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Economic Times
12 hours ago
- Business
- Economic Times
Why is RBI stimulating a healthy economy?
Reuters A Reserve Bank of India (RBI) The Reserve Bank of India's recent jumbo rate cuts took economists by surprise, as many indicators point to an economy chugging along nicely. Why then did the RBI need to frontload monetary stimulus? The RBI on June 6 cut the repo rate by 50 basis points and the cash reserve ratio by 100 bps, while also changing the monetary policy stance from "accommodative" to "neutral," implying that future rate moves could be up or down. The RBI's actions clearly confused investors. After the outsized rate cut, 10-year Indian bond yields actually jumped by around 10 bps, before receding slightly over the following weeks. The confusion surrounding the large rate cuts is understandable, as several high-frequency indicators signal that India has a stable and improving economic trajectory. For one, collection of goods and services tax, a proxy for corporate revenue, has been steadily inching upwards since bottoming out in late 2024. Similarly, monthly E-Way bills, an indicator of goods movement and tax compliance, have been rising by more than 13% year-over-year in the past 12 months. The inflation trajectory appears benign as well. Food inflation, the largest component of Indian CPI, looks set to decline given forecasts for a normal monsoon season and thus a surge in food production. Low food prices would likely support urban consumption, further alleviating growth concerns. What then drove the RBI to cut the repo rate massively and inject an additional 2.5 trillion rupees of liquidity into the banking system through the CRR cut? RBI Governor Sanjay Malhotra partly answered the question in his post-meeting media interactions. He noted that growth was lower than the bank's "aspirations", amid a challenging backdrop of global uncertainty, which compelled the Monetary Policy Committee to ease policy in order to stimulate consumption and investment growth."Global uncertainty" is only part of the story, however. What was left unsaid is that there are multiple signs that Indian consumption could be facing headwinds. First, passenger car sales, a reliable indicator of urban consumption sentiment, remain subdued, with less than 2% year-on-year sales growth in the fiscal year ended March 2025, according to the Society of Indian Automobile Manufacturers, though growth in motorcycle and scooter sales remains strong at 9.1% y/y, implying stronger buoyancy in rural and semi-urban consumption. More ominously, households seem to be financing their consumption by taking on more debt. Indian household debt as a proportion of GDP may not be alarming by emerging markets standards, but it has increased over the past two years from 36% to 42%, according to the Reserve Bank of India. Credit card loans have increased by 50% over the past three years. And the household savings rate has declined as a result, from 24% a decade ago to about 18% now. By lowering borrowing costs and thus reducing cash outlays for mortgages and personal loans, the RBI could relieve some of this household financial stress. And, in theory, the resultant increase in disposable incomes should boost both consumption and investment moving forward. But the RBI's large cuts may not be enough to achieve this outcome. Boosting consumption typically requires raising confidence related to job security and income visibility, not just making money cheaper. To protect against the risk of an ineffective monetary policy move, central banks usually try to keep aside some "dry powder", or room for more stimulus. In a crisis, central banks may pull out the monetary "bazooka", but in normal times, central banks typically err on the side of caution. The RBI appears to have some ammunition left, but far from what would be ideal. The lowest the repo rate has been over the past decade was during the pandemic when it fell to 4%. That's 1.5 percentage points below the present level. When excluding the pandemic period, the lower bound on the repo rate has usually been only about 50 bps below where it is now. Meanwhile, the cash reserve ratio is already at a record low. This limited monetary space could be an issue, as the RBI may already be considering more stimulus. Governor Malhotra recently suggested that more policy space could be opened up if inflation falls below the bank's projections. Fortunately for the RBI, India's consumer inflation seems to be headed that way. Since February, CPI inflation has been resolutely below the RBI target of 4%. With the most recent print of 2.82% in May, inflation could be on its way to a decade low. This is partly because food prices have been moderating and India is increasingly importing more goods from China, which is struggling with deflation. While it looked last week like the Israel-Iran war might complicate this picture by causing an oil price spike, that now seems less likely following the announcement of a ceasefire. Of course, the ongoing trade war could also put upward pressure on global prices while also weighing on growth. The RBI's large rate cuts were likely intended to keep India's economy going strong, but making such big moves now means the bank could potentially find it harder to stimulate when the economy really needs it. Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn, opens new tab and X, opens new tab. (The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd and the former head of Asia-Pacific equity research at BNP Paribas Securities.)
