The minutes of the MPC meeting held on 6th June were released on 20th June and it pointed to a very clear predilection on the part of the members of the MPC to vote in favour of a rate hike considering the clear upside risks to inflation. It may be recollected that in the 6th June monetary policy, the RBI had raised the repo rates by 25 basis points to 6.25%. Not just the original hawk in the form of Dr. Patra but even Dr. Viral Acharya and Dr. Urjit Patel were in favour of hiking rates. The hawkish tone of the MPC minutes clearly indicates the chances of 1-2 more repo rate hikes during the month.
The retaliatory trade tariffs really appear to be taking shape across the world in response to the US tariff hike on steel and aluminium imports. After China already set in motion a series of retaliatory tariffs on US imports, it is now the turn of the EU. In fact, the EU will start charging 25% tariffs on a range of US products from this Friday itself. Currently, the retaliatory tariffs will impact US imports to the tune of $3.2 billion but this number could go up much higher. Both China and the EU are hitting US farm exports and pork exports which are likely to impact the popularity of Trump the most.
The arrest of senior bankers in the Indian PSU banks continues with the latest being the chief executive and the executive director of Bank of Maharashtra. Both of have been accused of misusing their powers to extend loans to the DS Kulkarni group, one of the largest real estate developers in the Pune region. BOM has a total exposure to the DSK group to the tune of nearly Rs.100 crore. Obviously, the $2 billion bad loan in case of Nirav Modi has urged the ED and the CBI to take on such cases on priority basis. DSK group is in trouble and most of its loans have already gone bad.
The exits at the senior level in the economic advisory space appear to be continuing. After Dr. Raghuram Rajan and Arvind Panagriya, it was the turn of Chief Economic Advisor, Arvind Subramanian to put in his papers and move back to the United States. While the actual reasons are not known, the grapevine is rife with news that Arvind was not too happy at being sidelined on the issue of demonetization and GST, where his concerns had been brushed aside. It remains to be seen as to who is appointed in place of Arvind Subramanian in the role of CEA.
OPEC may be moving towards a more conciliatory oil deal with Iran finally coming around to the Saudi Arabia and Russia view on increasing supply of crude. OPEC had cut the daily production by 1.8 million bpd but in this meet at Vienna, the OPEC may choose to restore production to the tune of 1.2-1.5 million bpd. This will have a tempering impact on the price of crude oil. Saudi Arabia is under pressure from the US to unwind some of the production cuts. In fact, Trump has threatened to flood the world markets with US oil if prices do not come down further. The production increase is opposed by Iran and Venezuela as both cannot increase their production at short notice. Iran is under US sanctions while Venezuela is going through political and economic turmoil.
The finance ministry will be holding a meeting with key stakeholders of the power sector on Thursday 21st June. The main agenda will pertain to the stress due to doubtful assets. The power sector NPAs have not yet been recognized and schemes like the UDAY have not delivered the goods. The Court has already given the power sector some relief from adhering to the stringent RBI regulations on asset classification. The government has also tried to get some of the PSU power companies to take over stressed power plants but the response has not been too enthusiastic.
