Friday, September 11, 2009

LAHORE: The International Monetary Fund either adopts country specific policies on bank mark-up or perhaps deliberately waits for an economy to bog down before suggesting a hike in interest rates as is evident from its advice to keeping current policy rates to India. The inflation in India is on rise it crossed 8 per cent in August with fear that the drought would further impact food prices and inflation. The policy rate in India is 3.5 per cent. Even at such low policy rate IMF has advised India not to increase it on the fear of stalling economic recovery. Pakistan on the other hand is still being pressed to keep a check on its interest rates though the inflation has halved from a peak of 25 per cent last October 2008 to 12 per cent in June 2009. The central bank of Pakistan during this period has decreased its policy rates by 3 per cent from 16 to 13 per cent. This has stifled demand of private sector credit. In fact the private sector has shown negative credit growth during past seven months. Kalpana Kochhar the Asia Pacific Deputy Director of IMF told media at the sidelines of an event that he believes it is too early to withdraw policies that have ensured liquidity and monetary easing in India. He said there are signs of the Indian economy recovering, but it is prudent to wait and see that these signs become well established Kochhar warned that unwinding the stimulus policies would be led by withdrawal of liquidity which would be followed by rate hikes. The most interesting observation he made about increasing inflation in India was that it was supply-driven and it certainly complicates matters. But even then he opined that it has not driven at this point by runaway demand and overheating....

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Tuesday, September 08, 2009

India has exited from a gas pipeline deal it earlier planned with Iran and Pakistan, Mehr news agency reported citing Pakistani diplomat. “India has definitely quitted the IPI (India-Pakistan-Iran) gas pipeline deal,” the report said Sunday citing Pakistani ambassador to Iran, Muhammad Bux Abbasi. Iranian officials, however, said India has not yet officially declared its intention. In May this year, Tehran and Islamabad signed a $7.5-billion deal for supply of gas from Iran to Pakistan. As per the deal, Iran will initially supply 30 million cubic meters of gas per day to Pakistan which would be later increased to 60 million cubic meters per day. Iran, Pakistan and India had conceptualised the project in 1990s to help boost peace and security in the region, besides mitigating the power crisis. India stopped negotiations on the project due to tension with Pakistan, although Iran repeatedly encouraged New Delhi to rejoin the process, according to the report. The pipeline will run 2,775 km when linked with the three countries. The project would have greatly benefited India, which lacks sufficient natural gas to meet its rapidly increasing domestic requirements. Pakistan has been facing electricity shortfall of more than 3,000 megawatts and plans to generate 4,600 megawatts from Iranian gas. Islamabad has also been under pressure from Washington to abandon the deal.

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Wednesday, September 02, 2009

NEW DELHI: India s exports fell for a 10th straight month in July as the country s key Western markets remained in the grip of the global economic downturn. Shipments overseas slid 28.4 percent to 13.6 billion dollars, data released Tuesday by the Commerce Ministry showed, while imports tumbled 37.1 percent to 31.2 billion dollars. The lower import figure mainly reflects lower oil costs due to the slide in crude prices, but it also shows the domestic economy remains sluggish. Exports for the first four months of the financial year to March 2010 were down 34.1 percent from a year earlier at 49.7 billion dollars. The data come days after India announced plans to boost trade with emerging markets in a bid to wean itself off dependence on economically struggling developed nations that buy more than 60 percent of its exports. The government has also announced a slew of steps such as cheaper finance, better infrastructure, tax relief and reduced transaction costs to spur shipments. The country is aiming for export growth of 15 percent over two years to achieve sales of 200 billion dollars by March 2011, up from 168 billion dollars for the year to March 2009.
Commerce Minister Anand Sharma said he would be happy to sustain exports this year at last year s levels but economists say they are likely to contract by 10 percent. The government originally set a target of 200 billion dollars last year but was forced to lower that when the global economic crisis hit. Unlike China, where overseas sales have been a main growth driver, Shipments account for around 15 percent of gross domestic product in India s still relatively inward-looking economy.

