WASHINGTON — Six months after the revelation of a secret nuclear enrichment site in Iran, international inspectors and Western intelligence agencies say they suspect that Tehran is preparing to build more sites in defiance of United Nations demands.
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The United Nations inspectors assigned to monitor Iran’s nuclear program are now searching for evidence of two such sites, prompted by recent comments by a top Iranian official that drew little attention in the West, and are looking into a mystery about the whereabouts of recently manufactured uranium enrichment equipment.
In an interview with the Iranian Student News Agency, the official, Ali Akbar Salehi, head of Iran’s Atomic Energy Organization, said President Mahmoud Ahmadinejad had ordered work to begin soon on two new plants. The plants, he said, “will be built inside mountains,” presumably to protect them from attacks.
“God willing,” Mr. Salehi was quoted as saying, “we may start the construction of two new enrichment sites” in the Iranian new year, which began March 21.
The revelation that inspectors from the International Atomic Energy Agency, the United Nations’ nuclear watchdog, now believe that there may be two new sites comes at a crucial moment in the White House’s attempts to impose tough new sanctions against Iran.
When President Obama publicly revealed the evidence of the hidden site at Qum last September, his aides had hoped the announcement would make it easier to win international support for a fourth round of economic sanctions, particularly from a reluctant China and Russia. Since then, however, the White House has been struggling to persuade those countries to go along with the toughest sanctions and the administration is now being forced to scale back its proposed list of sanctions.
The United Nations inspectors operate separately from the diplomats who are developing sanctions. Still, the disclosures may be intended, at least in part, to underscore the belief of Western officials that the Iranian efforts are speeding ahead, and the assertions could aid in efforts to press Iran to open up locations long closed to inspectors.
This article was based on interviews with officials of several governments and international agencies deeply involved in the hunt for additional nuclear sites in Iran, and familiar with the work of the I.A.E.A., the only organization with regular access to Iran’s known nuclear facilities. All the officials insisted on anonymity because the search involves not only satellite surveillance, but also intelligence gleaned from highly classified operations.
American officials say they share the I.A.E.A.’s suspicions and are examining satellite evidence about a number of suspected sites. But they have found no solid clues yet that Iran intends to use them to produce nuclear fuel, and they are less certain about the number of sites Iran may be planning.
In any case, no new processing site would pose an immediate threat or change the American estimates that it will still take Iran one to four years to obtain the capability to build a nuclear weapon. Given the complexity of building and opening new plants, it would probably take several years for the country to enrich uranium at any of the new sites.
One European official noted that “while we have some evidence,” Iran’s heavy restrictions on where inspectors can travel and the existence of numerous tunneling projects were making the detection of any new enrichment plants especially difficult.
Iran boasted several months ago, after the disclosure of the Qum site, that it would build 10 more enrichment plants in coming years. That number was dismissed by American officials and others as a fantasy, far beyond Iran’s abilities, or its budget.
But I.A.E.A. inspectors in Vienna now believe that Mr. Salehi was probably accurate when he referred to two sites.
According to American officials, in recent weeks Israel — which uncovered some of the evidence about Qum — has pressed the case with their American counterparts that evidence points to what one senior administration official called “Qum look-alikes.”
The most compelling circumstantial evidence, people familiar with the inspectors’ view say, is that while Iran appears to be making new equipment to enrich uranium, that equipment is not showing up in the main plant that inspectors visit regularly. Nor is it at the Natanz site in the desert, or the new facility at Qum, which inspectors now visit periodically.
That has heightened suspicions that the equipment, produced in small factories around Iran, is being held in a clandestine storage area for later shipment or installed elsewhere.
Saturday, March 27, 2010
Freed Guantanamo Inmate Likely With Taliban, U.S. Official Says
Abdul Hafiz, a terror suspect released from the Guantanamo Bay prison last December, likely has joined the Taliban in Afghanistan, a U.S. counterterrorism official said.
If true, it would be the first known case of a former detainee at the facility in Cuba enlisting with a terrorist group after being released by President Barack Obama’s administration.
The official, who spoke on condition of anonymity, said Hafiz’s role in the Taliban hasn’t been determined. And an administration official, also speaking on condition of anonymity, said the intelligence on Hafiz’s status remains unclear and incomplete.
The likelihood that Hafiz is with the Taliban was first reported by the Long War Journal, a Mount Laurel, New Jersey- based publication that reports on intelligence matters.
In a Feb. 1 letter to House Speaker Nancy Pelosi, White House counterterrorism adviser John Brennan said all former detainees suspected or confirmed to have joined militant groups had been set free under President George W. Bush. In his letter, Brennan said 20 percent of freed Guantanamo detainees were known or suspected of having terrorist ties after their release.
The Bush administration released more than 530 detainees while the Obama administration has freed 57 so far. Guantanamo still holds 183 detainees.
Congressional Republicans have been trying to get confirmation about Hafiz.
If he has joined the Taliban, “it would tell you this is one colossal mistake” to have released him, said Representative Pete Hoekstra of Michigan, ranking Republican on the House Intelligence Committee. “It typically takes a pretty extended period of time” to confirm such information, he said.
Linked to Murder
Hafiz, a citizen of Afghanistan, had been linked to the murder of an International Red Cross worker in Afghanistan and was working with the Taliban, according to a Defense Department memo obtained by the New York Times. When captured in April 2003, he was trying to call an al-Qaeda member involved in the Red Cross worker’s death, according to the memo.
Hafiz was sent to Guantanamo in July 2003, according to court papers filed on his behalf that sought his release and said he was denied due process. In December of 2009, he was transferred to Afghanistan with four other former detainees, according to the Justice Department.
In his letter, Brennan repeated the administration’s position that closing Guantanamo “will help our troops by eliminating a potent recruiting tool.”
If true, it would be the first known case of a former detainee at the facility in Cuba enlisting with a terrorist group after being released by President Barack Obama’s administration.
The official, who spoke on condition of anonymity, said Hafiz’s role in the Taliban hasn’t been determined. And an administration official, also speaking on condition of anonymity, said the intelligence on Hafiz’s status remains unclear and incomplete.
The likelihood that Hafiz is with the Taliban was first reported by the Long War Journal, a Mount Laurel, New Jersey- based publication that reports on intelligence matters.
In a Feb. 1 letter to House Speaker Nancy Pelosi, White House counterterrorism adviser John Brennan said all former detainees suspected or confirmed to have joined militant groups had been set free under President George W. Bush. In his letter, Brennan said 20 percent of freed Guantanamo detainees were known or suspected of having terrorist ties after their release.
The Bush administration released more than 530 detainees while the Obama administration has freed 57 so far. Guantanamo still holds 183 detainees.
Congressional Republicans have been trying to get confirmation about Hafiz.
If he has joined the Taliban, “it would tell you this is one colossal mistake” to have released him, said Representative Pete Hoekstra of Michigan, ranking Republican on the House Intelligence Committee. “It typically takes a pretty extended period of time” to confirm such information, he said.
Linked to Murder
Hafiz, a citizen of Afghanistan, had been linked to the murder of an International Red Cross worker in Afghanistan and was working with the Taliban, according to a Defense Department memo obtained by the New York Times. When captured in April 2003, he was trying to call an al-Qaeda member involved in the Red Cross worker’s death, according to the memo.
Hafiz was sent to Guantanamo in July 2003, according to court papers filed on his behalf that sought his release and said he was denied due process. In December of 2009, he was transferred to Afghanistan with four other former detainees, according to the Justice Department.
In his letter, Brennan repeated the administration’s position that closing Guantanamo “will help our troops by eliminating a potent recruiting tool.”
Pakistan Keeps Benchmark Rate Unchanged for Second Time in 2010
March 28 (Bloomberg) -- Pakistan’s central bank refrained from cutting its benchmark interest rate as inflation of above 13 percent prevents it from reducing borrowing costs to spur economic growth.
The State Bank of Pakistan maintained its discount rate at 12.5 percent, the central bank said in an e-mailed statement from Lahore yesterday. The decision was expected by 13 of 14 economists in a Bloomberg News survey.
