India raises key interest rate for second time to stave off inflation

While the Reserve Bank of India marginally trimmed its inflation projections for the current quarter, it said its inflation projections beyond that remain ‘broadly unchanged.’ (Reuters)
Updated 02 August 2018
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India raises key interest rate for second time to stave off inflation

MUMBAI: The Reserve Bank of India raised interest rates for the second straight meeting on Wednesday, but retained its “neutral” stance as it aimed to contain inflation while not choking growth.
The RBI’s Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 6.50 percent. It is the first time since October 2013 that the rate has been increased at consecutive policy meetings.
In June, the MPC also increased the key rate by 25 bps.
The rate action was in line with a Reuters poll last week, which showed 37 of 63 economists expecting a rate increase.
“The swiftness with which the central bank has responded to the jump in inflation should prevent the need for very aggressive policy changes in the future,” Capital Economics analyst Shilan Shah said in a note.
The bank’s decision to raise rates comes as global central banks, such as the US Federal Reserve, the Bank of England and the Indonesian central bank also adopt a tightening path.
The Fed, which is expected to keep rates on hold at a two-day meeting that ends later on Wednesday, has already raised rates twice this year, while the Bank of England is poised to raise rates at a meeting on Thursday.
Indonesia’s central bank has been the most aggressive in Asia this year, hiking its benchmark rate 100 basis points between mid-May and the end of June.
In Indonesia’s case, the main reason to hike has been its fragile currency. For the RBI, inflation is the central concern.
While the RBI on Wednesday marginally trimmed its inflation projections for the current quarter, the central bank said its inflation projections beyond that remain “broadly unchanged.”
India’s annual consumer inflation hit 5 percent in June, the eighth straight month in which it topped the RBI’s medium-term 4 percent target.
Global crude oil prices have surged nearly 20 percent this year and crossed $80 a barrel in May, their highest since 2014.
This has driven the prices of fuel — the biggest item on India’s import bill — to record highs at a time the rupee is testing new life lows, raising the threat of imported inflation.
Indian monsoons, one of the largest determinants of the inflation path, have been erratic and patchy in several regions this year, muddying the outlook for winter-harvested crops and adding to inflationary pressures.
The MPC warned that “rising trade protectionism poses a grave risk to near-term and long-term global growth prospects by adversely impacting investment, disrupting global supply chains and hampering productivity.”
At a news conference, RBI Governor Urjit Patel said “We’ve already had a few months of turbulence behind us and it looks like that this is likely to continue. For how long, I don’t know.”
The governor said trade skirmishes have “evolved into tariff wars and now we’re possibly at the beginning of currency wars. Given this, we have to ensure that we run a tight ship on the risks that we control to maximize the chances of ensuring macro-economic stability and continuing with the growth profile of 7-7.5 percent.”
Five of the six members on the rate panel voted for the rate increase.
The reverse repo rate was also raised by 25 basis points, to 6.25 percent.


World oil demand, refining growth to peak in 2035 — Unipec

Updated 45 min 25 sec ago
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World oil demand, refining growth to peak in 2035 — Unipec

  • Improved energy efficiency and technological changes, including the rise of renewables, meant global oil demand growth would slow in coming years before peaking in 2035
  • The switch to cleaner fuels will boost global demand for liquefied natural gas

SINGAPORE: World oil demand will peak at 104.4 million barrels per day (bpd) in the mid-2030s, up from just below 100 million bpd currently, as new technologies gradually eat into oil use, China’s Unipec said on Monday.
Improved energy efficiency and technological changes, including the rise of renewables, meant global oil demand growth would slow in coming years before peaking in 2035, Unipec President Chen Bo told the annual Asia Pacific Petroleum Conference (APPEC).
This in turn will slow growth in global oil refining capacity, which is set to hit 5.6 billion tons per year in 2035, he said.
“We believe 2018-2035 will be the last cycle of global refining capacity expansion. After 2035, it is difficult to see large-scale refining projects in construction, except for some small upgrade projects and petrochemical projects,” said Chen.
Unipec is the trading arm of Asia’s largest refiner Sinopec.
The switch to cleaner fuels will also boost global demand for liquefied natural gas (LNG), particularly in the Asia Pacific, after 2025, he added.
An escalating trade war between China, the largest energy importer, and the United States has dampened the Asian nation’s demand for US crude oil and LNG.
The United States exported 300,000 barrels per day (bpd) of crude oil to China in the first half of 2018, and 56 cargoes of LNG through July, or roughly 10 percent of its total LNG exports, according to official data.
Despite the trade dispute, Chen said US crude supply was an important new source for Chinese refiners as it allowed diversification from Middle East and African crudes.
Trade war tensions between the two countries would last “for the time being, and in the future we’ll be active in this area,” he added.
Beijing has excluded US crude imports from its tariffs list so far, but most Chinese buyers are staying away from US oil as the trade war shows no signs of cooling.
Unipec resumed loading US crude in September after a two-month hiatus.
China is also under pressure from the US to reduce its Iranian oil imports as Washington aims to cut exports from OPEC’s third-largest exporter to zero to force Tehran to negotiate a nuclear treaty.
Buyers in Europe, Japan, South Korea and India have either stopped or are reducing Iranian oil imports sharply ahead of the introduction of sanctions in November.
“I expect we’ll cut a little but the volume has not been finalized,” Chen said, without giving a timeframe for the cuts.
He added that Unipec has resumed normal loadings of Saudi oil after it cut imports in May-July.
Given the current supply and demand dynamic in global markets, Chen said, crude oil prices between at $60 and $80 per barrel were normal.