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Wednesday, August 26, 2009

MUMBAI: The Indian rupee weakened on Tuesday as a choppy sharemarket failed to provide clarity on the direction of foreign fund flows and month-end dollar demand from importers gained momentum. The partially convertible rupee closed at 48.75/76 per dollar, off an early low of 48.85 but still 0.3 percent below its previous close of 48.62/63.

"There was only buying today. Even when Sensex was up 400 points yesterday, the dollar-rupee was bid. Today equities were negative for large part of the day, so one can imagine," said Madhusudan Somani, head of foreign exchange trading at Yes Bank.

"There was decent demand from oil companies, along with some month-end demand as well, keeping it bid. Lack of inflows completely skews the demand-supply picture, so the downside for the dollar-rupee is limited," he added. One-month offshore non-deliverable forward contracts were quoting at 48.80/90.

In the currency futures market, the most traded near-month contract on the National Stock Exchange and MCX-SX closed at 48.7775 and 48.7850 respectively, with the total traded volume on the two exchanges at a high $2.2 billion.

(Reuters)

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Wednesday July 01, 2009

NEW DELHI: India's current account swung into a surplus in the March quarter, but it was not enough to prevent a wider deficit for the full 2008/09 fiscal year as oil imports rose and exports fell sharply due to the global slump. Analysts said portfolio inflows into local equities could help the rupee to appreciate gradually this year.

Foreign portfolio flows of a net $7.3 billion into local shares since mid-March have helped the local unit to rebound from a record low of 52.2 hit in early March. Central bank data on Tuesday showed current account deficit for 2008/09 (April/March) widened to $29.82 billion, or 2.6 percent of gross domestic product (GDP). It was $17.03 billion or 1.5 percent of GDP in the previous year.

India's current account surplus was at $4.75 billion in the March quarter, from a revised deficit of $13.03 billion in October-December, the central bank said on Tuesday. "Outlook for the balance of payments looks better in the current fiscal as trade deficit should still remain low while flows like portfolio inflows improve," said Anubhuti Sahay, an economist with Standard Chartered Bank.

The Reserve Bank of India said the balance of payments surplus in January-March was $300 million, compared with a deficit of $17.88 billion in the October-December quarter. The deficit was its widest in 18 years in the December quarter as the global crisis choked inflows, but the fall in oil prices since mid-2008 lowered the trade gap. India's total external debt slipped slightly to $229.9 million at the end of March, from $230.85 billion at the end of December.

"Given that trade financing remains weak and investment demand in the economy is yet to pick up, a significant increase in the trade deficit is not expected in FY10 despite higher oil prices," Sahay said. "Overall, the balance of payment numbers further reiterate our view on rupee where we expect it to appreciate gradually as we move further into 2009." India's exports have been falling since October as recession in developed economies slashed demand for Indian exports, while imports have also declined due to lower crude import costs and sluggish demand in a slowing economy.


(Reuters)

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Friday June 26, 2009

MUMBAI: The Indian rupee ended slightly weaker on Thursday, surrendering early gains as the stock market turned negative and as importers bought dollars to meet month-end commitments. The partially convertible rupee ended a choppy session at 48.595/605 per dollar, just below Wednesday's close of 48.56/57. From an early high of 48.46, the rupee fell as far as 48.73.

On Tuesday, it had hit 48.90, its lowest since mid-May. "The month-end demand is also picking up. But stocks remain the main trigger," a senior dealer with a foreign bank, said. The rupee has rebounded from a record low of 52.2 in early March as foreigners bought around $7.5 billion of stocks in three months as the main index rose more the 90 percent.

(Reuters)

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Friday June 26, 2009

NEW DELHI: India's wholesale prices fell less than expected in mid-June from a year earlier, marking a build-up in price pressures as the economy picks up and the effect of past sharp falls in energy prices wears off. The wholesale price index fell 1.14 percent in the 12 months to June 13, compared with analysts' median forecast of a 1.69 percent drop and the previous week's 1.61 percent decline, government data showed on Thursday.