“Inflation is expected to stay on the higher side as commodity prices remain high and subsidies are ended,” Sayem Ali, an economist at Standard Chartered Pakistan in Karachi, said before the decision.
Pakistan wants to keep borrowing costs low to revive consumer and investment demand, derailed by terrorist attacks that claimed 3,000 lives in 2009. Risks to economic growth have “increased considerably” due to the country’s deteriorating security situation, according to the central bank.
“An upward adjustment in the policy rate at this juncture runs the risk of impeding the still nascent recovery,” the central bank said in its statement yesterday. “A downward adjustment runs the risk of fuelling already high inflation.”
The central bank’s next move may be to reduce interest rates, Governor Salim Raza indicated in a Feb. 5 interview, saying he expects the effect of higher energy costs to wear off. Inflation slowed in February for the first time in four months.
Power Rates
The government will increase domestic fuel and electricity rates from April 1, the Dawn Newspaper reported on March 24, without saying where it got the information. Fuel costs will rise by about 5 percent and power rates will be increased by more than 16 percent, the newspaper said.
Pakistan increased gas and electricity tariffs by an average 13.5 percent on March 1 as part of a directive by the International Monetary Fund to end subsidies.
The economy grew 2 percent in the last financial year ended June 30, the slowest pace in eight years. Gross domestic product may expand 3.4 percent this year, the government forecasts. The South Asian economy needs to grow at an average annual pace of 6 percent over the next five years to reduce poverty, according to the government.
Raza kept the benchmark interest rate unchanged on Jan. 31 after cutting it three times in 2009 by a cumulative 2.5 percentage points.
Consumer Prices
Consumer prices in Pakistan rose 13.04 percent in February from a year earlier after climbing 13.68 percent in January, after the government raised electricity and gas tariffs.
The central bank’s efforts to accelerate growth will be a boost to Abdul Hafeez Shaikh, who was appointed Pakistan’s finance adviser by Prime Minister Yousuf Raza Gilani this month after Finance Minister Shaukat Tarin resigned to pursue his business interests.
Shaikh became the fourth person to take charge of Pakistan’s finance ministry in the past two years and faces the challenge of attracting investment to accelerate economic growth amid terrorism and political instability. He also has to tackle food and power shortages that have caused riots in the nation of 170 million people.
Demand for power in Pakistan is three times the supply, forcing factories to shut. Food shortages have caused inflation to average 16.6 percent since January 2008.
Foreign direct investment in Pakistan dropped 53 percent to $1.32 billion in the first eight months of the fiscal year that started July 1.
More than 300 people have died since Jan. 1 as militants retaliated against the army’s offensive that targeted Taliban extremists in the country’s northwest.
The State Bank of Pakistan maintained its discount rate at 12.5 percent, the central bank said in an e-mailed statement from Lahore yesterday. The decision was expected by 13 of 14 economists in a Bloomberg News survey.
“Inflation is expected to stay on the higher side as commodity prices remain high and subsidies are ended,” Sayem Ali, an economist at Standard Chartered Pakistan in Karachi, said before the decision.
Pakistan wants to keep borrowing costs low to revive consumer and investment demand, derailed by terrorist attacks that claimed 3,000 lives in 2009. Risks to economic growth have “increased considerably” due to the country’s deteriorating security situation, according to the central bank.
“An upward adjustment in the policy rate at this juncture runs the risk of impeding the still nascent recovery,” the central bank said in its statement yesterday. “A downward adjustment runs the risk of fuelling already high inflation.”
The central bank’s next move may be to reduce interest rates, Governor Salim Raza indicated in a Feb. 5 interview, saying he expects the effect of higher energy costs to wear off. Inflation slowed in February for the first time in four months.
Power Rates
The government will increase domestic fuel and electricity rates from April 1, the Dawn Newspaper reported on March 24, without saying where it got the information. Fuel costs will rise by about 5 percent and power rates will be increased by more than 16 percent, the newspaper said.
Pakistan increased gas and electricity tariffs by an average 13.5 percent on March 1 as part of a directive by the International Monetary Fund to end subsidies.
The economy grew 2 percent in the last financial year ended June 30, the slowest pace in eight years. Gross domestic product may expand 3.4 percent this year, the government forecasts. The South Asian economy needs to grow at an average annual pace of 6 percent over the next five years to reduce poverty, according to the government.
Raza kept the benchmark interest rate unchanged on Jan. 31 after cutting it three times in 2009 by a cumulative 2.5 percentage points.
Consumer Prices
Consumer prices in Pakistan rose 13.04 percent in February from a year earlier after climbing 13.68 percent in January, after the government raised electricity and gas tariffs.
The central bank’s efforts to accelerate growth will be a boost to Abdul Hafeez Shaikh, who was appointed Pakistan’s finance adviser by Prime Minister Yousuf Raza Gilani this month after Finance Minister Shaukat Tarin resigned to pursue his business interests.
Shaikh became the fourth person to take charge of Pakistan’s finance ministry in the past two years and faces the challenge of attracting investment to accelerate economic growth amid terrorism and political instability. He also has to tackle food and power shortages that have caused riots in the nation of 170 million people.
Demand for power in Pakistan is three times the supply, forcing factories to shut. Food shortages have caused inflation to average 16.6 percent since January 2008.
Foreign direct investment in Pakistan dropped 53 percent to $1.32 billion in the first eight months of the fiscal year that started July 1.
More than 300 people have died since Jan. 1 as militants retaliated against the army’s offensive that targeted Taliban extremists in the country’s northwest.
India falls short of China’s Olympic glory
India bid for the Commonwealth Games hoping to showcase the country’s emergence as a rising economic powerhouse, much as the Olympic Games were seen as a coming out party for China.
But the combined effort of mass remodelling of ageing sports facilities, widespread improvement of roads and frenzied construction of athletes’ hostels has transformed India’s capital city into a giant, dusty and chaotic building site, prompting protracted grumbling by its residents.
EDITOR’S CHOICE
Analysis: India: Potholes in the road - Feb-04
India expels Commonwealth Games CEO - Oct-15
India raises key rate to help fight inflation - Mar-19
India races to match China’s double digit - Mar-07
China profits from Olympics - Jun-20
Now residents have another reason to complain: this week, New Delhi authorities slapped city residents with a bill for costs that have spiralled as a result of delays, raising taxes on 32 different commodities – ranging from tea to diesel to mobile phones – while rolling back subsidies on cooking gas.
Already reeling under the burden of skyrocketing food prices, many city residents are now questioning the entire endeavour to host the games, a project now estimated at about $2.1bn, even as officials admit that it will be down to the wire to finish in time.
“I just feel disgusted and ashamed that we are incapable of doing even small things,” said Veena Sharma, a retired government servant. “If they really wanted the prestige of having the Commonwealth Games, they should have prioritised it beforehand and done it in time. They should not hit people at the last moment.”
Adding to the disquiet, the tax rise came just days after a panel appointed by the Delhi High Court reported that at least 40 construction workers had died on games sites, due to lack of safety gear and poor working conditions.
The panel also found that the tens of thousands of migrant workers involved in games preparations were not being paid the legal minimum wage – let alone overtime for the long hours, and were living in squalor on games sites.
“Outrageous,” was how Arundhati Ghose, India’s former ambassador to the UN and a member of the court-appointed panel, described the conditions. “In one stadium, there were four toilets for 150 workers. For workers on the roadside working on road projects, there are no toilets at all – they are just given plastic sheets.”
In its travails, New Delhi’s efforts to prepare for the Commonwealth Games – to be held this October – have highlighted one of the biggest problems still impeding India’s faster economic progress: its inability quickly to roll-out infrastructure projects, which routinely get bogged down in bureaucratic red tape, leading to long delays and huge cost overruns.
Last October, Indian authorities and Commonwealth Games Federation officials had a nasty public spat over what India interpreted as humiliating public criticism by the federation over India’s lack of preparedness for the games. Relations appear smoother now, at least in public, and Sheila Dixit, the chief minister of New Delhi, said in a television interview this week that she was confident that all venues would be ready in time for the games.
