Jul 29, 2008|
Monetary policy, oil prices & more
Monetary policy review today
The RBI is slated to announce its quarterly review of the monetary policy for 2008-09 later today. Experts point to the need for the central bank to raise interest rates yet again considering that inflation continues to remain in double digits. In its review document for macroeconomic and monetary developments during the April to June 2008 quarter released yesterday, the RBI has given hints that its tightening stance shall continue, while indicating that it does not see inflation cooling down anytime sooner.
"Potential inflationary pressure from international food and energy prices appear to have amplified and by current indications are likely to remain so for some time," says the review report. As a matter of fact, the RBI has already hiked the repo rate (short term interest rate) by 0.75% to 8.5% and CRR (cash reserve ratio) by 1.25% to 8.75% so far in 2008. And with the inflation, both on the wholesale and consumer fronts, showing no signs of cooling off, the central bank is expected to maintain its tightening bias.
Also read - RBI's anticipated unanticipated move
Some breather on the crude prices front?
Oil prices has come off by around US$ 24 a barrel from a high of US$ 147 a barrel it had reached earlier this month with the OPEC and China signaling their plans of raising output. Concerns over supply disruptions, fuelled by the escalating tensions between Iran and Israel, sustained oil demand from China and India and speculative activity were keeping the crude prices buoyant. As per Bloomberg, the OPEC, which supplies more than 40% of the world's oil, will provide 32.9 m barrels daily this month as compared to 32.7 m a day in June.
In another development, China has cut down its imports and is focusing more on bolstering its domestic output. For instance, crude oil imports by China, the world's second-biggest energy consumer, fell to 14.57 m metric tonnes (MMT) in June 2008 from 16.2 MMT in May 2008 as reported on Bloomberg. Further, firm crude prices have also had an impact on the demand side, with the US (the world's largest consumer of oil) facing a slowdown in the consumption of the commodity.
Falling oil prices is certainly good news for the Indian economy as well, which is already reeling under double-digit inflation and a widening trade deficit. Given that India imports around 70% of the oil that it consumes, any decline in crude prices will play some role in tempering the current account deficit, if not eliminate it.
Also read - India's oily politics
US woes continue...
In fact, the president of the Federal Reserve Bank of Minneapolis, Gary Stern has stated that the credit crunch is expected to persist for the months to come. The US economy is tottering having received heavy blows from the subprime crisis and rising energy and food prices. The US Fed sought to douse the subprime mess by resorting to a slew of interest rate cuts hoping that this move would spur Americans to spend more. However, falling house prices and soaring energy costs has taken its toll on the American consumer's wallet and many of them are having problems footing their bills. Meanwhile, the inflation in the US, as in many countries across the world, is inching upwards. This has created a dilemma for the US Fed, which will now have to decide whether it can forego growth in a bid to contain inflation. In its last meeting, while the Fed did not hike interest rates, it kept them untouched signaling that any further cutting of rates would have to be put on the backburner.
Indian pharma's performance in June quarter
The June quarter results season is on full swing and domestic pharma companies have produced mixed results so far. The growth on the topline front has been robust driven by new product launches, foray into newer geographies, contribution from acquisitions and strong growth in the domestic market. The rupee depreciating against the dollar during this quarter has also played an instrumental role in augmenting revenues. Operating margins have, however, come under pressure led by rising raw material costs as intermediates imported from China become expensive.
MNC companies have however done well on the margin front and most of the companies namely GSK Pharma, Novartis and Pfizer have witnessed an improvement in margins led by an improved product mix, focusing mostly on priority brands and products not under the DPCO cover. 'Tykerb' (for the treatment of cancer) and 'Champix' (a smoking cessation product) were launched by GSK Pharma and Pfizer respectively from their respective parent's portfolio.
Also read - See how pharma companies have fared in the June quarter
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