Wholesale prices are expected to keep falling in annual terms in weeks ahead and economists expect the central bank to keep its interest rates low in the near term. But the data reinforced expectations that the closely watched wholesale price gauge will start climbing again from September onwards and some analysts say the rise will be steeper than earlier thought, possibly prompting a rate rise by year-end.

"What this means is that the patch of negative annual WPI (wholesale price index) will be shortened," said D.K. Joshi, principal economist of rating agency Crisil. "Interest rates stance will remain soft. There could be a mild reduction," he said on short-term outlook.

Markets track the wholesale price index more closely than consumer prices because it covers a wider range of products and is published weekly while consumer price reports are published monthly. The 5-year bond yield rose 2 basis points to 6.58 percent after the data, while the benchmark stock index rose, before slipping back into the red in afternoon trade.

The annual declines in prices result from the comparison with last year's elevated price levels reflecting soaring oil prices, which peaked in mid-2008. But wholesale prices have been rising on a week-on-week basis since March, reflecting a revival in demand in Asia's third largest economy. Annual consumer price inflation climbed to 8.7 percent in April from 8 percent in March though it was still below February's 9.6 percent level.

Analysts said that with the statistical base effect set to fade away and concerns about food supply because of lower than normal rainfall this year, wholesale price inflation may spike above the central bank's estimate for the end of the fiscal year to March 2010. Following the data analysts pegged the rate at 5.5-8 percent compared with the central bank's earlier 4 percent forecast.


(Reuters)

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Thursday June 25, 2009

GENEVA: United States Trade Representative Ron Kirk is looking forward to working closely with his new Indian counterpart after a series of encouraging meetings, Kirk said on Wednesday. His comments indicated that one of the most troubled relationships in international trade diplomacy was improving, clearing one obstacle to a deal in the World Trade Organisation's (WTO) long-running Doha round talks.

"These are very difficult negotiations and even though they take years to complete I think sometimes interjecting new blood, new urgency, new ideas can breathe impetus to get us over the top," the former Dallas mayor, himself confirmed in the job only since March, told Reuters.

"I have had a number of opportunities already to meet with the new Indian trade minister, Anand Sharma. I'm very encouraged by what I've heard from him and look forward to continuing to work with him," Kirk said. Kirk was talking on the sidelines of the annual ministerial meeting of the Organisation for Economic Co-operation and Development (OECD), where he was due to meet Sharma, appointed last month, and other trade ministers over the next two days.

Negotiations on technical details of the Doha round have been continuing in Geneva among officials since December, when WTO Director-General Pascal Lamy decided at the last minute against calling in ministers to push for an outline deal because he judged the necessary political will was still not there.

But in recent weeks several ministers have called for a resumption of high-level talks on Doha, launched in the Qatari capital in late 2001 to help developing countries prosper through more trade. A meeting of trade ministers in Paris on Thursday hosted by Australia is expected to give further momentum, and Sharma has suggested calling key ministers together in India in September to try and clinch a deal.


(Reuters)

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Wednesday June 24, 2009

NEW DELHI: The growing Maoist insurgency in India over large swathes of the mineral-rich countryside could soon hurt some industrial investment plans just as the country suffers an economic slowdown.

The government banned the Communist Party of India (Maoist) on Monday, bracketing it with Islamist militant groups, but experts said the ban would have little impact in the battle against the rebels.

On the ground, police fight Maoist insurgents with outdated weapons and are often outnumbered by rebels, who are skilled in jungle warfare and are well-equipped with rocket launchers, automatic rifles and explosives.

Last week, hundreds of Maoists declared the town of Lalgarh about 170 km (100 miles) from Kolkata, capital of West Bengal, as a “liberated zone”, sparking unease among investors.

While the economic impact may be small compared with India’s trillion dollar economy, the insurgency and the sense that it is worsening signals that India does not fully control its own territory and adds to risks for companies mulling investments.

The Lalgarh incident worried the country’s third-largest steel producer, JSW Steel, which is setting up a $7-billion, 10-million tonne steel plant near Lalgarh.