But among New Delhi residents – already grappling with more frequent power cuts as the summer heat sets in – anger remains. “It’s a huge pity that our government doesn’t plan infrastructure development for its people in the normal course of things, and they get scrunched around international events and how others perceive us,” said Madhu Mehra, a New Delhi-based lawyer. “It’s literally cleaning the house and sprucing up the living room so your guests are happy, even while the loo and drainage stink.”
But the combined effort of mass remodelling of ageing sports facilities, widespread improvement of roads and frenzied construction of athletes’ hostels has transformed India’s capital city into a giant, dusty and chaotic building site, prompting protracted grumbling by its residents.
EDITOR’S CHOICE
Analysis: India: Potholes in the road - Feb-04
India expels Commonwealth Games CEO - Oct-15
India raises key rate to help fight inflation - Mar-19
India races to match China’s double digit - Mar-07
China profits from Olympics - Jun-20
Now residents have another reason to complain: this week, New Delhi authorities slapped city residents with a bill for costs that have spiralled as a result of delays, raising taxes on 32 different commodities – ranging from tea to diesel to mobile phones – while rolling back subsidies on cooking gas.
Already reeling under the burden of skyrocketing food prices, many city residents are now questioning the entire endeavour to host the games, a project now estimated at about $2.1bn, even as officials admit that it will be down to the wire to finish in time.
“I just feel disgusted and ashamed that we are incapable of doing even small things,” said Veena Sharma, a retired government servant. “If they really wanted the prestige of having the Commonwealth Games, they should have prioritised it beforehand and done it in time. They should not hit people at the last moment.”
Adding to the disquiet, the tax rise came just days after a panel appointed by the Delhi High Court reported that at least 40 construction workers had died on games sites, due to lack of safety gear and poor working conditions.
The panel also found that the tens of thousands of migrant workers involved in games preparations were not being paid the legal minimum wage – let alone overtime for the long hours, and were living in squalor on games sites.
“Outrageous,” was how Arundhati Ghose, India’s former ambassador to the UN and a member of the court-appointed panel, described the conditions. “In one stadium, there were four toilets for 150 workers. For workers on the roadside working on road projects, there are no toilets at all – they are just given plastic sheets.”
In its travails, New Delhi’s efforts to prepare for the Commonwealth Games – to be held this October – have highlighted one of the biggest problems still impeding India’s faster economic progress: its inability quickly to roll-out infrastructure projects, which routinely get bogged down in bureaucratic red tape, leading to long delays and huge cost overruns.
Last October, Indian authorities and Commonwealth Games Federation officials had a nasty public spat over what India interpreted as humiliating public criticism by the federation over India’s lack of preparedness for the games. Relations appear smoother now, at least in public, and Sheila Dixit, the chief minister of New Delhi, said in a television interview this week that she was confident that all venues would be ready in time for the games.
But among New Delhi residents – already grappling with more frequent power cuts as the summer heat sets in – anger remains. “It’s a huge pity that our government doesn’t plan infrastructure development for its people in the normal course of things, and they get scrunched around international events and how others perceive us,” said Madhu Mehra, a New Delhi-based lawyer. “It’s literally cleaning the house and sprucing up the living room so your guests are happy, even while the loo and drainage stink.”
Friday, March 26, 2010
Japan’s Bonds Decline as Stock Gains, Recovery Signs Sap Demand
March 27 (Bloomberg) -- Japan’s 10-year bonds dropped, completing a fourth weekly loss, as the yen’s slide to its lowest since January bolstered exporter stocks.
Benchmark yields climbed yesterday to the highest level since November after Treasuries dropped the prior day, boosting U.S. rates to the most since June. Demand for bonds was also limited on speculation the Bank of Japan’s key survey of business confidence and U.S. nonfarm payrolls next week will add to signs the global economy is recovering.
“Japanese and U.S. yields are to test the higher end of their ranges,” said Shinji Nomura, chief debt strategist in Tokyo at Nikko Cordial Securities Inc., part of Japan’s third-largest banking group. “Optimism over the BOJ’s Tankan and U.S. nonfarm payrolls next week are negative factors for bonds.”
The yield on the 1.4 percent security maturing in March 2020 increased 1.5 basis points, or 0.015 percentage point, this week to 1.375 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price dropped 0.132 yen to 100.219 yen. Yields climbed to as high as 1.385 percent yesterday, the most since Nov. 12.
Ten-year Treasury yields reached 3.92 percent on March 25, the highest since June 11. They were at 3.86 percent yesterday.
Futures MACD
Ten-year bond futures for June delivery slid 0.30 this week to 138.33 as of the close at the Tokyo Stock Exchange. The contracts touched 138.16 yesterday, the lowest since November. The contracts’ moving average convergence/divergence, or MACD, was minus 0.2719 yesterday, below the so-called signal line of minus 0.1569, suggesting that they are in a downtrend.
The Nikkei 225 Stock Average advanced 1.6 percent yesterday, damping demand for the refuge of government debt. Shares gained after Japan’s currency touched 92.96 yen on March 25, the weakest level since Jan. 8.
Japanese bonds were little changed on the month and quarter, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. The Nikkei 225 gained 8.6 percent so far this month, advancing 4.3 percent this quarter.
Bonds losses were tempered on expectations lingering deflation will increase the value of coupon payments.
Japan’s consumer prices excluding fresh food slid 1.2 percent in February from a year earlier, after dropping 1.3 percent in each of the past two months, the statistics bureau said yesterday in Tokyo.
Lingering Deflation
“An end to deflation isn’t in sight anytime soon, though the pace of price declines will moderate gradually,” Azusa Kato, economist at BNP Paribas in Tokyo, said before the data.
The difference between yields on five-year notes and similar maturity inflation-linked debt, which reflects the outlook for consumer prices over the term of the securities, was negative 1.05 percentage points yesterday, compared with minus 0.85 percentage points at the end of last year.
Inflation-adjusted securities typically yield less than regular bonds because their principal payments increase at the same rate as inflation.
Ten-year yields may rise to the highest since October 2008 next quarter, following seasonal patterns where they climb on speculation U.S. interest rates will increase, Mizuho Securities Co. said.
Yield Outlook
“The tendency of Japan’s long-term yields to gain in the April-June period will remain intact this year,” said Hajime Takata, Tokyo-based chief strategist at Mizuho. “It wouldn’t be surprising if the yields rose above 1.6 percent.”
The yield on Japan’s 10-year notes increased in the second quarter of each of the past six fiscal years. The rate peaked between April and June in all those periods except for fiscal 2005. In the current year ending on March 31, the yield reached a high of 1.56 percent on June 11.
Recent economic indicators signal a recovery is taking hold in the U.S., aiding a rally in stocks that will likely help to improve investor sentiment, Takata said.
A U.S. report on April 2 will show payrolls rose 187,000 in March after dropping 36,000 the previous month, according to the median estimate of economists surveyed by Bloomberg.
Japan’s Tankan business confidence index will improve to minus 14, from December’s minus 24, according to the median estimate of economists in a Bloomberg News survey before the April 1 report. That would be the best reading since December 2008.
Benchmark yields climbed yesterday to the highest level since November after Treasuries dropped the prior day, boosting U.S. rates to the most since June. Demand for bonds was also limited on speculation the Bank of Japan’s key survey of business confidence and U.S. nonfarm payrolls next week will add to signs the global economy is recovering.
“Japanese and U.S. yields are to test the higher end of their ranges,” said Shinji Nomura, chief debt strategist in Tokyo at Nikko Cordial Securities Inc., part of Japan’s third-largest banking group. “Optimism over the BOJ’s Tankan and U.S. nonfarm payrolls next week are negative factors for bonds.”
The yield on the 1.4 percent security maturing in March 2020 increased 1.5 basis points, or 0.015 percentage point, this week to 1.375 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price dropped 0.132 yen to 100.219 yen. Yields climbed to as high as 1.385 percent yesterday, the most since Nov. 12.
Ten-year Treasury yields reached 3.92 percent on March 25, the highest since June 11. They were at 3.86 percent yesterday.
