RBI's policy review to set the tone

The Reserve Bank of India's (RBI) mid-quarter review of the monetary policy on Monday, 17 September 2012 will set the tone for the markets in a truncated week ahead. Domestic bourses witnessed recent strong rally as countries around the world took monetary and fiscal initiatives to stimulate growth. The market remains shut on Wednesday, 19 September 2012 on account of Ganesh Chaturthi. The RBI is expected to maintain status quo on short term lending rates in its policy review on 17 September 2012, as per the poll carried out by Capital Market. RBI last cut rates by 0.5 percentage point to 8% from 8.5% in April, its first move to reverse a 20-month rate-tightening cycle. It then held rates steady in June and at its last rate-setting meeting on July 31, saying that a cut would exacerbate inflationary pressures. Inflation in August accelerated to 7.55% much above the central bank's comfort level. Investors will closely watch Q2 advance tax payment of India Inc, which will be announced on Saturday, 15 September 2012. The second installment of advance tax payment could provide cues on the likely corporate earnings for Q2 September 2012. The market is also expecting a slew of reform initiatives by the government on Friday, 14 September 2012 to fight its deteriorating fiscal position and improve market sentiment. Notwithstanding resistance by allies, government is determined to push economic reforms with the Cabinet set to take up late on Friday (September 14, 2012) proposals for allowing foreign direct investment (FDI) in aviation and trading exchanges besides raising its cap to 74% in various segments of broadcast sector. The Cabinet will also consider a proposal for disinvestment in seven PSUs, including National Aluminium Company (NALCO), Steel Authority of India (SAIL) and Mines and Minerals Trading Corporation (MMTC), to the tune of Rs 15000 crore. Another committee is due to speed up infrastructure project approvals. The government reportedly also likely to announce spending cuts on Saturday, 15 September 2012 for the 2012/13 fiscal year to March. The government's decision late on Thursday to raise diesel prices by 14%, the first such move in 15 months, is aimed at shoring up a weak fiscal position. State-run oil marketing companies--Indian Oil Corporation (IOCL), Bharat Petroleum Corporation and Hindustan Petroleum Corporation revise jet fuel prices on the 1st and 16th of every month based on the average international crude price in the preceding fortnight. Jet fuel or aviation turbine fuel (ATF) typically makes up almost half of an airline's operating cost. Prices of jet fuel are directly linked to crude oil prices. The Full Planning Commission is set to approve the 12th Plan document that seeks to raise the average annual economic growth during the five-year period ending March 2017 to 8.2% from 7.9% achieved in the previous Plan on Saturday, 15 September 2012. The meeting, which has been called by Prime Minister Manmohan Singh, will also vet various other social sector targets relating to poverty alleviation, infant mortality, enrolment ratio and job creation. Besides other things, the 12th Plan seeks to achieve 4 percent agriculture sector growth during the Plan period. The growth target for manufacturing sector has been pegged at 10 percent. The total plan size has been proposed at Rs 47.7 lakh crore, 135% more that the investments realised in the 11th Plan (2007-12). The meeting will be attended by regular Planning Commission members and key cabinet ministers. Once the document is approved by the full Plan panel, it will be vetted by the Union Cabinet and then placed before the National Development Council (NDC), the apex decision making body, for final approval.