ISSUED BY KOTESHWAR PRASAD DOBHAL NEW DELHI
HEAD PR SMC GROUP (M) 9560953332 APRIL, 9,2011
EMBARGOED FOR PUBLICATION ON MONDAY THAT IS APRIL, 11, 2011
EXPECT YET ANOTHER 25 BP HIKE IN RR IN MAY, ECBs LIKELY AT $33BILN by MARCH 12 :SMC GLOBAL Reserve Bank of India (RBI) is likely to declare yet another raise of 25 basis point in repo rate in its annual monetary policy, slated for early next month in a bid to moderate and subsequently tame inflation as its expectations are likely to remain stable due to rising commodity costs and thus force domestic companies to raise cheaper funds of about $ 32 to $ 33 billion through External Commercial Borrowings (ECB) by end of current fiscal to support their modification and capacity expansion drive , says analysis of best equity and currency broking award winning firm -SMC GLOBAL SECURITIES LTD .
The financial solution providing company is of the view that adequate indications are available in developing economies and those of economies of scale for making money costlier to contain inflation and that RBI would once more take a cue from them to still further raise policy rate in May 2011 , says SMC GLOBAL SECURITIES LTD Chairman and Managing Director Mr Subhash Chand Aggarwal. According to him, total amount of ECBs for fiscal 2010-11 could easily go up to about $26 to $ 27 billion since by December 31, 2010, domestic corporates have already raised $18 billion through this route due to high interest regime factor in India, highlights the company assessment.
Releasing its findings here today on Inflation vis-à-vis RBI monetary policy, Chief of SMC GLOBAL SECURITIES LTD also added that 25 basis point increase in repo rate is most likely since RBI appears to be convinced that system can absorb it to moderate inflation and thereafter tame it under prevailing situation as inflation is pervasive now.
Rising commodity costs are having more than temporary impact on consumer prices and so long as such costs remain stable, the prudent way to manage inflationary trends can be through adoption of tighter monetary policies to make cost of money a little more costlier even if growth is hurt temporarily, pointed out Mr Aggarwal.
thSMC , however, has cautioned the RBI that its successive 8 hikes in policy rates have already raised
cost of borrowings to an unprecedented scale and yet another anticipated 25 basis point increase in repo rate will add fuel to fire and compel domestic corporate to look for ECB to support their cost of expansion and modification.
Official estimate shows that up to December 2010, Indian industry raised close to $18 billion through ECB route since corporate found it easier and comparable and as per estimates made by SMC GLOBAL SECURITIES that by March 31, 2011, total ECB’s range could be around $26 to $27 billion which
would be much more than what has been together raised by domestic corporates in fiscal 2007-08 and 2008-09, further pointed out Mr Aggarwal.
According to SMC, since menace of inflation is likely to haunt India for quite some more time, the RBI will continue with its tight money policy even if it continues to further drives domestic interest rates upward and provide incentives for companies to opt for ECBs. This is because Indian firms have choice not to live with high interests rates charged by domestic banks. For decades interest costs, singularly contributed to the high cost and uncompetitive industrial economy, said chief of SMC group.
Mr Aggarwal further stated that in view of above fact, only 25 basis point hike in repo rate is widely anticipated and warned against 50 basis point increase in policy rate in RBI’s annual monetary
policy as is also being apprehended by a section of industry since it would have fierce potential to hamper growth prospects of Indian economy very badly .