India cut its key interest rate yesterday for the first time in nine months, a move that it hoped would help to boost economic growth.
There has been mounting pressure from the government and industry in recent months for the Reserve Bank of India (RBI) to reduce the cost of borrowing. Signs of easing inflation combined with serious concerns about slowing growth prompted it to lower the benchmark interest rate to 7.75 per cent from 8 per cent.
"Growth has decelerated significantly below trend through the last fiscal year and through this year so far, and overall economic activity remains subdued," said Duvvuri Subbarao, the governor of the RBI. "On the demand side, investment activity has been way below desired levels and consumption demand, too, has started to decelerate. External demand has also weakened due to languid global growth."
Soaring inflation meant the central bank kept rates on hold for most of last year. India's wholesale price index inflation eased to 7.18 per cent last month, compared with 7.24 per cent in November.
"Several indicators, such as the weaker pricing power of corporates, excess capacity in some sectors, the possibility of international commodity prices stabilising as well as inflation momentum measures, suggest that inflationary pressures have peaked," said Mr Subbarao.
But the bank also warned that inflation remained a concern.
"RBI cut with caution," said Leif Eskesen, HSBC's chief economist for India and Asean. "It sounded a cautionary tone on inflation and in its forward guidance noted that the room for further easing is 'limited' and contingent on inflation risks receding further and the twin deficits narrowing.
The RBI also reduced the cash reserve ratio for banks yesterday to 4 per cent from 4.25 per cent, injecting about 180 billion rupees (Dh12.3bn) of liquidity into the banking system.
Shobhit Agarwal, the managing director of capital markets for Jones Lang LaSalle India, said the cuts should help the country's property market.
"The RBI's policy is definitely a key to boosting real estate market sentiment and sending out positive signals to global investors," he said.
Economic growth slowed to 5.3 per cent in the quarter between July and September and is struggling under high budget and current account deficits. The consensus is that India needs economic growth of 8 per cent for its burgeoning population of more than 1.2 billion to benefit.
The RBI yesterday lowered its growth forecast for the current fiscal year, which runs until the end of March, to 5.5 per cent from a previous projection of 5.8 per cent. Last July, the RBI's forecast was for growth of 6.5 per cent.
The government announced a slew of economic reforms last year, including opening up its retail and aviation sectors to more foreign investment. But it will take time for India to reap the rewards of these measures.
"On the structural policy front, we expect that the reform push will persist," said Mr Eskesen. "But reforms will inch rather than leap forward, especially on this side of the general elections."
Banks will follow the move and also cut lending rates, said KR Kamath, the head of the industry body Indian Banks' Association.
business@thenational.ae
THE SPECS
Engine: 1.6-litre turbo
Transmission: six-speed automatic
Power: 165hp
Torque: 240Nm
Price: From Dh89,000 (Enjoy), Dh99,900 (Innovation)
On sale: Now
Tank warfare
Lt Gen Erik Petersen, deputy chief of programs, US Army, has argued it took a “three decade holiday” on modernising tanks.
“There clearly remains a significant armoured heavy ground manoeuvre threat in this world and maintaining a world class armoured force is absolutely vital,” the general said in London last week.
“We are developing next generation capabilities to compete with and deter adversaries to prevent opportunism or miscalculation, and, if necessary, defeat any foe decisively.”
Kibsons%20Cares
%3Cp%3E%3Cstrong%3ERecycling%3Cbr%3E%3C%2Fstrong%3EAny%20time%20you%20receive%20a%20Kibsons%20order%2C%20you%20can%20return%20your%20cardboard%20box%20to%20the%20drivers.%20They%E2%80%99ll%20be%20happy%20to%20take%20it%20off%20your%20hands%20and%20ensure%20it%20gets%20reused%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EKind%20to%20health%20and%20planet%3C%2Fstrong%3E%3Cbr%3ESolar%20%E2%80%93%2025-50%25%20of%20electricity%20saved%3Cbr%3EWater%20%E2%80%93%2075%25%20of%20water%20reused%3Cbr%3EBiofuel%20%E2%80%93%20Kibsons%20fleet%20to%20get%2020%25%20more%20mileage%20per%20litre%20with%20biofuel%20additives%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ESustainable%20grocery%20shopping%3C%2Fstrong%3E%3Cbr%3ENo%20antibiotics%3Cbr%3ENo%20added%20hormones%3Cbr%3ENo%20GMO%3Cbr%3ENo%20preservatives%3Cbr%3EMSG%20free%3Cbr%3E100%25%20natural%3C%2Fp%3E%0A
The specs
Engine: 6.2-litre V8
Power: 502hp at 7,600rpm
Torque: 637Nm at 5,150rpm
Transmission: 8-speed dual-clutch auto
Price: from Dh317,671
On sale: now
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
