India is projected to witness a growth between 7-7.5% during the current financial year, after remaining in high growth path constantly for the last four years, said Ashok Chawla, secretary, department of economic affairs.

Whereas, the pace of growth next year is dependent upon how long the global recession lasts and how quickly capital flows return to normal, he added. With the presence of strong domestic demand stimulus, he added further that the India expected to maintain a strong pace of economic growth despite continuation of global recession.

India has taken a number of steps to inject liquidity into the financial systems, recapitalized banks and other systemically important institutions to tide over the crisis, he said.

Chawla identified banking sectors and capital markets as areas where the expert teams of India and China to jointly work and evolve a time-bound strategy for closer engagement.

Financial sector reform process would play as a key to improve productivity, efficiency, profitability and coverage of the system, he emphasized. – MyIRIS.

So you quickly repaid a big part of your home loan because the interest rates went up did you? Welcome to the world of fluctuating interest rates!

Interest rates play an important role in your personal finances. The RBI tries to raise or lower key interest rates that trickle down and affects everything – from your housing equated monthly installment (EMI) to the interest rates on your savings bank account.

As rates begin to fall, what should you do?

Accept that experts also only guess!

First of all it is necessary to understand that interest rates are a function of inflation, interest rates in other countries, money supply, government spending, government policy, demand and supply of money – from businesses and households, etc.

Even for experts being able to predict the US meltdown, the slowing down of growth in Asia, Brazil, etc. is not really easy. So generally they take a 2-3 month view – which is not useful when you are planning investments for the next few decades!

Planning for interest rate changes requires that you understand why RBI makes these decisions in the first place. In a democracy (in an election year that too!) governments are particularly sensitive to inflation. So the RBI is pressurized to reduce inflation – by sucking our liquidity in the market. Interest rates increase in an effort to make borrowing money less-attractive and slow a rapidly growing economy. Exactly the reverse is done to make the economy go faster! Lowering the rate will make money flow more freely and hopefully stimulate economic growth.

Not always a blessing!

When interest rates go down, there is a sense of happiness amongst the consumers. Please remember you are a producer too! Decreasing interest rates is normally in response to a slowing economy. As we have seen the last few months have not been kind to anybody`s portfolio. All asset classes have done badly – we are only measuring how badly. If somebody told you cash is king, well it is because the others are paupers! Remember somewhere in your family your father, father-in-law, mother etc. are worried about lower bank interest rates.

Your strategy does not change!

Will you buy a bigger car because petrol prices have come down by Rs 5 a liter? Exactly so for your interest rates coming down. If you have a lot of debt, tackle the highest interest rate loans first. It still makes sense to cut down on loans. Especially if you realize that last years` bonus figure is now in the history books. If your HR does not call you to “discuss“ a voluntary separation, treat that as a bonus! A rate change by RBI does not automatically reduce your interest rates.

Call your bank and ensure that your housing loan, credit cards, personal loans, etc. are all charged at a lower rate. A consumer is no longer the king unless he/she is well informed! Also realize “we will get back to you“, “we are examining your requests“ are all nice answers which actually does not reduce your debt! Try refinancing your loans if you must. Act tough – a few “reputed“ organizations need more than a nudge to change!

Floaters rejoice!

For those who are looking to buy an asset (on borrowed money), or those on a floating rate already, decreasing rates is certainly a good thing. While housing EMI rates aren`t directly linked to RBI`s rate cuts, the signaling surely helps. Of course, do not get carried away and buy a house much bigger than what you actually need. Even those of you who have kept your savings in floating rate funds are now getting a higher return on your monies. If you already own a home and purchased it when the rates were a bit higher, this could be an opportunity to refinance. Even being able to reduce your borrowings by One point of interest can make a lot of difference, in the total price that your asset!

What about your savings?

Clearly, low interest rates are great for borrowing money, but when it comes to trying to earn money on your savings, it isn`t to your advantage. However, if you have invested in HDFC Prudence or Templeton India Pension Plan, the debt portion would have appreciated in the last couple of weeks – a falling interest rate regime is benign for older portfolios. However, it will not happen continuously unless the interest rates keep falling. If your bank fixed deposit rates are dropping you should quickly tie-up for 18-36 months. Banks are as likely to reduce fixed deposits as they have done on home loans. You could perhaps look at some Income funds – with a 2-3 year view! Instead of a savings account, you should look at a floater fund or a liquid fund if you are not sure of how long you want to keep the monies there – Income funds have an exit load! Also remember dividend distribution tax, short term capital gains tax and income tax while dealing with savings. Investments on the other hand are more tax efficient. My IRIS.

Inflation fall marginally at 8.90 compared to 8.98 last week.

The Reserve Bank of India is monitoring the economic situation and will take action at the right time, its governor, Duvvuri Subbarao, said on Tuesday.

The government will take steps to stimulate the economy to offset the impact of the global economic slowdown, the finance minister said, adding he expected to end the fiscal year with decent growth.