Futures MACD
Ten-year bond futures for June delivery slid 0.30 this week to 138.33 as of the close at the Tokyo Stock Exchange. The contracts touched 138.16 yesterday, the lowest since November. The contracts’ moving average convergence/divergence, or MACD, was minus 0.2719 yesterday, below the so-called signal line of minus 0.1569, suggesting that they are in a downtrend.
The Nikkei 225 Stock Average advanced 1.6 percent yesterday, damping demand for the refuge of government debt. Shares gained after Japan’s currency touched 92.96 yen on March 25, the weakest level since Jan. 8.
Japanese bonds were little changed on the month and quarter, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. The Nikkei 225 gained 8.6 percent so far this month, advancing 4.3 percent this quarter.
Bonds losses were tempered on expectations lingering deflation will increase the value of coupon payments.
Japan’s consumer prices excluding fresh food slid 1.2 percent in February from a year earlier, after dropping 1.3 percent in each of the past two months, the statistics bureau said yesterday in Tokyo.
Lingering Deflation
“An end to deflation isn’t in sight anytime soon, though the pace of price declines will moderate gradually,” Azusa Kato, economist at BNP Paribas in Tokyo, said before the data.
The difference between yields on five-year notes and similar maturity inflation-linked debt, which reflects the outlook for consumer prices over the term of the securities, was negative 1.05 percentage points yesterday, compared with minus 0.85 percentage points at the end of last year.
Inflation-adjusted securities typically yield less than regular bonds because their principal payments increase at the same rate as inflation.
Ten-year yields may rise to the highest since October 2008 next quarter, following seasonal patterns where they climb on speculation U.S. interest rates will increase, Mizuho Securities Co. said.
Yield Outlook
“The tendency of Japan’s long-term yields to gain in the April-June period will remain intact this year,” said Hajime Takata, Tokyo-based chief strategist at Mizuho. “It wouldn’t be surprising if the yields rose above 1.6 percent.”
The yield on Japan’s 10-year notes increased in the second quarter of each of the past six fiscal years. The rate peaked between April and June in all those periods except for fiscal 2005. In the current year ending on March 31, the yield reached a high of 1.56 percent on June 11.
Recent economic indicators signal a recovery is taking hold in the U.S., aiding a rally in stocks that will likely help to improve investor sentiment, Takata said.
A U.S. report on April 2 will show payrolls rose 187,000 in March after dropping 36,000 the previous month, according to the median estimate of economists surveyed by Bloomberg.
Japan’s Tankan business confidence index will improve to minus 14, from December’s minus 24, according to the median estimate of economists in a Bloomberg News survey before the April 1 report. That would be the best reading since December 2008.
Fed’s Sack Says Financial System Needs Leverage
March 27 (Bloomberg) -- Brian Sack, head of the markets group at the New York Fed, said the financial system can’t operate well without leverage and signaled that he supports the return of a “properly” structured securitization market.
“Securitization is a powerful vehicle that should play an important role in the intermediation of credit in the economy,” Sack said in a speech delivered by video conference from New York to an audience in Sydney. “We should also understand that a reduction in leverage to near zero in the financial system is not desirable.”
Sack’s comments come as U.S. lawmakers revamp regulation to prevent a recurrence of the financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007 and led to about $1.76 trillion in losses and writedowns by banks and other financial institutions worldwide. Fed Governor Kevin Warsh, speaking yesterday in New York, said the securitization market will ultimately come back.
“To be sure, the expansion of securitized credit was much too extensive and its subsequent collapse was terribly disruptive, contributing significantly to the damage to the economy,” said Sack, 39, a former Fed economist and section head who returned to the central bank system last year.
“Those developments do not mean that securitized credit, if structured properly, should not return in size,” he said during the speech at the ACI 2010 World Congress. Derivatives are also “integral” to the functioning of financial markets, allowing risks to be redistributed, Sack said.
‘Operate Efficiently’
“The financial system cannot operate efficiently without leverage,” he said.
“Of course, much of the turmoil we witnessed across financial markets was due to the build-up of excessive leverage in the system, and we cannot miss the chance to learn from this painful lesson,” Sack said. Even so, the focus now should be in part “on how to make the use of leverage less pro-cyclical.”
Since December 2008, the Federal Open Market Committee has held the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent. Policy makers have also created unprecedented emergency programs to revive credit.
The FOMC in its public comments has “retained its flexibility” to extend the programs, Sack said in response to an audience question.
“It has not clarified under what conditions it would do so and presumably those conditions would depend on the behavior of long-term interest rates and on economic conditions more broadly,” he said. “I don’t think anything has been taken off the table.”
“Securitization is a powerful vehicle that should play an important role in the intermediation of credit in the economy,” Sack said in a speech delivered by video conference from New York to an audience in Sydney. “We should also understand that a reduction in leverage to near zero in the financial system is not desirable.”
Sack’s comments come as U.S. lawmakers revamp regulation to prevent a recurrence of the financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007 and led to about $1.76 trillion in losses and writedowns by banks and other financial institutions worldwide. Fed Governor Kevin Warsh, speaking yesterday in New York, said the securitization market will ultimately come back.
“To be sure, the expansion of securitized credit was much too extensive and its subsequent collapse was terribly disruptive, contributing significantly to the damage to the economy,” said Sack, 39, a former Fed economist and section head who returned to the central bank system last year.
“Those developments do not mean that securitized credit, if structured properly, should not return in size,” he said during the speech at the ACI 2010 World Congress. Derivatives are also “integral” to the functioning of financial markets, allowing risks to be redistributed, Sack said.
‘Operate Efficiently’
“The financial system cannot operate efficiently without leverage,” he said.
“Of course, much of the turmoil we witnessed across financial markets was due to the build-up of excessive leverage in the system, and we cannot miss the chance to learn from this painful lesson,” Sack said. Even so, the focus now should be in part “on how to make the use of leverage less pro-cyclical.”
Since December 2008, the Federal Open Market Committee has held the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent. Policy makers have also created unprecedented emergency programs to revive credit.
The FOMC in its public comments has “retained its flexibility” to extend the programs, Sack said in response to an audience question.
“It has not clarified under what conditions it would do so and presumably those conditions would depend on the behavior of long-term interest rates and on economic conditions more broadly,” he said. “I don’t think anything has been taken off the table.”
Thursday, March 25, 2010
RBA Says Leading Economies Need to Reduce Spending
March 26 (Bloomberg) -- The world’s largest economies, including the U.S., U.K. and Europe, face “difficult fiscal decisions” in coming years to curb debt levels, according to Australian central bank Governor Glenn Stevens, the only Group of 20 policy maker to boost borrowing costs this year.
“At some point, significant discretionary tightening will be required,” Stevens told a conference in Sydney today. Without a “credible path to fiscal sustainability” economic growth “could easily be stunted by rising risk premia built into interest rates as markets worry about long-run solvency.”
Stevens, who didn’t address domestic monetary policy in his speech, said financial market turmoil triggered by Greece’s debt levels is a “reminder of the challenges facing many governments.” By contrast, Australia’s debt-to-gross domestic product ratio is a “conspicuous exception.”
The governor also said differences in the speed of economic recoveries between regions such as Asia and advanced economies “are likely to put strains on the relative settings of macroeconomic policies and exchange rate arrangements.”
“This will need careful management, by all concerned, over the next few years,” Stevens said.
Mounting evidence that Australia’s economy, which skirted last year’s global recession, is likely to expand at or close to trend this year prompted Stevens and his Reserve Bank of Australia board to increase borrowing costs this month for the fourth time in five meetings.
Best Performer
The central bank has boosted the benchmark rate to 4 percent from 3 percent in early October, making the Australian dollar the best performing currency among the 16 most traded in the past year. The local dollar has gained 29 percent since March 2009.
The Australian dollar fell to 90.71 U.S. cents at 9:19 a.m. in Sydney from 90.78 cents just before a copy of the speech was released. The two-year government bond yield gained 2 basis points, or 0.02 percentage point, to 4.95 percent.
Traders are betting there is a 42 percent chance of a quarter-point rate increase when the central bank next meets on April 6, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 9:20 a.m. Prior to the speech, chances of a move stood at 44 percent.