Yahoo
21-05-2025
- Climate
- Yahoo
Tornado Destroys Family's Dream Home After They Finished 7-Year Renovation: 'So Overwhelming'
Uyama Umana-Hollinshed said she and her wife Vanessa spent seven years renovating their home before it was destroyed by the EF-3 twister on May 16 The couple had only lived in the home for a year before the tornado destroyed their hard work 'I saw our retirement, our every dime we had was flat,' Umana-Hollinshed told ReutersA family spent seven years renovating their dream home in St. Louis. Now, a tornado has torn it to shreds. It was just after 2:40 p.m. local time on Friday, May 16 when a tornado touched down in Clayton, just outside of the city, according to the National Weather Service. The EF-3 twister, which had maximum winds up to 152 mph, caused vast amounts of damage and ripped through northern St. Louis. One of the homes destroyed by the tornado belonged to Uyama Umana-Hollinshed, who told Reuters that she and her wife, Vanessa, spent seven years renovating the home before it was ripped apart. The couple only enjoyed the three-story home for one year before the storm hit, the St. Louis woman said. Umana-Hollinshed was out baking pies for a community event when she learned of the tornado. When she returned home, she was shocked to find her home had been ruined. 'We did everything,' Umana-Hollinshed said. She was heartbroken when she 'saw our life's work' in smithereens. 'I saw our retirement, our every dime we had was flat,' she explained. The tornado that impacted Umana-Hollinshed's home was on the ground for more than 22 miles, according to the NWS. Umana-Hollinshed's home was one of 5,000 buildings damaged during the powerful spring storms, Reuters reported. The St. Louis woman said she 'cried all day long, every day' since the twister wrecked her dream home. She never imagined this could happen to her. Never miss a story — sign up for to stay up-to-date on the best of what PEOPLE has to offer, from celebrity news to compelling human interest stories. 'It's devastating,' Umana-Hollinshed said. 'There's no words, there's no phrase that can accurately describe the feeling of total, just devastation, loss, disappointment, brokenness, confusion, you know, hurt. It's so overwhelming. This is a pain that I can't describe.' She added, 'I can comfortably say I have never fathomed [this] for anybody, much less myself.' St. Louis Mayor Clara Spencer declared a state of emergency on Friday in the wake of the deadly storms. At least 28 people were killed in Missouri, Kentucky and Virginia as a result of the dangerous storms, according to the Associated Press. Read the original article on People
Yahoo
21-05-2025
- Climate
- Yahoo
Tornado Destroys Family's Dream Home After They Finished 7-Year Renovation: 'So Overwhelming'
Uyama Umana-Hollinshed said she and her wife Vanessa spent seven years renovating their home before it was destroyed by the EF-3 twister on May 16 The couple had only lived in the home for a year before the tornado destroyed their hard work 'I saw our retirement, our every dime we had was flat,' Umana-Hollinshed told ReutersA family spent seven years renovating their dream home in St. Louis. Now, a tornado has torn it to shreds. It was just after 2:40 p.m. local time on Friday, May 16 when a tornado touched down in Clayton, just outside of the city, according to the National Weather Service. The EF-3 twister, which had maximum winds up to 152 mph, caused vast amounts of damage and ripped through northern St. Louis. One of the homes destroyed by the tornado belonged to Uyama Umana-Hollinshed, who told Reuters that she and her wife, Vanessa, spent seven years renovating the home before it was ripped apart. The couple only enjoyed the three-story home for one year before the storm hit, the St. Louis woman said. Umana-Hollinshed was out baking pies for a community event when she learned of the tornado. When she returned home, she was shocked to find her home had been ruined. 'We did everything,' Umana-Hollinshed said. She was heartbroken when she 'saw our life's work' in smithereens. 'I saw our retirement, our every dime we had was flat,' she explained. The tornado that impacted Umana-Hollinshed's home was on the ground for more than 22 miles, according to the NWS. Umana-Hollinshed's home was one of 5,000 buildings damaged during the powerful spring storms, Reuters reported. The St. Louis woman said she 'cried all day long, every day' since the twister wrecked her dream home. She never imagined this could happen to her. Never miss a story — sign up for to stay up-to-date on the best of what PEOPLE has to offer, from celebrity news to compelling human interest stories. 'It's devastating,' Umana-Hollinshed said. 'There's no words, there's no phrase that can accurately describe the feeling of total, just devastation, loss, disappointment, brokenness, confusion, you know, hurt. It's so overwhelming. This is a pain that I can't describe.' She added, 'I can comfortably say I have never fathomed [this] for anybody, much less myself.' St. Louis Mayor Clara Spencer declared a state of emergency on Friday in the wake of the deadly storms. At least 28 people were killed in Missouri, Kentucky and Virginia as a result of the dangerous storms, according to the Associated Press. Read the original article on People