India has already cut interest rates and taken a series of measures to boost liquidity in its banking system after the credit crisis spilled into its markets in October.

“We will take steps to stimulate the domestic economy to compensate for the downside caused by the downturn in the world economy,” Palaniappan Chidambaram told the World Economic Forum’s India Summit on Tuesday.

Chidambaram said India was likely to end the year with a satisfactory growth rate, despite the downturn in advanced economies, although he declined to put an exact number on the expected rate.

“Next year, we will bounce back to a much better growth rate,” he said, adding growth could reach 9 percent by the second half of fiscal 2009/10.

India has grown at an annual rate of 9 percent or above for the past three years but is expected by many private economists to grow at about 7 percent this fiscal year to March 2009.

Chidambaram said Asia’s third-largest economy could miss its annual export target of $200 billion for this fiscal year as the slowdown in developed nations trims overseas demand.

He urged companies to cut real estate prices and prices of goods such as cars as a way to stimulate domestic demand, saying state-run banks had assured him they were ready to lend to borrowers.

He said it would be good if interest rates trended down although he cautioned that India had still not quite licked the problem of subduing inflation.

Chidambaram said he would be meeting the Reserve Bank of India governor later on Tuesday.

Source: – Reuters

JPMorgan has cut its forecast for India’s economic growth in 2008/09 and 2009/10, it said in a note on Monday, adding that it expects agressive rate cuts by the Reserve Bank to support the growth momentum. 

The Indian economy may grow 6.7 per cent in the year ending March 2009, JPMorgan said, down from its earlier forecast of 7 per cent. The economy may grow 6.2 per cent in 2009/10, down from its previous estimate of 6.8 per cent, the bank said. 

India’s GDP growth rate is at 9% in the last financial year. See how things are changing drastically.

RBI:- GDP growth rate for FY09 to 7.5-8%.

Prime Minister’s Economic Advisory Council: GDP growth rate for FY09 to 7% from 7.7%.

Morgan Stanley: GDP growth rate for FY09 to 7% from 7.5% and for FY10 to 5.7% from 6.5%.

Goldman Sachs: GDP growth rate for FY09 to 6.7% from 7.5% and for FY10 to 5.8% from 7%. Massive downgrade.

Fitch Ratings: GDP growth rate for FY09 to 6.3% from 7.8% and for FY10 to 6% from 6.8%.

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The markets commenced the last week on a strong note against the backdrop of RBI’s sudden cut in policy rates over the weekend which was further augmented by strong global cues. With alternate bouts of buying and selling being the order during the first half of the week, the sentiment was further boosted after reports that PSU bankers reached a consensus to cut interest rates on advances by 75 basis points, and on deposits by 50 bps. Resultantly, there was a sharp rally at the bourses.

However, the biggest event of the week remained the US Presidential election wherein Barack Obama, the Democrat nominee was elected as the 44th US President. However, hardly had the election dust settled that global investors again began despairing about the economy. The Bank of England surprised investors on Thursday, 6 November, by slashing its key rate by 1.5%, bringing borrowing costs down to the lowest since the 1950s.

Prevalent uncertainty, lack of fund buying coupled with weakness in the international markets and profit booking at higher levels finally led to a steep correction in the domestic market on the penultimate and previous day of the week.

Concerns on inflation, which again increased to 10.72% against the market expectation of a single digit rate too added to the selling pressure. Lastly, Reliance Industries posted its third worst fall in percentage terms on a single day during the week gone by following a slew of adverse news and unsubstantiated rumours about the company.

The recovery on the last trading day against the backdrop of favorable global cues however helped the market to end the week on a positive note.

Though the US Presidential election results attracted a lot of media attention, it failed to bolster investor sentiment across the globe, mired as it is in the ongoing financial crisis. Thus, despite a slew of measures taken by the Government and the RBI to arrest the stock market mayhem, the Indian markets remain vulnerable to yet another FII sell-off driven onslaught.

The foretaste of the economic slowdown was already witnessed in the subdued performance of Indian Inc. during the latest result season. Further, with major economies such as US, Europe and Japan already in a recessionary mode, it will be a while before the global economy gets back on track. Lowering of India’s growth forecast of by the International Monetary Fund (IMF) to 6.3% too signals tough times ahead for the Indian Inc.

The upcoming announcement of IIP numbers in India and the truncated week ahead could also add to the ongoing uncertainty and trigger increased volatility.

However on a positive note, the Indian Rupee is now showing signs of strengthening against the backdrop of ease in FII outflows and dollar sales by exporters. This coupled with the cooling of crude prices could have a positive impact on the inflation which still remains above the RBI tolerance level.

For now, with the Q2 results season now out of the way, there are concerns that Q3 may be even worse as the lag effect of the impact of inflationary pressures and interest rates that were raised mid-year could manifest themselves in the numbers. Thus, the market may remain lacklustre as selling at every sharp upmove would result into sharp downswings. The silver lining of course remains in the fact that there are again umpteen options for long term investors to fuel up their portfolios with.