‘Tissue Damage’
“It is helpful that the global financial system is gradually recovering its poise, after a near-death experience eighteen months ago,” Stevens said today. “Perhaps like a patient that has suffered an acute cardiac event, there has been some lasting tissue damage, but quick intervention avoided something much worse.”
Australia is also “more advanced in this regard,” as local policy makers have moved to end measures introduced at the height of the global financial crisis in 2008 to stabilize the domestic financial system.
“The expansion in the RBA’s balance sheet was unwound nearly a year ago and the policy rate has been increased somewhat, reflecting the very different circumstances facing the Australian economy,” the governor said.
“At some point, significant discretionary tightening will be required,” Stevens told a conference in Sydney today. Without a “credible path to fiscal sustainability” economic growth “could easily be stunted by rising risk premia built into interest rates as markets worry about long-run solvency.”
Stevens, who didn’t address domestic monetary policy in his speech, said financial market turmoil triggered by Greece’s debt levels is a “reminder of the challenges facing many governments.” By contrast, Australia’s debt-to-gross domestic product ratio is a “conspicuous exception.”
The governor also said differences in the speed of economic recoveries between regions such as Asia and advanced economies “are likely to put strains on the relative settings of macroeconomic policies and exchange rate arrangements.”
“This will need careful management, by all concerned, over the next few years,” Stevens said.
Mounting evidence that Australia’s economy, which skirted last year’s global recession, is likely to expand at or close to trend this year prompted Stevens and his Reserve Bank of Australia board to increase borrowing costs this month for the fourth time in five meetings.
Best Performer
The central bank has boosted the benchmark rate to 4 percent from 3 percent in early October, making the Australian dollar the best performing currency among the 16 most traded in the past year. The local dollar has gained 29 percent since March 2009.
The Australian dollar fell to 90.71 U.S. cents at 9:19 a.m. in Sydney from 90.78 cents just before a copy of the speech was released. The two-year government bond yield gained 2 basis points, or 0.02 percentage point, to 4.95 percent.
Traders are betting there is a 42 percent chance of a quarter-point rate increase when the central bank next meets on April 6, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 9:20 a.m. Prior to the speech, chances of a move stood at 44 percent.
‘Tissue Damage’
“It is helpful that the global financial system is gradually recovering its poise, after a near-death experience eighteen months ago,” Stevens said today. “Perhaps like a patient that has suffered an acute cardiac event, there has been some lasting tissue damage, but quick intervention avoided something much worse.”
Australia is also “more advanced in this regard,” as local policy makers have moved to end measures introduced at the height of the global financial crisis in 2008 to stabilize the domestic financial system.
“The expansion in the RBA’s balance sheet was unwound nearly a year ago and the policy rate has been increased somewhat, reflecting the very different circumstances facing the Australian economy,” the governor said.
Dell Says India May Become New Technology Manufacturing Hub
March 26 (Bloomberg) -- Dell Inc. Chief Executive Officer Michael Dell said in a conversation with Indian Prime Minister Manmohan Singh that the south Asian nation is poised to become a technology manufacturing center.
The remarks came this week during a discussion with Singh about ways to boost hardware manufacturing in India, Dell spokesman David Frink said in an interview. The company denied an account of the discussion by Singh, who said Dell may be looking for a “safer environment” than China.
“With the right kind of progress, Mr. Dell said that he believes India also has an opportunity to become a hardware manufacturing hub, generating employment and adding to that country’s impressive growth,” Frink said.
India, Asia’s third-largest economy, needs to spend $1 trillion on roads, ports, power and other infrastructure between 2012 and 2017 to help accelerate economic growth to 10 percent and cut poverty, Singh said this week. Getting computer makers like Dell to invest in India rather than China is “an area where there are immense opportunities,” Singh said in a March 23 speech to members of India’s Planning Commission.
Singh and Dell met a day after Google Inc. started routing China-based users to an unfiltered search service on its Hong Kong site. The move capped a standoff between China and Google, which in January said hackers in China stole data and targeted the e-mail accounts of human-rights activists.
‘Safer Environment’
Singh later said Dell was considering shifting purchasing of components from China to a “safer environment,” according to the text of the Indian official’s speech released by India’s Press Information Bureau. Dell denied that account and the Web site for the Press Information Bureau, where releases of Singh’s speeches are posted, no longer has a copy of the remarks.
“There was no discussion concerning any change in how or from where Dell will source component parts for the computers it manufactures in Asia,” Minari Shah, a Dell spokeswoman, said in an e-mailed statement. Harish Khare, a media adviser to Singh, declined to comment.
Dell said it has no plans to abandon its partners in China. The company currently spends about $25 billion a year on components from suppliers there.
Companies besides Google have been reluctant to publicly criticize China, the world’s third-largest economy, over the country’s Internet policies and alleged human rights violations.
Biggest, Fastest
China accounted for more than 60 percent of all PCs shipped in the Asia-Pacific region last quarter, according to Gartner Inc. Shipments in that area climbed 44 percent, the fastest rate among the regions surveyed, according to the Stamford, Connecticut-based researcher.
Still, India has lured technology investments as companies tap into its well-educated workforce. Dell has a design center in Bangalore. In 2007, the company opened a manufacturing and distribution hub in Chennai, according to the company’s Web site.
Rival Hewlett-Packard Co. also operates a research lab in Bangalore, as does Microsoft Corp., which opened a research lab and software development center there in 2004.
Cisco Systems Inc., the biggest network-equipment maker, said earlier this month that it plans to boost its workforce in India faster than anywhere else to meet surging data traffic. CEO John Chambers said the number of employees is projected to rise to 10,000 from about 6,000 today, though he didn’t specify a timeframe for the expansion.
Not Zero-Sum
Dell should consider expanding manufacturing in India since it is a key market for its products, said Ashok Kumar, an analyst at Northeast Securities Inc. in New York. He doesn’t own any Dell shares.
“India and China both see themselves as competitors for this economic opportunity, so it doesn’t have to be a zero-sum game,” Kumar said. “By sourcing and having larger manufacturing in India, they’re better positioned to service the local market.”
Dell, based in Round Rock, Texas, fell 12 cents to $14.87 in Nasdaq Stock Market trading yesterday. The shares have climbed 3.6 percent this year.
India and China are two of the fastest-growing markets for Dell, which has been working to revive sales and profit after losing top rankings in the PC market to Hewlett-Packard and Acer Inc. over the past three years.
Sales in India were about $1 billion, or 2 percent of Dell’s total revenue. Dell is No. 2 in that market with a 13.6 percent share in the fourth quarter, according to researcher IDC, compared with Hewlett-Packard’s 16.2 percent.
The remarks came this week during a discussion with Singh about ways to boost hardware manufacturing in India, Dell spokesman David Frink said in an interview. The company denied an account of the discussion by Singh, who said Dell may be looking for a “safer environment” than China.
“With the right kind of progress, Mr. Dell said that he believes India also has an opportunity to become a hardware manufacturing hub, generating employment and adding to that country’s impressive growth,” Frink said.
India, Asia’s third-largest economy, needs to spend $1 trillion on roads, ports, power and other infrastructure between 2012 and 2017 to help accelerate economic growth to 10 percent and cut poverty, Singh said this week. Getting computer makers like Dell to invest in India rather than China is “an area where there are immense opportunities,” Singh said in a March 23 speech to members of India’s Planning Commission.
Singh and Dell met a day after Google Inc. started routing China-based users to an unfiltered search service on its Hong Kong site. The move capped a standoff between China and Google, which in January said hackers in China stole data and targeted the e-mail accounts of human-rights activists.
‘Safer Environment’
Singh later said Dell was considering shifting purchasing of components from China to a “safer environment,” according to the text of the Indian official’s speech released by India’s Press Information Bureau. Dell denied that account and the Web site for the Press Information Bureau, where releases of Singh’s speeches are posted, no longer has a copy of the remarks.
“There was no discussion concerning any change in how or from where Dell will source component parts for the computers it manufactures in Asia,” Minari Shah, a Dell spokeswoman, said in an e-mailed statement. Harish Khare, a media adviser to Singh, declined to comment.
