India’s central bank set for third interest rate cut of the year

Updated 31 May 2015
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India’s central bank set for third interest rate cut of the year

MUMBAI: India’s central bank is expected to cut interest rates for a third time in five months when it meets this week, confident that inflation is stable enough to weather the summer monsoon.
The Reserve Bank of India (RBI) has already lowered its benchmark repo rate, the level at which it lends to commercial banks, by 50 basis points to 7.5 percent this year.
And analysts believe the RBI will snip rates again at its next meeting on Tuesday in a bid to encourage greater lending to businesses and increased consumer spending, stimulating the economy.
“I expect the RBI to cut the rate by 25 basis points,” Ashutosh Datar, an economist at IIFL Institutional Equities, told AFP.
Rupa Rege Nitsure, chief economist at L&T Financial Services, agreed, saying she believed the Mumbai-based bank would opt for a “modest” cut.
“Given the uncertainty concerning oil prices and the depreciation in the rupee, which have a high inflationary potential, I don’t think many people are expecting a 50-point cut,” she said.
The RBI, led by governor Raghuram Rajan, sliced 25 basis points off the repo rate in January — the first reduction in 20 months — before a surprise repeat cut in March.
It kept the key rate unchanged last month, citing inflation concerns and a failure of most commercial banks to pass on lower borrowing costs to customers in Asia’s third-largest economy.
But Nitsure said 20 banks were now heeding Rajan’s call to reduce their base rate and another cut would motivate others to “follow suit.”
“There is a need for borrowing costs to come down because demand is so low and inflation is not a threat,” she said.
Prime Minister Narendra Modi’s right-wing government swept to power last year pledging to reform and revive a flagging economy. It received a major boost on Friday when data showed that India’s economy grew 7.5 percent in the first three months of the year, overtaking China.
The government would like the RBI to cut rates further but Rajan has so far made controlling inflation a priority, setting a target of bringing it consistently below six percent by January next year.
In April, consumer inflation fell to a four-month low of 4.87 percent, well within the RBI’s target range. Last week India’s top economic adviser suggested that had “implications for interest rates.”
Arvind Subramanian added that food stocks were plentiful enough to help contain inflation even if the three-month monsoon, expected imminently, is weakened by the El Nino weather phenomenon as forecast.
Monsoon rains are vital for Indian crops and a particularly dry season can reduce farm output, raising food prices which can be crippling for the tens of millions of India’s poor.
“It is possible to contain (inflation) going forward even if the monsoon is not going to be as good,” Subramanian added.
Datar, the economist, said the current retail inflation level “gives the RBI enough headroom to be able to cut rates to try to stimulate demand.”
He added that “if monsoon inflation is not as bad as feared then they’ll probably cut them again later in the year.”
Not all experts agreed that a cut this week would be the right way to go though. Arun Singh, senior economist at Dun & Bradstreet, told AFP the monsoon’s inflationary “risk” meant the RBI should wait until it had passed.


BMW plans massive cost cuts to keep profits from sputtering

Updated 20 March 2019
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BMW plans massive cost cuts to keep profits from sputtering

  • ‘Our business model must remain a profitable one in the digital era,’ chief executive Harald Krueger said
  • Total number of employees is set to remain flat at around 135,000 worldwide

MUNICH: German high-end carmaker BMW warned Wednesday it expects pre-tax profits “well below” 2018 levels this year as it announced a massive cost-cutting scheme aimed at saving $13.6 billion (€12 billion) in total by 2022.
A spokesman said that “well below” could indicate a tumble of more than 10 percent.
The Munich-based group’s 2019 result will be burdened with massive investments needed for the transition to electric cars, exchange rate headwinds and rising raw materials prices, it said in a statement.
Meanwhile it must pump more cash into measures to meet strict European carbon dioxide (CO2) emissions limits set to bite from next year.
And a one-off windfall in 2018’s results will create a negative comparison, even though pre-tax profits already fell 8.1 percent last year.
Bosses expect a “slight increase” in sales of BMW and Mini cars, with a slightly fatter operating margin that will nevertheless fall short of their 8.0-percent target.
“We will continue to implement forcefully the necessary measures for growth, continuing performance increases and efficiency,” finance director Nicolas Peter said at the group’s annual press conference.
BMW aims to achieve €12 billion of savings in the coming years through “efficiency improvements” including reducing the complexity of its range.
“Our business model must remain a profitable one in the digital era,” chief executive Harald Krueger said.
This year, most new recruits at the group will be IT specialists, while the total number of employees is set to remain flat at around 135,000 worldwide.
Departures from the sizeable fraction of the workforce born during the post-World War II baby boom and now reaching retirement age “will allow us to adapt the business even more to future topics,” BMW said.
All the firm’s forecasts are based on London and Brussels reaching a deal for an orderly Brexit and the United States foregoing new import taxes on European cars.
“Developments in tariffs” remain “a significant factor of uncertainty” in looking to the future, finance chief Peter said, adding that “the preparations for the UK’s exit from the EU will weigh on 2019’s results as well.”
In annual results released ahead of schedule last Friday, BMW blamed trade headwinds and new EU emissions tests for net profits tumbling 16.9 percent in 2018, to €7.2 billion.