India’s central bank hints at tightening monetary policy
India’s central bank hints at tightening monetary policy
Mumbai: India’s central bank Thursday set the stage for tightening the monetary policy in the quarterly update due Friday with concerns over rising inflation even as it upgraded the country’s growth outlook for this fiscal to 6.9 percent from 6 percent.
“With a stronger recovery in India, the risk of food price inflation causing generalised inflation cannot be ignored,” the Reserve Bank of India (RBI) said in its review of the macroeconomic developments for the third quarter.
“Reining inflation and inflationary expectations while carefully nurturing the growth impulses will be the main challenge for the conduct of monetary policy during the remaining period of the year,” the central bank added.
The report said the turnaround in the country’s growth during the first quarter of 2009-10 was sustained in the second quarter, spurred by robust revival in industrial output and services, despite a subdued performance by the farm sector.
“The industrial recovery, besides exhibiting acceleration in the last few months, has also become more broad based. Most of the lead indicators of services sector activities also suggest revival in growth momentum.”
Some of the highlights of the report include:
- Prediction for overall economic growth raised to 6.9 percent from 6 percent
- Agriculture growth outlook revised upward to (-)0.9 percent from (-)1.4 percent
- Outlook for industrial output growth raised to 8.4 percent from 6.3 percent
- Forecast for growth in services revised to 8.7 percent from 8.1 percent
- Employment outlook improving and firms expected to increase workforce
- Deficient monsoon will lower grain production and oilseeds by 16 percent
- Food prices may ease after arrival of new crop and release of government buffer stocks
- Increased capital inflows and domestic liquidity will stroke rising inflation
- Managing growth needs with rising inflation a delicate task
- Merchandise exports witnessed a turnaround after 13 consecutive months of decline
- The pace of contraction in imports has also moderated significantly
- Industry likely to increase selling price of merchandise
- Expected rise in demand for short term funds from the private sector in coming months.
Indian Industry feels that given the current state of play, RBI Governor D. Subbarao may hike cash reserve ratio (CRR) for commercial banks to suck excess liquidity and rein in inflation in the third quarterly review of the monetary policy for this fiscal Friday.
CRR is the minimum liquid assets commercial banks have to retain against deposits. A hike of 100 basis points in CRR has the potential to suck out about Rs.40,000 crore from the system.
A survey of economists from the banking and financial services sector by the Federation of Indian Chambers of Commerce and Industry (FICCI) saw the respondents anticipate a 50 basis points cut in CRR, as part of the move to tighten the monetary policy.
“A hike in CRR at this point in time may tone down the inflationary expectations that are building in the economy but would fail to arrest inflation as it is not a monetary phenomenon,” said a statement based on the FICCI survey
India's central bank
India, China to be global growth engines: WEF experts
India, China to be global growth engines: WEF experts
India, China to be global growth engines: WEF experts
Davos: Led by India and China, Asia will not
only become the global engine for growth but will also
increasingly exercise its influence on the rest of the world,
experts at the World Economic Forum (WEF) annual meeting here
have said.
“As their economic might grow, the region’s (Asia)
various societies will become more assertive and influential,”
WEF said in a statement, summing up the discussions on a
session on ‘The Rise of Asia’ yesterday.
Among the speakers, who participated in the session,
include President of Asian Development Bank Haruhiko Kuroda
and President and CEO of Genpact India Pramod Bhasin.
India and China continued to grow at reasonable rates
even when several developed countries witnessed economic
contraction. While India grew 6.7 per cent in 2008-09 and is
expected to rebound to 8 per cent this fiscal, China jumped to
10.7 per cent during the quarter ending December 2009 from a
low of 6.8 per cent during the period a year ago.
Speakers, while stating that it is not clear what will be
the impact on the world with the rise of Asia as it is a
diverse region, said focus on family and the primacy of
relationships over written contracts in business may be two
influential ‘values’. MNCs often find it difficult to
understand that employee loyalty in Asia is to the boss? the
individual? rather than to the company and brand name.
The rise of consumerism in Asia may also bring changes in
the way Western and other companies relate to customers, the
summary said.
FAQ
June 29, 2009 by anand
Filed under Commodities
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Sensex remains volatile ahead of settlement, ends with gains
Trading was volatile on the BSE on Wednesday as the benchmark Sensex closed nearly 99 points higher on fresh buying in engineering and technology stocks amid brokers covering pending positions ahead of the monthly derivatives segment expiry.