Dell said it has no plans to abandon its partners in China. The company currently spends about $25 billion a year on components from suppliers there.
Companies besides Google have been reluctant to publicly criticize China, the world’s third-largest economy, over the country’s Internet policies and alleged human rights violations.
Biggest, Fastest
China accounted for more than 60 percent of all PCs shipped in the Asia-Pacific region last quarter, according to Gartner Inc. Shipments in that area climbed 44 percent, the fastest rate among the regions surveyed, according to the Stamford, Connecticut-based researcher.
Still, India has lured technology investments as companies tap into its well-educated workforce. Dell has a design center in Bangalore. In 2007, the company opened a manufacturing and distribution hub in Chennai, according to the company’s Web site.
Rival Hewlett-Packard Co. also operates a research lab in Bangalore, as does Microsoft Corp., which opened a research lab and software development center there in 2004.
Cisco Systems Inc., the biggest network-equipment maker, said earlier this month that it plans to boost its workforce in India faster than anywhere else to meet surging data traffic. CEO John Chambers said the number of employees is projected to rise to 10,000 from about 6,000 today, though he didn’t specify a timeframe for the expansion.
Not Zero-Sum
Dell should consider expanding manufacturing in India since it is a key market for its products, said Ashok Kumar, an analyst at Northeast Securities Inc. in New York. He doesn’t own any Dell shares.
“India and China both see themselves as competitors for this economic opportunity, so it doesn’t have to be a zero-sum game,” Kumar said. “By sourcing and having larger manufacturing in India, they’re better positioned to service the local market.”
Dell, based in Round Rock, Texas, fell 12 cents to $14.87 in Nasdaq Stock Market trading yesterday. The shares have climbed 3.6 percent this year.
India and China are two of the fastest-growing markets for Dell, which has been working to revive sales and profit after losing top rankings in the PC market to Hewlett-Packard and Acer Inc. over the past three years.
Sales in India were about $1 billion, or 2 percent of Dell’s total revenue. Dell is No. 2 in that market with a 13.6 percent share in the fourth quarter, according to researcher IDC, compared with Hewlett-Packard’s 16.2 percent.
Wednesday, March 24, 2010
Billionaire Mittal’s Zain Deal Pits MTN Against Former Suitor
March 25 (Bloomberg) -- Sunil Bharti Mittal, the billionaire chairman of India’s largest mobile-phone company, spent millions of dollars and almost two years wooing MTN Group Ltd. for its Africa business. Now he’s picking a fight with them.
Mittal was thwarted twice while pursuing a $23 billion merger with Johannesburg-based MTN that would have created one of the five largest phone companies in the world. His Bharti Airtel Ltd. then courted Zain, offering $9 billion for the Kuwaiti mobile-phone company’s operations in 15 African countries in an effort to offset slowing profit growth at home.
Bharti may sign an agreement with Zain as early as this week, three people familiar with the negotiations said yesterday. If the deal goes through, Bharti and MTN will go from being potential partners to foes. Zain and MTN go head-to-head in five countries, including Nigeria, the largest African country by mobile-phone subscribers and population. MTN is No. 1 in Nigeria, followed by Zain.
“They’ve decided to venture into the forest on their own,” MTN Chief Executive Officer Phuthuma Nhleko said. “They would have been in a better position if we were holding their hand.”
Bharti had no choice. Bharti and MTN agreed on terms in September, yet opposition from South African authorities scuttled the deal. Reserve Bank Governor Tito Mboweni said Oct. 1 that MTN “must remain a South African company.”
Knowledge
Bharti and MTN learned much about each other during their two rounds of matchmaking. Each stage yielded thousands of pages of documents containing such details as vendor contracts, supplier pricing arrangements and the costs of installing and maintaining cell-phone towers.
Those papers, plus MTN’s $3.2 billion cash hoard and its experience in sub-Saharan Africa, portray MTN as a company Mittal may have been better off having on his side, said Taina Erajuuri of Helsinki-based Fim Asset Management.
“It’s difficult now for Bharti because MTN is such a superior company, and now they have to compete with them,” said Erajuuri, who helps manage $1.4 billion in emerging markets, including Indian equities. “MTN was the first choice, and it would have been the better buy.”
MTN has a $31 billion market capitalization, 28 percent operating margins, and expects to add 20 million subscribers in 2010 to its 116 million customer base, mostly in markets like Nigeria, Ghana and Iran. Profits of 14.7 billion rand ($2 billion) last year missed analyst estimates as the rand climbed 24 percent against the dollar.
MTN shares have gained 3.1 percent so far this year compared with a 6.7 percent decline for Bharti.
African Assets
Bharti also is buying operations that MTN once coveted. Nhleko was outbid by Zain, formerly known as Mobile Telecommunications Co., in 2006 for Celtel International BV. Zain paid $3.4 billion for Celtel, compared with MTN’s $2.7 billion bid. Zain bought companies in 13 African countries, all of which it is now selling to Bharti.
Zain’s board said Feb. 16 that Bharti’s offer could yield a $5 billion profit. It ends a seven-year African adventure for the Kuwaiti firm in which it spent as much as $12 billion to win 42 million customers in an area stretching from the Atlantic Ocean to the Gulf of Aden. It only intermittently turned a profit.
Overseas expansion is the only way for Bharti to escape slowing profit growth in India, where price competition from 10 other players -- including Japan’s NTT DoCoMo Inc. and Newbury, England-based Vodafone Group Plc, the world’s largest mobile phone company by revenue -- pushed call rates below half-a-U.S. cent per minute.
121 Million Subscribers
Bharti’s 121 million subscribers, more than the combined populations of Spain and the United Kingdom, makes it India’s largest wireless provider, closely followed by Reliance Communications Ltd, which pursued a merger with MTN after Bharti’s talks failed the first time in May 2008. Price competition has meant that much of urban India already carries cell phones, while rural customers are more difficult to attract and service.
“Mittal wants to diversify and find new markets for future growth, and most of the growth is in the developing world,” said Kurt Hellstrom, former World Chief Executive for Ericsson AB and a Bharti board member in 2004-2009. “Africa is a place India understands.”
Bharti has limited overseas experience. It started operating in Sri Lanka in January 2009, and two months ago it paid $300 million for Warid Telecom, a 3-million-subscriber company based in Dhaka, Bangladesh.
MTN’s Span
By comparison, MTN operates in 21 different countries, each with its own regulatory conditions. More than 80 percent of its earnings come from outside its home market.
The company may spend as much as $10.4 billion through 2011 building phone towers, sponsoring the World Cup in South Africa this June and introducing a $20 cell phone, according to the African Alliance South Africa Securities Ltd., a Johannesburg- based research firm.
A third of that investment may be made in Nigeria, according to the report. That compares to the $1 billion a year that Mittal told analysts Feb. 25 he intends to spend on capital expenditures in all 15 countries annually.
“A lot depends on what Bharti will do,” said Brian Neilson, head of Johannesburg-based telecom research consultant BMI-Knowledge. “Even if Bharti invests aggressively, MTN will not take the challenge lying down.”
Mittal was thwarted twice while pursuing a $23 billion merger with Johannesburg-based MTN that would have created one of the five largest phone companies in the world. His Bharti Airtel Ltd. then courted Zain, offering $9 billion for the Kuwaiti mobile-phone company’s operations in 15 African countries in an effort to offset slowing profit growth at home.
Bharti may sign an agreement with Zain as early as this week, three people familiar with the negotiations said yesterday. If the deal goes through, Bharti and MTN will go from being potential partners to foes. Zain and MTN go head-to-head in five countries, including Nigeria, the largest African country by mobile-phone subscribers and population. MTN is No. 1 in Nigeria, followed by Zain.
“They’ve decided to venture into the forest on their own,” MTN Chief Executive Officer Phuthuma Nhleko said. “They would have been in a better position if we were holding their hand.”
Bharti had no choice. Bharti and MTN agreed on terms in September, yet opposition from South African authorities scuttled the deal. Reserve Bank Governor Tito Mboweni said Oct. 1 that MTN “must remain a South African company.”