“We are waiting and watching, so are the others,” Biswadip Gupta, chief executive officer of the company’s West Bengal operations, told Reuters on Tuesday.

“On top of the economic woes, you have the problem of Maoists now. It is very jittery,” Gupta said by telephone from Kolkata.

Prime Minister Manmohan Singh has described Maoists as the biggest internal security threat since independence, and this year more than 300 people, mostly police, have been killed.

The Maoists started their armed struggle in West Bengal’s Naxalbari town in the late 1967, and have expanded their support among villagers by tapping into resentment at the government’s recent pro-industry push.

The rebels, estimated to have 22,000 fighters, operate in large parts of the eastern, central and southern countryside, and officials say they are now spreading to cities and bigger towns.

The Maoists, who are fighting for the rights of poor farmers and the disenfranchised, regularly attack railway lines and factories, aiming to cripple economic activity.

“It is still a law and order problem, but it has not been taken seriously and can have serious consequences if not dealt with properly,” said Anjan Roy, analyst at the Federation of Indian Chambers of Commerce and Industry, referring to growth of industry. The effect of the Maoist insurgency has already taken its toll on business.

In mineral-rich Orissa state, bauxite production at state-run National Aluminium Co Ltd (NALCO) has fallen by 20 percent since an April attack by Maoists in one of their mines.


(Reuters)

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Wednesday June 24, 2009

NEW DELHI: A patchy start to India's annual monsoon has raised doubts about a nascent economic upturn, as the poor rainfall in June could hurt growth, push up food prices and prompt more government spending to support farmers. The monsoon, crucial to a farm sector that accounts for about a sixth of economic output, has stalled after an early start.

In the week ended June 17, rains were 51 percent below normal, the Meteorological Department said last week. "Delay in monsoon will play the spoilsport and may hit GDP by at least 1 to 1.5 percentage points," V.K. Sharma, head of research at Anagram Stock Broking in Ahmedabad. "And a monsoon failure might see the government take more social security measures, which will widen the deficit."

Recent data on growth, factory output and manufacturing have fanned hopes that the domestic-demand-driven economy, battling a widening fiscal deficit, may be on the mend. The World Bank on Monday said India would grow 5.1 percent in 2009. While above the bank's earlier forecast, it is still below 6.7 percent in 2008/09 and more than 9 percent growth in previous years.

The June-September monsoon rains are a major influence on the economy, as two-thirds of Indians depend on agriculture and large areas of the vast south Asian country suffer from a lack of modern irrigation facilities. The monsoon is crucial for summer-sown crops such as rice, soybean, sugarcane and cotton, and as temperatures rise across the country, Indians are getting desperate for rains.

The farm minister in central Chhattisgarh state held a prayer ceremony hoping the region would get rains soon, and media reported farmers in the western city of Nagpur organised a wedding of two frogs to please the rain gods. Media reports also say several states are drawing up plans to counter the impact of paltry rains.

But Montek Singh Ahluwalia, a key official in Prime Minister Manmohan Singh's government, said on Tuesday delayed monsoon rains may not impact the economy much. Forecasting the monsoon is one of the most important events in the country: while weather officials use scientific skills and data to track the rain, holy men and astrologers rely on traditional knowledge to make predictions.

"It appears El Nino has influenced the monsoon progress," a weather office official, who did not wish to be named as he is not authorised to talk to the press, told Reuters. When El Nino, a weather condition marked by warming of the eastern equatorial Pacific Ocean waters, hits the monsoon it can cause a lack of rains and even drought.

The weather office will review the monsoon's progress on June 25, when it is expected to outline the impact of El Nino. A delay in monsoon rains is bad news for policy makers, who were upbeat about the prospects of the farm sector, seen as a key motor for national demand in the economy.

The farm sector accounts for nearly 17 percent of India's gross domestic product and provides a livelihood for most of the 1.1 billion population. Poor monsoon rains could dent rural demand, hurt corporate profitability and undermine sentiment in financial markets.

