After improved sentiments in September, October saw global outlook worsen again. Growth momentum visibly spluttered in China, as the imminent decadal leadership change kept all eyes towards the fastest growing nation. The European debacle dragged on without any visible near-term solution, and concerns on the 'fiscal cliff' and uncertainty of the impending presidential elections put US recovery in doubt.
''Domestically, the month was quite uneventful in terms of 'headlines' but North Block is said to have been actively engaging in constructive dialogue for resolution of various structural issues like environmental clearances, land acquisition bill, banking amendments, retrospective taxation etc. At the same time, the ruling party has also begun preparations for the elections in either 2014 or earlier, by effecting a cabinet shuffle involving key ministerial posts like petroleum & natural gas, law, railways, external affairs etc,'' said IDBI Mutual Fund.
CPI fell to 9.73% from 10.03% due to base effect, while WPI rose to 7.81% from 7.55%, with core inflation momentum strengthening on the back of fuel price hikes. However, global slowdown, especially in China, is expected to provide some respite in the form of fall in price of crude and other commodities.
Systemic liquidity tightened as Government balance with RBI increased post-advance tax in mid-September. However, limited supply of Certificates of Deposit kept money market rates steady at subdued levels while credit spreads narrowed. Banks' credit off -take from industry picked up, but still remained below trend. Banks' thrust on retail assets has been evident in the sectoral credit data, with retail loans (especially housing) accounting for nearly half of the incremental credit in FY13. Rupee/USD depreciated again on the back of rising risk aversion, closing the month at 53.8/USD. Crude prices remained range-bound due to concerns on global growth.
The much-awaited monetary policy also disappointed market participants who broadly expected stimulus in the form of a policy rate cut. RBI, however, continued its anti-inflationary stance and only cut CRR by 25 bps taking it to a record low of 4.25%. However, unlike last time, when major banks had complied with a base rate cut in response to a CRR cut, banks this time sounded doubtful. More importantly, RBI effectively indicated that a rate cut seems unlikely until Jan 2013.
''Going forward, we expect interest rates to remain range-bound with a softening bias in the medium-to-long term,'' IDBI Mutual Fund added.
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