Weekly economy review

The growth story of the Indian economy has accompanied with inflationary pressure. We haveseen 12.14% inflation during the week ended 6 September 2008 compared with 3.46% during 8September 2008. The index for primary articles includes food and non-food articles grew at1.4% 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 growthin money supply has put stress on inflationary expectations. M3 is growing at 5.2% in the financial year so far till 29August 2008 compared with a 5.1% increased in the same period last year. The annual growthrate was 21% as on 29 August 2008 compared with a 20.3% year ago. M3 is growing to Rs 208571crore till 29 August 2008 compared with Rs 165639 crore till 15 August. The growth in M3is above the target of RBIs 16.5% for 2008-09.

The apex bank of the country has responded to the liquidity condition while strengtheningits 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 29August 2008 and Rs 175666 crore during the week ended 12 September 2008.While takingliquidity in to the consideration we have to analysis the banking system- the place fromwhere the liquidity is generate. More then anticipated growth in bank credit is anindicator of strong demand. The Reserve Bank Of India (RBI) has reacted on globalfinancial turmoil, as well as on INR depreciation. In the light of current developments inthe foreign exchange markets, the Reserve Bank will continue to sell foreign exchange (USdollar) through agent banks to augment supply in the domestic foreign exchange market orintervene directly to meet any demand-supply gaps

On front of currency market, dollar has appreciating against all the currencies and INRhas not an exception for the same thanks to heavy demand for oil marketing companies. Atthe background of volatile crude oil prices, oil companies are in favour to settle tradeat double-digit prices. Heavy dollar demand from oil companies boost INR to recordlow 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 tradeflow, which further have impacted on forex reserves. Forex reserves has down to US $ 288million during the week ended 5 September 2008 from US $ 295 million during the week ended29 August 2008. During the week ended 12 September 2008 total reserves was US $ 289million. However we have strong forex reserves in 2008-09 compared with 1990-91 forexcrisis.

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