Is rupee on Kolaveri or is it foreign investors? Whatever be the case, rupee is in great shape compared to three weeks ago. Thus far in 2012, we have reasons to cheer which also explains quick recovery of rupee.
Foreign investors have poured in close to $2.0 billion since the start of the year (most of it into debt markets) - sensex has been on a winning spree and benchmark bond yield is close to 5 months low. At 8.20% it still is an attractive sovereign investment. Yesterday Moody's upgraded India's short term foreign currency rating to "investment" from speculative, boosting FII's confidence in India further. Also, NRI deposits have picked up and been quietly flowing in, after interest rate deregulation.
For the first time in six years, India's food price index went into negative leading to hopes that the headline inflation for December would be much lower than 9% (above which it has been hovering for more than a year now). RBI is now poised to focus on growth from having focused on curtailing inflation for very long. Don't cheer yet. Interest rates are not going down in a hurry. Repo / reverse repo cuts are not expected before Q2 2012 and as of yesterday, RBI has dampened hopes of an immediate CRR cut; RBI policy review is slated for later this month. While we all agree interest rate cut is the need of the hour, let's pray and hope inflation continues to move in the right direction (what with fears of seasonality factor looming large)!
100% FDI in single brand retail is finally a reality. FDI in domestic airline (26%) is also likely to be cleared. More reasons to cheer. With all that and the easy money stance that the RBI is likely to adopt, 7 - 7.5% growth seems like a breeze.
However (and there goes) big questions (and answers) remain - Union Budget, fiscal deficit and undoing policy logjam to clear projects so that the investment cycle restarts. It's disheartening that new investment proposal for 2011 was almost half of what it was in 2010. There has to be some action and immediate - to address macro economic issues.
We can do with some Kolaveri ( read murderous rage to kill inaction) from the Government!