RBI strikes again to curb inflation expectations
The Reserve Bank of India (RBI) hiked the repo rate by 25 basis points in order to anchor inflation expectations, which are spiraling out of control in the wake of surging food and energy costs. The central bank raised the repo rate - rate at which banks borrow money from the RBI - to 8% from 7.75%. The RBI has left the reverse repo rate unchanged at 6% while the CRR and bank rate were left steady at 8.25% and 6%, respectively. "On a review of the current macroeconomic and overall monetary conditions and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis," the RBI said.
The RBI move is seen largely as a measure to contain inflation, which has spiked to a seven-year high of 8.75% and is likely to shoot up further in the coming weeks (and perhaps even touch double-digits) following the recent increase in retail fuel prices. The markets were expecting the RBI to go for another monetary tightening to check inflation after the Government hiked retail prices of petrol, diesel and domestic LPG to help public sector oil companies curtail their losses. Recent hawkish comments by Fed chairman Ben Bernanke and ECB President Jean-Claude Trichet may have also prompted the RBI's hands. China's central bank last weekend increased the banks' reserve ratio by a whopping 100 basis points and others are either considering a hike or status quo.
The Prime Lending Rate (PLR) of most banks as well as home loan rates are likely to go up marginally, though there was no such announcement, barring J&K Bank, which lifted its PLR by 100 basis points. Given the pressure on margins, the deposit rates may not be increased. The stock market hardly reacted to the news. In the money market, bond prices fell to one-year low while the rupee gained marginally. With inflation-fighting becoming top priority across the world, don't be surprise if the usually conservative RBI decided to tighten up its stance a bit more over the next couple of months.
Daiichi Sankyo to acquire Ranbaxy
In a startling development, Ranbaxy Laboratories' promoters decided to give up control of the country's top pharma company to Japan's Daiichi Sankyo Co. for up to US$4.6bn (as much as 495 billion yen). Japan's third-largest pharma company will acquire 34.8% stake of the promoters at Rs737 per share, a 31% premium to Ranbaxy's closing price on June 10. Daiichi will also get preferential allotments of shares and share warrants, with a goal of garnering a minimum 50.1%. The final holding would depend on the response to the open offer. The deal would value Ranbaxy at US$8.5bn. The existing management will continue with Ranbaxy. Malvinder Singh will continue to lead the company as its CEO and MD while additionally assuming the position of Chairman of the Board, upon closure of the deal.
The closing of the transactions is subject to approval of shareholders of Ranbaxy and customary regulatory and statutory approvals. The acquisition is expected to be completed by the end of March 2009. Upon completion of the deal, Ranbaxy is expected to become a subsidiary of Daiichi. The deal will be financed through a mix of bank debt facilities and existing cash resources of Daiichi. Ranbaxy will get US$1bn in cash and will become debt-free post the deal. Ranbaxy's shares rose more than 5% on June 11, adding to gains of over 10% in the previous two days. But the stock ended little changed at Rs561. The stock fell 3% on Thursday, but rebounded again on Friday amid reports that Pfizer could announce a counter bid for the 65% non-promoter holding in Ranbaxy.