The Sensex, which was volatile in the last two trading sessions and surrendered notable ground, gained 98.72 points at 14,422.73. It shuttled between 14,479.82 and 14,207.02 points during the day.
The 50-share National Stock Exchange index Nifty also gained 45.95 points at 4,292.95, after moving between 4,307.00 and 4,218.25 points.
Rising Asian and European markets also supported the market during the day, ahead of the US Federal Reserve’s decision on interest rates and any statement on the economy after its two-day policy meeting on June 23-24.
Marketmen said trading was choppy as some investors indulged in clearing pending positions in the derivatives segment, expecting firming trends in coming sessions.
They said the market is likely to witness another brief rally till the Budget on hopes that the government might pump in more money to boost the country’s infrastructure
Emerging nations’ growth to slow
The World Bank says the economies of developing countries are expected to grow by just 1.2% this year, compared with 5.9% in 2008 and 8.1% in 2007.
And if China and India are excluded, gross domestic product in developing countries is projected to fall by 1.6%.
Its annual Global Development Finance report warns of possible joblessness and poverty in developing nations.
It also forecast the global economy as a whole would shrink by 2.9% this year, against an earlier prediction of 3%.
‘Support’
The report says that economic policies have to “focus rapidly on financial sector reform and support for the poorest countries”.
In addition, the bank warns that the flow of money into the developing world is likely to halve this year.
World Bank figures show developing countries’ net private capital inflows fell from $1.2tn (£728bn) in 2008 to $707bn last year.
And according to the bank the inflow into poorest countries this year may be just $363bn.
‘Driving force’
The bank urged rich countries to boost the flow of credit to developing nations to help speed up economic recovery.
Justin Lin, the World Bank’s chief economist, said: “Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit.”
The weakness in the developing countries after recent years of growth also heightens the risks of social unrest, the 185-nation institution said.
Despite the gloomy picture for this year the bank says that growth in developing countries, led by India and China, could reach 4.4% in 2010 and 5.7% by 2011.
Stanford charged with fraud in US
Texan billionaire Sir Allen Stanford has been charged in the US with fraud and obstruction.
Announcing the indictment, the justice department said it related to a $7bn ($4.2bn) scheme to defraud investors.
Soon after, the 59-year-old appeared in court in Virginia and was remanded in custody pending a full detention hearing to be held in Texas.
He already faces civil charges over an alleged fraud worth $8bn - charges he denies.
Sir Allen turned himself in to the FBI on Thursday after a warrant was issued for his arrest.
‘Too good to be true’
Sir Allen and six others are facing charges.
The justice department said the 50-page indictment accused Sir Allen and some of the other alleged co-conspirators of engaging in a scheme to defraud investors who purchased $7bn in certificates of deposit from Stanford International Bank, located in Antigua.
It said they “promised returns that were too good to be true”.
US Assistant Attorney General Lanny Breuer said the indictment “charges Stanford with conspiracy to commit wire fraud, mail fraud and securities fraud”.
He listed the charges as: “Seven counts of wire fraud, 10 counts of mail fraud, conspiracy to obstruct an investigation for the Securities and Exchange Commission, obstruction of an investigation by the SEC and conspiracy to commit money laundering.”
If convicted on all counts, Sir Allen could face up to 250 years in prison.
A few hours after the announcement, Sir Allen appeared in court in Richmond, Virginia.
The BBC’s Greg Wood in Richmond says Sir Allen wore an open-necked white shirt and stood in court as the 21 charges against him were read out.
He told Magistrate Hannah Lauck he understood the charges but he was not asked to enter a plea.
Sir Allen’s lawyers argued for his release pending the trial but the prosecution said he had spun a web of deceit over 10 years and there was a danger he might flee.
The judge ordered Sir Allen be held pending a full detention hearing, saying there was “sufficient evidence to warrant” one. Sir Allen chose to have the hearing in Houston, Texas.
Asked to comment on the issue earlier, White House spokesman Robert Gibbs said: “Whether it’s this indictment or previous indictments… There are those whose outsized greed robbed millions of people of their savings.”
The other Stanford Financial Group executives charged are Laura Pendergest-Holt, 35, Gilberto Lopez, 66, and Mark Kuhrt, 37.
