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You are here : IndiaNotes >> Market Action >> Fundamental

Economic Calendar Dec 01 - Dec10

Namrata Shah | 03 Dec, 2015  | Follow Author | Add to my Favourites 
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Dec 1, 2015


Monetary Policy



Monetary policy refers to the actions taken by Reserve bank of India (RBI). In monetary policy meeting, RBI governor would release its decision on benchmark interest rate and other interest rate. Changing interest rate would have direct impact on economic growth, inflation, exchange rates and corporate decision on capex.


In RBI policy released on Dec 1, 2015 RBI Governor Raghuram Rajan has did not change interest rate.


Cash reserve ratio (CRR)


Banks in India deposit cash with RBI. RBI stipulates minimum percentage of total deposit to be held in cash form. This ratio is known as Cash Reserve Ratio (CRR). Currently, CRR is 4% of total deposit.


Statutory Liquidity Ratio (SLR)


At the end of each working day, banks are required to maintain minimum proportion of their Net Demand and Time Liabilities as liquid assets with RBI. These assets are held in the form of cash, gold and unencumbered securities. This ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). Currently SLR is 21.5%


An increase in SLR reduces money supply from economy and restricts the bank's leverage position. Whereas, the cut in SLR rate increase money supply and boosts growth by providing liquidity to companies. RBI can increase SLR up to 40% of net demand and time liabilities.


Demand Liabilities - Bank accounts from which account holder can withdraw money at any time. E.g. savings accounts and current account.


Time Liabilities - Bank accounts from which amount can be withdrawn only on maturity. E.g. Fixed deposit accounts.


Marginal standing facility and Bank Rate


Rate at which banks can borrow money from RBI in emergency situation. Banks provide approved government securities as collateral. MSF rate is higher than Repo rate.

In the diagram below, we can see that CRR has remained constant for last 18 months. Bank rate and SLR has fallen. Cut in bank rate and SLR releases money in the economy, which was otherwise reserved by RBI and banks. This would enable companies to raise funds at lower interest rate and expand their business operations



Repo (repurchase) rate


Repo rate or benchmark interest rate is the rate at which the banks borrows money from RBI for short term. When the repo rate increases, banks have to pay higher interest on borrowing from RBI. A cut in repo rate, enables bank to borrow money at cheaper interest rate from RBI. Increase or decrease in repo rate has direct effect on banks interest rate on loans or savings.


Reverse repo rate


Reverse Repo rate is the rate at which RBI will borrows money from banks. If Reverse repo rate increase, then banks would transfer more funds to RBI. This will reduce liquidity from banking system. Reverse Repo Rate is linked to Repo Rate with a difference of 1% between them (see diagram below).


RBI has reduced repo rate and reverse repo rate by 125 bps over period of last 18 months to boost economic growth.


 

Call rate


Call rate refers to interest rate at which banks can borrow from other bank for maturity period ranging from one day to 14 days.


Dec 1, 2015

 


The PMI index measures the performance of manufacturing sector. The PMI index is derived from survey of 500 private manufacturing firms by Markit Group (worldwide) and Institute for Supply Management (US).


The performance is based on five major indicators: new orders (30%), inventory levels (10%), production (25%), supplier deliveries (15%) and the employment environment (20%).


The responses of all firms are aggregated, interpreted, analyzed and interpolated to arrive at PMI.


50 is considered as base figure. A reading above 50 indicates an expansion of the manufacturing sector; below 50 represents a contraction and 50 indicates no change. In addition to PMI indicator, rate of change from month to month is very important.

 


From the diagram, it is seen that PMI index has increased during Oct - Dec 2014. However, it is falling continuously from Jul - Nov 2015. Comparing PMI manufacturing with interest rate, it is observed that even though RBI has reduced repo rate (base rate for lending by banks to its customers), growth in economic activity is yet to be seen.


Comparison with other countries


Comparing PMI of other emerging market countries and developed countries, it is seen that overall global economy is experiencing slowdown in its manufacturing cycle in 2015. PMI index of all countries has fallen from Nov 2014 level in Nov 2015, except for Eurozone which is in revival phase


 

Stages of economic activity and chosen PMI variable


 

The diagram explains economic cycle and each of 5 elements that forms basis of PMI manufacturing index. By identifying movements in 5 elements that have direct impact on manufacturing growth prospects, PMI index is used to identify early trend of economic cycle.


Dec 3, 2015



The Nikkei India Services PMI index measures the performance of service sector. The PMI index is derived from survey of 350 private service sector companies. The index is based on survey of variables like sales, employment, inventories and prices.


Like PMI Manufacturing, 50 is considered as base index. Figure above 50 indicates expansion in economy and figure below 50 indicates contraction in economy



PMI service was lowest in Jun 2015. We see upward trend during Jul – Oct 2015, with slight fall in Sep 2015.


Relation of PMI index (manufacturing & service) with GDP


As PMI index considers all factors that impacts expansion or contraction of economy. PMI index acts as pre indicator for predicting GDP number.


 

As can be seen from above diagram, GDP increase with improvement in PMI Index. So, PMI can acts as pre indicator of economic growth


Comparing PMI manufacturing and PMI service, PMI manufacturing has fallen in 3Q/15 and 4Q/15, whereas PMI service recorded upward trend. After fall in PMI service in 1Q/16, it has pick up its trend in 2Q/16.

 

Dec 4, 2015

 


Foreign exchange reserves provides information about total foreign exchange reserve held by RBI


There are 4 components of foreign exchange reserve - Foreign currency asset, Gold, Special drawing rights (SDR) and reserve position with IMF. In scenario, when rupee to US dollar exchange rate moves outside RBI's comfort level then RBI would intervene by either buying or selling US dollar.  


In Nov 2015, foreign exchange reserve range $351.73 billion - $353.64 billion


Yuan (Chinese Currency) will form part of world's reserve currency from Oct 2016. This indicates that Yuan is safe, reliable and freely usable. Also, it will form part of IMF’s Special Drawing Rights (SDR) basket of currencies. Further, this move would led asset managers, central banks and private investor to shift from other popular currency to Yuan.


 

Dec 9, 2015



M3 money supply is sum of Currency with public, Demand and Time Deposit with Banks and Other Deposits' with Banks. A higher than expected reserve balance is positive for the INR, while a lower than expected balance is negative for the INR.





About Namrata Shah

Namrata Shah is a Chartered Accountant and an independent finance blogger. She loves analyzing companies financials, business models, corporate governance and other aspects of the companies. She has rich experience in research, valuation and audit, assurance & advisory function in reputed organisations. She blogs at http://finance-nams.blogspot.in/ .

 

For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.




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