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Bank Credit In A Sweet Spot
Fortune India
|December 2022
As credit offtake improves due to growing corporate interest and optimism around GDP growth, the banking sector is set to reap the riches.

WHEN THE RESERVE Bank of India (RBI) announced an off-cycle meeting of the Monetary Policy Committee (MPC) on October 27, it was not entirely unexpected. The central bank had failed to rein in inflation for three consecutive quarters within its tolerance limit of 6% - in September, retail inflation came in at 7.41%; it was 6.63% and 7.3% for the preceding months and according to Section 45ZN of the RBI Act (1934) it had to write a letter to the government explaining the reasons for the failure. The contents of the letter may not be made public anytime soon with governor Shaktikanta Das terming it as "privileged communication", but he did offer a glimpse of what it may possibly contain.
"We had done our internal and scenario analysis assuming crude oil going up to $100/barrel, which was at an extremely high level. Nobody had thought crude prices would shoot up to $100/ barrel. Crude prices at that time were around $82-83/ barrel," Das said while speaking at the Annual FIBAC Conference (organised jointly by FICCI and the Indian Banks' Association in the first week of November). The RBI's internal analysis had estimated inflation at around 5% for FY23 even with crude prices at $100/ barrel, "but the Russia-Ukraine war changed everything," Das had said.
The silver lining, however, is that the RBI may ease its rate hike cycle from here on; and will not try to be in-step with the U.S. Federal Reserve. The trade-off: Dollar inflows; it will have to be sacrificed even though the current level of forex reserves at $550 billion means an import cover of eight months. This is cushion enough, but is not to be used as a buffer to defend the rupee. It follows that the rupee could slide closer to 85 against the greenback by January 2023.
Other key high-frequency data also point to green shoots.
Denne historien er fra December 2022-utgaven av Fortune India.
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