The indictment also said Sir Allen made corrupt payments to Leroy King, 63, a former head of Antigua’s financial services regulatory commission, who has also been charged.
Stanford employee Bruce Perraud, 42, has been charged with destruction of records.
A separate indictment charged Stanford executive James M Davis, 60, with fraud and obstruction.
‘Ponzi’ denial
Dick DeGuerin, Sir Allen’s lawyer, has said his client will fight the allegations.
“He is confident that a fair jury will find him not guilty of any criminal wrongdoing,” Mr DeGuerin said.
In 2006 Sir Allen became the first American to be knighted by Antigua and Barbuda.
The cricket impresario in 2008 staged a $20m, winner-takes-all match between a West Indian XI and England at his stadium in Antigua.
The SEC has said he lured investors with promises of improbable and unsubstantiated high returns on certificates of deposit and other investments - what is known as a Ponzi scheme.
In an interview with ABC earlier this year Sir Allen insisted no money was lost by customers dealing with his financial services companies.
“If it was a Ponzi scheme, why are they finding billions and billions of dollars all over the place?” he said at the time.
A number of governments have frozen the assets associated with Stanford banks.
Pace of US job cuts slows in May
US employers cut 345,000 jobs in May, the US Labor Department has said, far fewer than expected and the lowest monthly job loss since September.
The number of job losses in March and April was also revised down to 652,000 and 504,000 respectively.
The latest data provides further support to those who believe that the US economy is over the worst.
However, the US jobless rate rose to 9.4% in May, the highest since 1983, up from 8.9% in April.
Service sector industries shed 120,000 jobs in May. Another 156,000 jobs went in manufacturing, a figure which probably reflects shutdowns at car plants.
Construction industries shed 59,000 jobs, down from 108,000 in April. This lower fall could be the result of the government’s stimulus package, which has boosted public spending.
Economists had forecast a total loss of 520,000 jobs in May.
Rising unemployment
The increase in the jobless rate, despite the slowdown in the pace of job cuts, could be because the US Labor Department data is made up of two separate reports: it surveys employers to calculate payrolls and surveys a representative sample to estimate the jobless rate.
Many economists believe the jobless rate could hit 10% by the end of the year.
Since the start of the recession at the end of 2007, the US economy has lost six million jobs.
Analysts produced a range of interpretations of the latest set of jobless numbers. Some were upbeat about the outlook for the US economy.
“Good news at last. At some point we had to start moving to the 300,000 range, after all we already laid off an incredible amount of people,” said Kurt Karl, chief US economist at Swiss Re.
“This reading is probably not an outlier, we are likely to keep improving until the end of the year,” he added.
Robert Brusca at FAO Economics was even more optimistic and argued that the jobless number was more important than the unemployment rate.
“We have not just green shoots but an authentic sighting of the Jolly Green Giant himself,” he said . “Forget the unemployment rate. It lags. Jobs are doing what they do at end recessions and in early recoveries.”
But other analysts, noting that the US economy is still shedding jobs at an historically high rate, were rather more circumspect.
“I think the green shoots story may be a bit premature,” said Mark Vitner, economist at Wachovia Corp.
“There is no indication of any hiring. What would be a green shoot is if we saw a pickup in temporary hiring, but this has slowed.”
Tim Quinlan at Wachovia said: “The bottom line is that, while we are seeing improvement, it’s still not a pretty jobs market.”
Mixed messages
The latest unemployment figures come against a backdrop of mixed US economic data.
Last month, a key survey showed that consumer confidence was at its highest since last September, while separate figures showed an increase in the number of second-hand homes sold in April.
However, official data also showed that, despite the fact that consumers were feeling more optimistic, they actually spent less in April than in the previous month, while the number of new homes built in the US hit a record low in April.
French jobless at two-year high
France’s unemployment rate has risen to a two-year high as it continues to be hit by the global recession.
The jobless rate totalled 8.7% between January and March, up from a revised 7.6% for the last quarter of 2008, official figures have shown.
Finance Minister Christine Lagarde admitted in a radio interview that the latest figure was “brutal”.
France has been hard hit by recession, but Spain’s 17.4% jobless rate is much worse. The UK level is currently 7.1%.
Youth focus
Unemployment continues to be most of a problem for young people in France.
The jobless rate for 15 to 24-year-olds stood at 24.2% in the first three months of this year, the latest figures showed.
