The recent emergency interest rate cut by the Reserve Bank of India by 75-basis-point (0.75%) in late March 2020 has made Masala Bonds unattractive. Although the recent cut doesn’t really impact many overseas funds, it may decrease the demand for the product due to the change in the highest coupon rate from 13.45% to 13.15%, which assumes a tax ranging from 15 to 40% and thereby reducing the returns for the investor.
In March 2020, global crude oil prices decreased to about 40%. This means that a barrel of oil costs just $25 now. This came as a result of failed talks of production cut between OPEC and Russia. This led to Saudi Arabia, the largest exporter of oil, launching a price war. While many may see this as a disadvantage, for India it is an opportunity to fill up its strategic reserve. The government had decided to buy oil worth Rs.5,000 crore at the current price of around $30 per barrel for deliveries starting in April-May. However, this opportunity does not allow the Indian economy to gain full potential as it has come amid the coronavirus outbreak that has halted most of the economic activities in the country.
The RBI data released recently showed that the accretion of Foreign Exchange Reserves continues as it recorded a fresh lifetime high of USD 517.637 billion as of 17th July, 2020. The accretion has been going on for some time now despite the slowdown and the COVID-19 lockdown situation has created quite a lot of interest as to how this is happening.
In the pandemic era, when a lot of attention is being paid to the GDP growth of countries, inflation has been turning into a looming threat. India’s inflation rate has consistently remained above the ideal 4% with its WPI reaching a reaching an 8 year high in March. The implications of the rising prices on a population that is suffering job losses and loss of social security and on an economy that is struggling to keep its head above water has raised concerns.