Economic Update:
- RBI took an unscheduled monetary policy decision on 4th May to increase interest rates for the first time in last three years; Repo rate is increased by 40 bps to 4.40% and CRR is increased by 50 bps to 4.50%.
- Urgency in increasing the rates in an unscheduled meeting is clearly to address inflation which is becoming broad based. Rate hike is one of the primary tool of RBI to control inflation as rate hike reduces the availability of credit. CRR is hiked to reduce excess liquidity of approx. Rs. 87000 Crore from the system.
- Inflation accelerated to 7.79% in April 2022, which is highest in eight years, above the RBI set limits of 4% ± 2% (Upper limit of 6%).
- RBI governor said that RBI will engage in gradual withdrawal of liquidity in multi-year time frame in non-disruptive manner beginning this year.
- RBI’s step was long overdue and was expected, however the sudden decision led to fall of around 2.3% in the market. Number of banks like HDFC, Canara, BoM have increased their lending rates post hike by RBI.
- As we have been covering from quite some time, globally Inflation is plaguing most of the countries due to factors like liberal central bank policies post covid, abundant liquidity and geopolitical factors like Ukraine war. Many central banks have now started to tighten monetary policies Eg. US, UK.
- India’s GST collection again hit all-time high of Rs. 1.68 Lakh Crore in April on account of increased compliance, better tax administration and improved economic activity. Earlier in March also the GST collection of Rs. 1.42 Lakh Crore was a record. GST collections have now remained over Rs. 1 lakh Crore for consecutive 10 months.
Economic impact of Russia-Ukraine War:
- Russia-Ukraine war is still ongoing with large number of casualties and has caused largest refugee crisis in Europe since World War II with more than 6.1 million Ukrainians fleeing the country and a quarter of the population displaced.
- While Russia continues to assault and hold territory in southern and eastern Ukraine in the areas around Kharkiv, Donetsk and Luhansk, the western military powers believe that the Russian military advances is faltering.
- Against expectations, the Russia has not defaulted on foreign debt and Ruble is close to prewar levels, however the western sanctions should have long term impact on the economy.
- This war has only complicated the post Covid recoveries of number of low and mid income economies due to global demand and supply chain shocks and inflation due to prices of food and oil & gas.
Sri Lanka Economic crisis:
- As covered last month, Sri Lanka has been going through Economic crisis and protests are still ongoing. Initially peaceful protestors have asked for number of reforms.
- As on date the PM Mahinda Rajapaksa has been forced to resign from his position on 9 May and seasoned politician and Ex-PM Ranil Wickremesinghe is appointed as the new PM on 12 May along with the new cabinet.
Acknowledgements:
RBI Bulletin (www.bulletin.rbi.org.in), SEBI (www.sebi.gov.in), NSE (www.nseindia.com), BSE (www.bseindia.com)
Disclaimer:
This material has been prepared by the personnel in Vora Corporate Finance which is Investment Banking arm of Vora Management Consultancy Private Limited and looks after Mergers & Acquisitions (M&A), Private Equity (PE), Fund Raising, Debt syndication and Valuations and is based out of Ahmedabad, Gujarat, India. Any views or opinions expressed herein are solely that of individual authors and may differ from view of Vora Management Consultancy Private Limited. This material is proprietary to Vora Management Consultancy Private Limited and is for your personal use only. Any distribution, copy, reprints or forward to others is strictly prohibited.
This material captures the information based on information available in the public domain, public announcements and sources believed to be reliable. Analysis contained herein is based on publicly available information and appropriate assumptions. This material is intended merely to highlight market developments and is not intended to be comprehensive and does not constitute strategic, investment, legal or tax advice. In no event Vora Management Consultancy Private Limited be liable for any use by any party or for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you for evaluating any transaction.
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