In April, President Nicolas Sarkozy launched a plan to spend more than 1bn euros ($1.4bn; £867m) to target youth unemployment.
“The figures are terrible,” said Alexander Law, chief economist at research firm Xerfi. “Don’t get me wrong. But it could have been even worse.”
Separate official data released last month showed that the French economy contracted by 1.2% between January to March, following a decline of 1.5% the October to December period.
The French government expects the economy to contract by 3% for 2009 as a whole.
“Unemployment will continue to grow in the coming months, ” said economist Joost Beaumont of Fortis Bank.
Opel staff face wait for job news
Workers at Opel and its UK brand Vauxhall will have to wait at least three months before they know which jobs are to go, the BBC has learned.
An Opel spokesman said no announcement would be made about redundancies before the carmaker’s sale to Canadian car parts maker Magna is concluded.
An interim deal is expected in July, but the final agreement is not due until September, he said.
Magna has so far said it plans to cut 2,500 Opel jobs in Germany.
Jobs at stake
Opel employs a total of 54,500 workers across Europe, with 25,000 based in Germany.
Its Vauxhall brand employs 5,500 people in the UK, primarily at its two British plants in Luton and Ellesmere Port.
Opel has been unaffected by Monday’s move into US bankruptcy protection by former owner General Motors.
This is because Opel’s ownership has been temporarily transferred to a trust fund ahead of the Magna sale.
First German payments
Opel also confirmed on Tuesday that it had received the first tranche of a bridging loan from the German government to help shore up its finances until the Magna sale is concluded.
It has been given 300m euros ($423m; £259m) out of the 1.5m euros pledged by Germany in its rescue deal.
The German government is putting forward the money because Opel has its headquarters and three factories in the country, employing almost half of all the firm’s workers.
Berlin is also directly involved in the sale of Opel to Magna, leading to union fears in the UK and Belgium that their Vauxhall and Opel factories will bare the brunt of job cuts.
UK Business Secretary Lord Mandelson said last week that he had gained assurances from Magna that it was committed to car production in the UK, but he added that some redundancies across Opel’s entire European operations were inevitable.
Magna needs to cut jobs at Opel to return the firm to profitability and reduce overcapacity.
GM enters bankruptcy protection
Car giant General Motors (GM) has filed for bankruptcy protection, marking the biggest failure of an industrial company in US history.
The widely expected move comes after GM had seen its losses widen following a steep fall in sales in recent years.
The move into bankruptcy protection has been backed by the US government, which is now expected to take a 60% stake in the company.
The White House is also due to announce an extra $30bn (£18.5bn) of aid for GM.
President Barack Obama will host a press conference on GM’s future later, to be followed by the firm’s chief executive Fritz Henderson.
GM, which had already received $20bn of state aid since the end of last year, said in its bankruptcy filing that its current debts total $173bn.
Expected job cuts
US Chapter 11 bankruptcy protection gives an American company time to restructure its finances while being protected from its creditors.
The restructuring will drastically change GM, with some 20,000 US workers thought likely to lose their jobs as the firm streamlines its operations. The firm currently has 173,000 employees across the US, Canada and Mexico.
It is expected that GM may be able to exit bankruptcy protection within 60 to 90 days.
GM’s main European business, Opel, and its UK brand Vauxhall, will not be affected by the bankruptcy protection move. This is because their ownership has been transferred to a trust fund ahead of their sale, the Germany government confirmed.
Canadian car parts maker Magna International last week agreed to buy Opel and Vauxhall. While the US government is set to take a 60% stake in GM, the Canadian government is due to own 12.5%, with GM’s unions having 17.5%, and bondholders 10%.
Car industry analyst Gary Chaison, a professor of labour relations at Clark University, said the GM announcement marked the end of an era.
“It’ll have a huge impact in the US because it’s more than just a corporation - it’s an icon,” he added.
“It represented manufacturing supremacy and good jobs for American workers - that’s gone.”
Falling sales
GM, once the largest company in the world, has been losing market share since the early 1980s.
It has been driven to bankruptcy because of high production costs and by the collapse in credit markets and consumer spending. It made losses of $30bn last year.
GM was also slow to move away from producing gas-guzzling SUVs when consumers were looking for more fuel-efficient vehicles.
Toyota sold more vehicles than GM in 2008, putting an end to the American company’s 77-year reign as the world’s biggest carmaker.
