As the RBI prepares to announce the outcome of the MPC meet on Thursday

As the RBI prepares to announce the outcome of the MPC meeting on Thursday, the SBI Chairman, Rajnish Kumar, has expressed doubts on dovish signals from the RBI. In fact, Mr. Kumar expressed hope that the RBI may shift to a neutral stance but expressed doubts over whether the RBI would go for an outright rate cut in its 07th Feb policy. However, Rajnish Kumar has expressed the hope that the RBI may keep the liquidity taps open to avoid any pressure at the short end of the money markets. The industry and the markets have been clamoring for a rate cut of 25 to 50 bps in the light of weak inflation.

Banks need to grow their deposit collections by nearly 75% in this year to keep pace with growing credit needs. Indian banks to need $350 billion in fresh deposits in the next 2 years. With the deposit growth lagging the credit growth for quite a few months now, there could be a real challenge on making adequate deposits available to lend. The last few years have seen a distinct shift in savings patterns from bank deposits into liquid funds, debt funds, and equities. The requirement is substantially higher than the annual average deposit inflow of nearly $100 billion on a consistent basis.

Crude prices showed sharp bouts of volatility on Wednesday. Brent Crude closed over 100 basis points higher at $62.63/bbl on Wednesday. Despite the sanctions on Venezuela and OPEC sticking to supply cuts, the Brent crude weakened around midday on the back of rising US inventories. However, crude once again rallied sharply in the last couple of hours of trading to $62.63/bbl largely attributed by oil traders to the narrower trade US trade deficit, hinting at a distinct trade slowdown. Oil remains a key input in determining the extent of trade deficit and CAD that India is up against.

For the US, the sanctions appear to be finally finding favour in terms of hard numbers. US trade deficit narrowed by 11.3% YOY in November to $49.3 billion. This is the first month of a fall in the trade deficit for the US after five straight months of rising in the trade deficit. The sharp fall in the trade deficit was driven by a sharp decline in the import of mobile phones and petroleum products in November. US trade deficit with China dropped from $43 billion to $38 billion in November on a YOY basis. It may be recollected that this deficit remains the bone of contention and the source of the trade war.

Even as the government has been aggressively demanding that the RBI transfer more funds to the government, the crucial meeting of the RBI board has been postponed to February 18th. The all-important RBI board meet was supposed to take a decision on the interim dividend payment to the government. While the RBI has already transferred Rs.40,000 crore in this fiscal, the government had been insisting that the RBI also transfer the amount that was transferred to contingency last fiscal. In the year after the demonetization, the then RBI governor Urjit Patel had insisted on transferring nearly Rs.13,000 crore to the contingency fund instead of paying out to the government. Now the government is demanding that money also be paid to the government in the current year itself.

As the problems of the Zee group worsened, the mutual funds have chipped in by requesting SEBI for more time to Essel Group to settle debt obligations. Mutual funds in India have an exposure to the Essel group debt to the tune of Rs8,000 crore and they have asked SEBI to grant more time to the group to pare its debt and modify the terms of the debenture trust deed. Essel Group had promised to pare its debt by September this year by hiving off its non-businesses, as per a report put out by Economic Times. The outcome is uncertain since most of the funds of Essel are stuck in infrastructure projects.

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