Archive for June 18th, 2009

Inflation at -1.61%; what it means for India?

Inflation at -1.61%; what it means for India

Inflation at -1.61%; what it means for India

India’s wholesale price index for week ended June 6 stood at -1.61% in the 12 months to June 6 as compared to the previous week”s annual rise of 0.13 percent. Inflation has fell to negative for the first time since 1977-78.

Inflation in India turned negative 1.61 for the first time in 32 years but the prices of food items like fruit and vegetables, cereals and oil were still higher than last year.

The annual inflation rate was 11.66 percent during the corresponding week of the previous year.

India possibly is the only major economy moving into a deflationary zone though the European region is near zero level due to recessionary pressures.

The stock markets immediately welcomed the development and jumped by about 200 points as analysts expect this to help ease the monetary policy restrictions and pave the way for cut in banks’ lending rates.

However, food articles were costlier by 8.7 per cent from the comparable week last year!

India would most perhaps see deflation or reduction in general price level from next month due to slackening demand.

Period of deflation may begin in April, which could last till end-2009 due to not only continuing demand destruction but also a sharp step-up in the base.

Deflation would be surely a hinder to a strong economy like India than inflation. 😦

Note : Low inflation does not mean that prices will remain low.

It means that prices are rising at a slower pace than before. Negative inflation can also be termed as deflation.

Deflation is a fall in the price of goods and services. When the inflation rate is negative, the economy is in said to be in a deflationary period.

This is when there is less money (supply of money) chasing the same amount of goods and services, leading to the increase in the value of the money.

The decline in the supply of money and credit thus leads to deflation.

For more info on Deflation, Refer SMC Gyan Section or click Here

Banks push for more attractive FDs.

Banks push for more attractive FDs

Banks push for more attractive FDs

The banks are lobbying with the finance ministry to get their share of the pie. According to the sources, Indian Banks Association (IBA) wants some incentives in order to keep the fixed deposits attractive.

On one side the Finance Minister wants bankers to charge less for their loans while on the other hand, the bankers also want their share from him, including a proposal to make fixed deposits more attractive.

According to sources, the IBA is suggesting to treat the fixed deposits at par with sec 80 C instruments like Employees Provident Fund (EPF) as well as Public Provident Fund (PPF) and National Savings Scheme (NSS). Besides this, it also wants the minimum lock in period for long term Fixed Deposits (FD) to 3 years from 5 years currently.

Banks that witnessed funds flying in during the stock market meltdown are worried that the reverse could be happening right now with competition from equity driven investments like mutual funds.

However, the debate to bring down the interest rate on small saving schemes is still going on, the banks are gearing up for the competition from the equity market instruments as and when the market sentiment improves. To make FDs more attractive is critical to ensure the lone term availability of long term funds for banks.