," Das said.

The RBI is a "responsible regulator" and would not have acted if all regulatory norms were complied with, he added and reported by Business Standard.

The RBI found hundreds of thousands of accounts at Paytm Payments Bank were created without proper identification, Reuters reported on Feb. 3.

Paytm Payments Bank is a regulated banking entity that accepts the deposits for the Paytm users to then make transactions on the app. The Paytm app's real-time payment interface falls under the RBI regulations, the BS reported.

Why the Petrol Pump Attendant Insists You Look At The Metre

Petrol is petrol or diesel for that matter. Where you go and fill it is more a matter of convenience and distance rather than anything else. And of course the perception that the fuel is clean or good and not adulterated. This used to be a bigger problem in the past and not so much now. And not without reason.

I have also noticed another thing. Petrol pump attendants knock on the window and insist I look at the zero setting on the pump gauge before starting to fill the fuel.

I never thought much about it except that I now note how consistent it has been in some of the pumps I have visited.

It is not without reason and is part of a larger marketing and distribution effort by companies like Bharat Petroleum to ensure greater consumer loyalty and of course return business.

I had the opportunity to catch up with Krishnakumar Gopalan, the Chairman and Managing Director of Bharat Petroleum (BPCL) in Mumbai as part of our energy specials for The Core Report’s weekend edition.

I asked him, a BPCL and marketing veteran, among other things, what made a BPCL petrol pump different from the rest.


Toyota’s Lesson On

An interesting automotive tale. Analysts and auto industry observers have been generally piling onto Toyota, the world’s largest company, for various reasons, including its evident tardiness in switching to electric, at least in the same aggression other car majors were.

Toyota has maintained that it would follow a slower pace in the switch and also put its weight behind hybrids, sales of which by the way are growing faster than electric cars in India.

And now, Toyota lost its last sell rating as analysts continue to raise their price targets for Toyota Motor Corp, Bloomberg is reporting

The automaker, which saw its market value surpass $337 billion this week, now has no sell ratings after an upgrade from Macquarie Securities on Wednesday.

“We clearly have underestimated its strong cash generation capabilities,” Macquarie analyst James Hong wrote in a note. “We think its vertically integrated supply chain and agile production capabilities place the company in a ‘sweet spot’.”

Toyota shares rose more than 4% on Thursday and have advanced about 30% over the past year. There are now 14 buys, 10 holds, and 0 sells for the company.

Updated On: 9 Feb 2024 6:00 AM GMT
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