Companies such as Maruti Suzuki India, Hero Honda Motors, and Hindustan Unilever drew strength from a robust rural market during the economic slowdown. Robust monsoon rains often leads to bumper harvests, which in turn raises farm incomes and increases demand for goods ranging from television to cars and lends support to factory output.

Some economists said it was too early to write off the monsoon, but the delay would cause some stress. "The delay is not a good signal. Food prices are already high and any delay could push food prices higher. Food price inflation could emerge as a concern," said D.K. Joshi, principal economist at credit ratings agency Crisil.


(Reuters)

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Tuesday June 23, 2009

MUMBAI: The rupee fell to its lowest in a month on Monday, weakened by a fall in share prices and demand for dollars from importers as the US currency strengthened ahead of a policy meeting of the Federal Reserve. The partially convertible rupee ended at 48.62/63 per dollar, off an intraday trough of 48.75, its lowest since May 18, according to Thomson Reuters data.

The rupee ended about 1.1 percent lower than Friday's close of 48.09/10. The local unit has shed more than 3 percent so far in June. "Equities were the key trigger for the rupee to fall today," a trader with a foreign bank said. One-month offshore non-deliverable forward contracts were quoting at 48.72/82, slightly weaker than the spot rate.


(Reuters)

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Tuesday June 23, 2009

NEW DELHI: India's national carrier Air India said Monday it plans to slash staff costs by more than 15 percent as it struggles to cope with a cash crunch. A statement from the state-run carrier said it was aiming for a more than 100 million dollar reduction in annual employee salaries, from the 625 million dollars it currently spends.

The company has given an internal committee until mid-July to look at restructuring wage agreements and other bonuses linked to employee performance. "Besides reduction in wage cost, Air India is also looking at improving productivity of employees, (the) elimination of restrictive work practices and reducing wasteful expenditure," the company said. Spokesman Jitendra Bhargava said layoffs were considered a "last resort."

"We are not looking at layoffs at all at the moment," he said. A combination of high fuel prices, fewer passengers and the global financial meltdown have left Air India with an estimated 800 million dollars in losses for the past year and debt of four billion dollars, according to the Centre for Asia Pacific Aviation.

Last week the airline asked its top managers to forgo one month's salary as part of efforts to survive the crisis, just days after delaying the payment of June salaries for regular employees. The management of the struggling state-run airline - which merged with government-run domestic carrier Indian Airlines last year - sent a notice to its employees earlier in the week saying it would defer 73 million dollars in monthly wages until July 15.


(AFP)

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Monday June 22, 2009

MUMBAI: Indian banks are likely to resist mounting government pressure to sharply cut rates as they grapple with expensive deposits raised at the height of the credit crisis and rising bond yields.

India's newly elected government wants its banks to lend more and cheaply to boost economic growth, following other Asian economies such as China, which lifted limits on bank lending to grease the wheels of its economy.

The pressure is adding to the risks for shares of state-run banks, which have underperformed the bank index and privately held banks this year.

"Profitability and margins could be under pressure particularly if specific Indian banks pursue a very aggressive growth strategy and decrease the spread earned on banking products," said Brayan Lai, a credit analyst at Calyon in Hong Kong.

"From a top down perspective, I prefer Indian state-run banks due to their quasi-sovereign backing and recapitalisation plans but, from a bottom-up approach, I'd be worried as some dubious lending may take place," he said.

Shares of the country's biggest lender State Bank of India have gained 32 percent so far this year, lagging a 46 percent gain in the bank index and a 57 percent jump in shares of privately held ICICI Bank. SBI and its associates control a quarter of all loans, and state-run banks as a sector corner 55 percent of all assets.

SBI cut its deposit rate by 25 basis points, its fourth cut in 2009, but has yet to reduce its lending rate. Chairman O.P. Bhatt said the economic recovery was yet to reflect on banks' asset growth and passing on rate cuts to customers will take time.