Knowledge
Bharti and MTN learned much about each other during their two rounds of matchmaking. Each stage yielded thousands of pages of documents containing such details as vendor contracts, supplier pricing arrangements and the costs of installing and maintaining cell-phone towers.
Those papers, plus MTN’s $3.2 billion cash hoard and its experience in sub-Saharan Africa, portray MTN as a company Mittal may have been better off having on his side, said Taina Erajuuri of Helsinki-based Fim Asset Management.
“It’s difficult now for Bharti because MTN is such a superior company, and now they have to compete with them,” said Erajuuri, who helps manage $1.4 billion in emerging markets, including Indian equities. “MTN was the first choice, and it would have been the better buy.”
MTN has a $31 billion market capitalization, 28 percent operating margins, and expects to add 20 million subscribers in 2010 to its 116 million customer base, mostly in markets like Nigeria, Ghana and Iran. Profits of 14.7 billion rand ($2 billion) last year missed analyst estimates as the rand climbed 24 percent against the dollar.
MTN shares have gained 3.1 percent so far this year compared with a 6.7 percent decline for Bharti.
African Assets
Bharti also is buying operations that MTN once coveted. Nhleko was outbid by Zain, formerly known as Mobile Telecommunications Co., in 2006 for Celtel International BV. Zain paid $3.4 billion for Celtel, compared with MTN’s $2.7 billion bid. Zain bought companies in 13 African countries, all of which it is now selling to Bharti.
Zain’s board said Feb. 16 that Bharti’s offer could yield a $5 billion profit. It ends a seven-year African adventure for the Kuwaiti firm in which it spent as much as $12 billion to win 42 million customers in an area stretching from the Atlantic Ocean to the Gulf of Aden. It only intermittently turned a profit.
Overseas expansion is the only way for Bharti to escape slowing profit growth in India, where price competition from 10 other players -- including Japan’s NTT DoCoMo Inc. and Newbury, England-based Vodafone Group Plc, the world’s largest mobile phone company by revenue -- pushed call rates below half-a-U.S. cent per minute.
121 Million Subscribers
Bharti’s 121 million subscribers, more than the combined populations of Spain and the United Kingdom, makes it India’s largest wireless provider, closely followed by Reliance Communications Ltd, which pursued a merger with MTN after Bharti’s talks failed the first time in May 2008. Price competition has meant that much of urban India already carries cell phones, while rural customers are more difficult to attract and service.
“Mittal wants to diversify and find new markets for future growth, and most of the growth is in the developing world,” said Kurt Hellstrom, former World Chief Executive for Ericsson AB and a Bharti board member in 2004-2009. “Africa is a place India understands.”
Bharti has limited overseas experience. It started operating in Sri Lanka in January 2009, and two months ago it paid $300 million for Warid Telecom, a 3-million-subscriber company based in Dhaka, Bangladesh.
MTN’s Span
By comparison, MTN operates in 21 different countries, each with its own regulatory conditions. More than 80 percent of its earnings come from outside its home market.
The company may spend as much as $10.4 billion through 2011 building phone towers, sponsoring the World Cup in South Africa this June and introducing a $20 cell phone, according to the African Alliance South Africa Securities Ltd., a Johannesburg- based research firm.
A third of that investment may be made in Nigeria, according to the report. That compares to the $1 billion a year that Mittal told analysts Feb. 25 he intends to spend on capital expenditures in all 15 countries annually.
“A lot depends on what Bharti will do,” said Brian Neilson, head of Johannesburg-based telecom research consultant BMI-Knowledge. “Even if Bharti invests aggressively, MTN will not take the challenge lying down.”
Corporate Scorecard Gets Australian Ratings License
Corporate Scorecard is paid by clients such as governments, companies and investors to assess the risk of counterparties, rather than by issuers to rate the securities they are selling, according to an e-mailed statement.
“Whether it’s a wholesale investor looking at a particular issuer, or a government department assessing a particular company, they are our client and so the remuneration line for us is direct to them,” said Walters. “Therefore, we don’t have that inherent conflict of interest of being paid by the issuer.”
Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have been criticized by investors and lawmakers including U.S. Senate Banking Committee Chairman Christopher Dodd, who has said the companies wrongly assigned top credit rankings to U.S. subprime-mortgage bonds. The companies have said their assessments are opinions, shielded from litigation under the First Amendment of the U.S. Constitution.
Corporate Scorecard may seek a retail license in the future, which would allow the firm to provide its ratings to the public, Walters said.
“Whether it’s a wholesale investor looking at a particular issuer, or a government department assessing a particular company, they are our client and so the remuneration line for us is direct to them,” said Walters. “Therefore, we don’t have that inherent conflict of interest of being paid by the issuer.”
Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have been criticized by investors and lawmakers including U.S. Senate Banking Committee Chairman Christopher Dodd, who has said the companies wrongly assigned top credit rankings to U.S. subprime-mortgage bonds. The companies have said their assessments are opinions, shielded from litigation under the First Amendment of the U.S. Constitution.
Corporate Scorecard may seek a retail license in the future, which would allow the firm to provide its ratings to the public, Walters said.
Tuesday, March 23, 2010
Japan’s Export Growth Accelerates to 45.3% on Asia
March 24 (Bloomberg) -- Japan’s export growth accelerated to 45.3 percent in February, led by Asian demand that increased the likelihood the economic recovery will be sustained.
The year-on-year increase was faster than January’s 40.8 percent, the Finance Ministry said today in Tokyo. The median estimate of 17 economists surveyed by Bloomberg News was for a 45.7 percent gain.
More than $2 trillion in worldwide public spending has revived global trade, fueling sales for exporters from Komatsu Ltd. to Mitsubishi Electric Corp. The increase in shipments abroad is improving corporate profits, easing concern domestic demand will slow as the effects of government incentives to buy energy-efficient cars and home appliances wear off.
“Exports are recovering steadily on the back of a pickup in the global economy,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, said before the report. “Japan’s economy will likely maintain the recovery trend, led by an increase in exports, even as household spending and public investment are expected to slow.”
Imports climbed 29.5 percent in February from a year earlier, resulting in a trade surplus of 651 billion yen ($7.2 billion). The median estimate of 22 analysts surveyed was for 560.6 billion yen.
The yen traded at 90.38 against the dollar at 8:55 a.m. in Tokyo, compared with 90.40 before the report was released. Exports fell a seasonally adjusted 1.7 percent from January.
Favorable Comparison
The surge in exports was partly due to a favorable year- on-year comparison. In February 2009, shipments abroad tumbled a record 49.4 percent as global trade froze following the collapse of Lehman Brothers Holdings Inc. five months earlier.
The rebound was driven by Asia, especially China, Japan’s largest overseas customer. China’s economy may grow 9.9 percent in 2010, accelerating from 8.7 percent last year, according to a Bloomberg News survey released this month.
Mitsubishi Electric yesterday forecast net income of 25 billion yen in the year ending March 31, reversing its previous estimate for a 20 billion yen loss. The maker of consumer electronics and assembly-line machinery cited increased demand from Asia, global government stimulus measures and cost cuts.
Komatsu’s Sales
Komatsu, the world’s second-biggest maker of large dump trucks and excavators, expects sales in China to climb between 40 percent and 50 percent in the year starting April 1, Kazuhiko Iwata, president of the company’s mining division, said this month.
Recent reports show the export-led recovery is spreading to the domestic economy. The unemployment rate fell to a 10- month low of 4.9 percent in January, bolstering consumer confidence. Service demand rose the most in more than a decade.
The Japanese government last week raised its assessment of the economy for the first time in eight months, saying the recovery is beginning to spur corporate earnings, home building and consumer spending.
Some Bank of Japan board members said they had “shifted slightly upward” their view of the economy because of exports to Asia, February meeting minutes showed yesterday.
Still, the rebound hasn’t been fast enough to shake off deflation, which is squeezing profit margins and discouraging spending. The central bank last week doubled a credit program to 20 trillion yen to help spur consumer prices that have fallen for 11 consecutive months.
