India’s Central Banker Stands Fast In Face Of Slowdown (EPI)

Larry Levinson:  Indian central bank Governor Duvvuri Subbarao is zeroing in on the threat of inflation, even as a number of reports show the Indian economy is slowing.

“We need to raise rates to restrain inflation. That hurts growth,” Subbarao told students at Gitam University in the southern Indian city of Visakhapatnam yesterday, according to Reuters and Bloomberg.

“So, people say are you not hurting growth in order to contain inflation? Our response is that, we need to restrain inflation in order to ensure that our medium-term growth is sustainable.”

Subbarao’s Reserve Bank of India by 50 basis points, surprising many who were expecting only a quarter-point hike. It was the 11th rate increase in 18 months, prompting several economists to cut their outlooks for growth.

U.S. investment bank Morgan Stanley revised its forecast for GDP growth to 7.2% from 7.7% for the fiscal year ending March 2012, and 8% growth — compared with 8.5% earlier — for the 2013 fiscal year.

An important government body also reduced its forecast for growth to 8.2% compared with 9% in February. The prime minister’s Economic Advisory Council is expecting inflation to peak at about 9% through October, tailing off to 6.5% percent by March.

Also today, the HSBC purchasing managers index (PMI) for India showed a decline for the third month in a row in July to 53.6, down from 55.3 in June. A reading of more than 50 means the economy is expanding, less than 50 means the economy is contracting.

Finally, as reported earlier, two of India’s biggest auto companies said car sales plummeted in July. Tata Motors saw sales slip 6% on a sharp decline in its Nano microcar, while rival Maruti Suzuki also saw its sales plunge by 25% compared with a year earlier.

The ambivalent macro situation is reflected in trading of funds like the India Earnings Fund ETF (NYSE:EPI), down more than 11% this year:

Written By Larry Levinson  From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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