With bank loan growth slowing sharply, policymakers worry that by not passing on to customers the deep cuts in official rates these banks may threaten an economic revival. While the central bank has cut its main lending rate by 425 basis points since October, state-run banks have cut their lending rates by 150-200 bps.

Loan growth has slowed from around 27 percent in November to around 15 percent in early June and halved from rates of around 30 percent seen in the financial year to March 2008.


(Reuters)

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Saturday, June 20, 2009

India’s inflation is likely to stay in “negative territory” for several months before surging above the central bank’s target early next year, economists say.

The benchmark wholesale-price index fell 1.61 percent in the week to June 6 from a year earlier, the first decline since December 1978. Accelerating inflation later this year and into 2010 will compel the Reserve Bank of India to maintain a “cautious stance” on monetary policy, said Angus To, an economist at BNP Paribas SA in Hong Kong.

“Deflation in wholesale prices should offer scope for the RBI to cut interest rates again in order to offer additional stimulus to the economy,” said To. “However, the stubbornly high food prices will keep the central bank on a more cautious stance, preventing any aggressive action.”

Central bank Governor Duvvuri Subbarao slashed interest rates to record lows since October to help shield India from the worst global recession since the Great Depression. Signs that Asia’s third-largest economy is now recovering prompted Subbarao last month to suggest it might be time to start thinking about reversing “expansionary” policies.

“The Reserve Bank is close to the end of its easing cycle,” said Rohini Malkani, an economist at Citigroup Inc. in Mumbai. “At best one can expect a 25 basis point cut before it starts hiking rates in the second quarter of 2010.”

Other analysts say the central bank’s cycle of interest- rate cuts has already ended and that Subbarao’s next move will be to increase borrowing costs. The governor and his Reserve Bank colleagues next meet to set policy in Mumbai in late July.


(Bloomberg)

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Saturday, June 20, 2009

India’s rupee fell a third week, its longest losing streak since March, as funds sold emerging-market assets on concern the global economic slump isn’t over yet.

The currency reached a two-month low as overseas investors sold more Indian shares than they bought this week after the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, snapped a 14-week winning streak. The rupee also fell on speculation refiners increased dollar purchases, betting crude oil prices will climb from near an almost eight-month high.

“The near-term outlook is a bit bearish for the rupee because of global fundamental factors,” said Ritwij Mahanta, a trader at IndusInd Bank Ltd. in Mumbai. “The oil price movement has pushed up dollar demand and weakened the rupee.”

The rupee fell 1 percent this week to 48.0825 a dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It may decline to 48.35 next week, Mahanta said.

Funds based abroad have sold a net $348 million in the four days to June 17, according to the Securities & Exchange Board of India, reducing this month’s purchases to $945 million. The currency has rallied 5.5 percent this quarter.

The currency gained 0.3 percent today on speculation exporters took advantage of the rupee’s drop to convert overseas earnings.

“Exporters seized this opportunity and reduced part of their dollar holdings seizing negative impact on the rupee,” said Puneet Sharma, chief currency trader at state-owned Allahabad Bank in Mumbai. “The drop in the rupee seems temporary.”

Offshore contracts indicate traders bet the rupee will trade at 48.25 per dollar in a month, compared with expectations for a rate of 47.81 a week ago. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars.

(Bloomberg)

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Friday, June 19, 2009

MUMBAI: The Indian rupee dropped to fresh one-month lows on Thursday as the stock market fell for the fifth time in six sessions, with gains in the dollar versus the euro also adding to the downward pressure. The partially convertible rupee closed at 48.21/22 per dollar, 0.2 percent weaker than its previous close of 48.13/14.

It fell as low as 48.32 during trade, its weakest since May 18. "The rupee was broadly tracking the stock market today. There was also demand for some 150 million dollars from a private sector bank for one of its clients, which weighed on the rupee," a senior dealer with a private bank said. Dealers said the dollar's gains versus major currencies also weighed. The US unit edged up against the euro as European shares turned lower, while sterling fell sharply after weak UK retail sales and public finance data.


(Reuters)

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