Weekly Economic Review

The growth story of the Indian economy has accompanied with inflationary pressure. We have seen 12.14% inflation during the week ended 6 September 2008 compared with 3.46% during 8 September 2008. The index for primary articles includes food and non-food articles grew at 1.4% and 0.2% respectively during the week ended 6 September 2008 compared with last week (30 August 2008) thanks to higher prices of fruits & vegetables (6%), urad and wheat (3% each) and mutton (1%) however major group in WPI, manufactured product declined by 0.1 % to 207.5 from 207.7 last week.

With the reference of latest WSS report, released by RBI, higher then anticipated growth in money supply has put stress on inflationary expectations. M3 is growing at 5.2% in the financial year so far till 29 August 2008 compared with a 5.1% increased in the same period last year. The annual growth rate was 21% as on 29 August 2008 compared with a 20.3% year ago. M3 is growing to Rs 208571 crore till 29 August 2008 compared with Rs 165639 crore till 15 August. The growth in M3 is above the target of RBI’s 16.5% for 2008-09.

The apex bank of the country has responded to the liquidity condition while strengthening its MSS activities. RBI has spending Rs 177528 crore in market stabilisation scheme (MSS) during the week ended 5 September 2008 compared with Rs 173658 crore in week ended 29 August 2008 and Rs 175666 crore during the week ended 12 September 2008.While taking liquidity in to the consideration we have to analysis the banking system- the place from where the liquidity is generate. More then anticipated growth in bank credit is an indicator of strong demand. The Reserve Bank Of India (RBI) has reacted on global financial turmoil, as well as on INR depreciation. In the light of current developments in the foreign exchange markets, the Reserve Bank will continue to sell foreign exchange (US dollar) through agent banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand-supply gaps

On front of currency market, dollar has appreciating against all the currencies and INR has not an exception for the same thanks to heavy demand for oil marketing companies. At the background of volatile crude oil prices, oil companies are in favour to settle trade at double-digit prices. Heavy dollar demand from oil companies’ boost INR to record low at 45 on 12 September 2008, intervention by Reserve Bank has conformed.

Overall we have seen slow down in economy activities globally resulted in weaker trade flow, which further have impacted on forex reserves. Forex reserves has down to US $ 288 million during the week ended 5 September 2008 from US $ 295 million during the week ended 29 August 2008. During the week ended 12 September 2008 total reserves was US $ 289 million. However we have strong forex reserves in 2008-09 compared with 1990-91 forex crisis.