Inflation in August at 8.5%; FM says no room for complacency

The government Tuesday claimed a 1.37 percentage point dip in the politically sensitive inflation, as a new series measured it at 8.5 percent in August, but the Finance Minister said there was no room for complacency.

Although the drop is substantial, when measured using the old series, inflation during the month under review works out to 9.5 percent, down from 10 per cent in July.

"Even though the good news of lower inflation is reported today, yet there is no room for complacency... (government) will continue to bring it down further," Finance Minister Pranab Mukherjee said in a statement.

Prime Minister Manmohan Singh had earlier this year said he expects inflation to drop to 6 percent by December.

Mukherjee indicated Tuesday that the RBI could take some action in its mid-quarter review of monetary policy on September 16.

"Some international commodity prices have shown some recent inflationary tendency, especially the wheat prices worldwide... (which) have risen sharply following production shortfall in Russia and Ukraine," he said.

The fall in August inflation, however, came on the back of lower prices of food items like vegetables, cereals and pulses and sugar.

Mukherjee further said that "we must continue to be vigilant and be prepared with the instruments of fiscal and monetary policy to use them as and when the need arises."

Releasing the new series, Commerce and Industry Minister Anand Sharma said, "We hope that it (inflation) will come down. There are various steps taken by the government. Food inflation has been a cause of concern."

The new inflation series with 2004-05 as the base year has 241 more items than the old series with 1993-94 as the base year, which only reflected the price rise in 435 articles.

Edibles and non-edible items widely used by the middle class, like ice-cream, mineral water, microwave ovens, washing machines, gold and silver are reflected in the new WPI inflation series.

According to analysts, overall inflation, which is still close to 9 percent, may prompt the RBI to increase key policy rates by 25 basis points during its review later this week.

Deloitte Principal economist Shanto Ghosh said, "In an absolute sense, inflation is high. Unless there is significant softening in prices across the board, it will be a tough challenge for the government to meet the 5.5 percent inflation target."

M&M to launch portfolio of bikes by October

Mahindra & Mahindra plans to launch a portfolio of bikes between 100-125 cc, 150c and 250-300 cc by September end or early October. M&M says that these bikes are designed Engines Engineering Company it acquired in 2008.

The company plans to use its existing dealer network to market bikes and hopes to compete with Hero Honda’s dominance in the 125 cc segment inorder to take advantage of the absence of new launches fm Hero Honda in the 125cc segment. M&M Two wheelers have more than 370 dealerships across India.

RBI panel to review repo, reverse repo process

The Reserve Bank of India (RBI) on Monday said its committee on monetary policy will review the operating procedure with respect to repo, reverse repo auctions; width of the interest rate corridor; and frequency and timing of reverse repo and repo auctions.
In its quarterly policy review in July, the RBI had announced its plan to set up a panel to monitor the operating procedure of the monetary policy, including liquidity adjustment facility.
Rate corridor is the spread between repo rate -- the rate at which the RBI infuses liquidity -- and reverse repo rate -- the rate at which liquidity is drained out.
The panel will look at monetary policy in the light of global practices and domestic experience.

The terms of reference include:
* whether there is a need for a rate corridor at all
* whether its width should be fixed or variable
* what are the tools necessary to enable the corridor to function efficiently.

The committee will be headed by Deepak Mohanty, executive director, RBI.
The panel will also compare its monetary policy with operating methods of other central banks, the RBI said.
The RBI had introduced repo and reverse repo rates in June 2000 when it had started the liquidity adjustment facility.
Besides interest rates, other tools such as cash reserve ratio (CRR), open market operations (OMO) and market stabilisation scheme (MSS), have served the monetary policy management well, the RBI said.

"However, India's increasing integration with the global economy, large volatility in capital flows and sharp fluctuations in government cash balances have posed several challenges to liquidity management by the Reserve Bank, particularly in effectively signalling the monetary policy stance," the RBI said, explaining the rationale behind forming the panel.
The committee will also the assess the role of Bank Rate, which has been unchanged since April 2003 and is considered defunct now as no real interest rates are linked to this rate.
Bank Rate was used to signal change in interest rates over medium to long term, while repo and reverse repo rates are short-term rate tools.

IFGL Refractories: Stock that gained 16% in buoyant trade

IFGL Refractories gained 15.83% or Rs 8.15 to close at Rs 59.65. It touched an intraday high of Rs 61.80 and an intraday low of Rs 54.10. There were pending sell orders of 496 shares, with no buyers available.

Why the run up?
The company has acquired two US based companies EI Ceramics LLC and CUSC International Ltd for a total of USD 13 million. The acquisitions will be partly funded by equity and partly debt with the major portion being debt. The deal is expected to help the refractories manufacturer expand its capacity.
EIC designs, manufactures and supplies isostatically pressed continuous casting refractory to several major steel-makers in North America, which would provide the Indian refractory firm with a lot of synergies.
In an interview, KamalSarda, COO, IFGL Refractories said,"At the current level, at half year, the two companies had about USD 6.5 million. We expect to add about USD 13 million to USD 14 million this year. We hope it would substantially increase after we have absorbed everything." The company sees a 15-20% growth on current operations in the current fiscal.
The company is engaged in the manufacture of specialised refractories and requisite operating systems for the steel industry. The IFGL Group of companies is focused on the global markets and sells in European Community, Americas, South East Asia, Oceania, Middle-East, South Africa, Egypt, Algeria, Nigeria, Russia, Kazakisthan, Singapore, Japan, Taiwan and Phillipines.