“Weak demand is being reflected in continuing price declines,” said Chiwoong Lee, a senior economist at Goldman Sachs Group Inc. in Tokyo. “With the exception of consumer durables, which have support from fiscal policies such as eco points, consumption is lackluster and exerting downward pressure on prices.”
The year-on-year increase was faster than January’s 40.8 percent, the Finance Ministry said today in Tokyo. The median estimate of 17 economists surveyed by Bloomberg News was for a 45.7 percent gain.
More than $2 trillion in worldwide public spending has revived global trade, fueling sales for exporters from Komatsu Ltd. to Mitsubishi Electric Corp. The increase in shipments abroad is improving corporate profits, easing concern domestic demand will slow as the effects of government incentives to buy energy-efficient cars and home appliances wear off.
“Exports are recovering steadily on the back of a pickup in the global economy,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, said before the report. “Japan’s economy will likely maintain the recovery trend, led by an increase in exports, even as household spending and public investment are expected to slow.”
Imports climbed 29.5 percent in February from a year earlier, resulting in a trade surplus of 651 billion yen ($7.2 billion). The median estimate of 22 analysts surveyed was for 560.6 billion yen.
The yen traded at 90.38 against the dollar at 8:55 a.m. in Tokyo, compared with 90.40 before the report was released. Exports fell a seasonally adjusted 1.7 percent from January.
Favorable Comparison
The surge in exports was partly due to a favorable year- on-year comparison. In February 2009, shipments abroad tumbled a record 49.4 percent as global trade froze following the collapse of Lehman Brothers Holdings Inc. five months earlier.
The rebound was driven by Asia, especially China, Japan’s largest overseas customer. China’s economy may grow 9.9 percent in 2010, accelerating from 8.7 percent last year, according to a Bloomberg News survey released this month.
Mitsubishi Electric yesterday forecast net income of 25 billion yen in the year ending March 31, reversing its previous estimate for a 20 billion yen loss. The maker of consumer electronics and assembly-line machinery cited increased demand from Asia, global government stimulus measures and cost cuts.
Komatsu’s Sales
Komatsu, the world’s second-biggest maker of large dump trucks and excavators, expects sales in China to climb between 40 percent and 50 percent in the year starting April 1, Kazuhiko Iwata, president of the company’s mining division, said this month.
Recent reports show the export-led recovery is spreading to the domestic economy. The unemployment rate fell to a 10- month low of 4.9 percent in January, bolstering consumer confidence. Service demand rose the most in more than a decade.
The Japanese government last week raised its assessment of the economy for the first time in eight months, saying the recovery is beginning to spur corporate earnings, home building and consumer spending.
Some Bank of Japan board members said they had “shifted slightly upward” their view of the economy because of exports to Asia, February meeting minutes showed yesterday.
Still, the rebound hasn’t been fast enough to shake off deflation, which is squeezing profit margins and discouraging spending. The central bank last week doubled a credit program to 20 trillion yen to help spur consumer prices that have fallen for 11 consecutive months.
“Weak demand is being reflected in continuing price declines,” said Chiwoong Lee, a senior economist at Goldman Sachs Group Inc. in Tokyo. “With the exception of consumer durables, which have support from fiscal policies such as eco points, consumption is lackluster and exerting downward pressure on prices.”
Dai-ichi Raises $11 Billion in World’s Biggest IPO of 2010
March 24 (Bloomberg) -- Dai-ichi Mutual Life Insurance Co. will raise 1.01 trillion yen ($11 billion) in the world’s biggest initial public offering in two years after pricing the IPO at the middle of its forecast range.
Japan’s second-largest life insurer priced 7.2 million shares in the demutualization at 140,000 yen each, according to a statement posted on the company’s Web site yesterday.
The offering is the largest since San Francisco-based Visa Inc. sold $19.7 billion in March 2008 and comes after money raised from IPOs in Japan fell to the lowest level in at least two decades last year. The price may ensure that Dai-ichi gains when it’s listed on the Tokyo Stock Exchange April 1, according to Ichiyoshi Investment Management Co.’s Mitsushige Akino.
“Most Japanese investors probably expected it to be 155,000 yen so it’s quite cheap,” said Akino, who oversees $450 million as chief investment officer of Ichiyoshi in Tokyo. “It’s the best scenario, where the price will rise bit by bit, rather than a short-lived popularity.”
The IPO by Dai-ichi, which will change its name to Dai-ichi Life Insurance Co., is also the biggest in Japan since Tokyo- based NTT DoCoMo Inc. went public in 1998, Bloomberg data show.
Dai-ichi’s market capitalization will be equal to 0.56 times embedded value, or the sum of its net assets and the current value of future profits from existing policies. That’s more expensive than T&D Holdings Inc., Japan’s largest publicly listed life insurer, and cheaper than Sony Financial Holdings Inc., the insurance and banking unit of Tokyo-based Sony Corp., data compiled by Bloomberg show.
‘Reasonable’
“The pricing seems reasonable,” said Yoshihiro Ito, a senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $8 billion. “The question is how well it will do the on the first day of trading, given the prospect for life insurers in Japan.”
Dai-ichi is switching from mutual to stock-based ownership to expand fundraising options for acquisitions and partnerships as it grapples with an aging society and the slowest-growing economy in Asia.
Nomura Holdings Inc. and Mizuho Financial Group Inc. in Tokyo and Charlotte, North Carolina-based Bank of America Corp.’s Merrill Lynch unit were hired to manage the offering. New York-based Goldman Sachs Group Inc. was a global arranger.
Overallotment
Dai-ichi will have 10 million shares outstanding, 5 million of which were sold in Japan and 2.1 million overseas, according to the statement. The Tokyo-based company will issue 100,000 shares in an overallotment and another 2.9 million will be distributed to policyholders.
T&D Holdings of Tokyo has a market capitalization of 684.9 billion yen, or 0.47 times its embedded value, based on a sale document distributed by banks involved with the Dai-ichi offering. Tokyo-based Sony Financial has a ratio of 0.84.
Prudential Plc of London, the U.K.’s biggest insurer, paid 1.69 times the embedded value of New York-based American International Group Inc.’s Asian life insurance unit in its takeover announced this month.
Japanese companies had raised $490 million yen in six IPOs so far this year, compared with 15 U.S. deals totalling almost $3 billion, data compiled by Bloomberg show.
The Dai-ichi deal will make this year the biggest for Japanese IPOs since 2006, when companies raised 2.14 trillion yen, Bloomberg data show. Sales sank to 56 billion yen last year as the collapse of New York-based Lehman Brothers Holdings Inc. froze credit markets and the Topix index posted the worst performance in the world’s 20 biggest equity markets.
Acquisitions
Dai-ichi, which had 8.2 million policyholders as of March 2009, will use proceeds of the sale to convert to stock-based ownership from policy-based mutual ownership. The switch will expand fundraising options for acquisitions and partnerships as the population declines, the company told policyholders in June.
Japan’s life insurers are struggling for new customers after the first global recession since World War II. The nation’s economy will grow less than 2 percent annually through at least 2012 after contracting 1.2 percent in 2008 and 5.2 percent last year, estimates compiled by Bloomberg show.
That compares with growth of 9.6 percent projected for China this year, while gross domestic product in the U.S. will rise at least 3 percent annually from 2010 to 2012, the estimates show.
Almost 23 percent of Japan’s 126 million people will be older than 65 this year, compared with 13 percent in the U.S., data compiled by Bloomberg show. Japan is the world’s oldest society, with a median age of 44, according to the United Nations’ World Population Ageing 2009 report.
Japan’s second-largest life insurer priced 7.2 million shares in the demutualization at 140,000 yen each, according to a statement posted on the company’s Web site yesterday.
The offering is the largest since San Francisco-based Visa Inc. sold $19.7 billion in March 2008 and comes after money raised from IPOs in Japan fell to the lowest level in at least two decades last year. The price may ensure that Dai-ichi gains when it’s listed on the Tokyo Stock Exchange April 1, according to Ichiyoshi Investment Management Co.’s Mitsushige Akino.
“Most Japanese investors probably expected it to be 155,000 yen so it’s quite cheap,” said Akino, who oversees $450 million as chief investment officer of Ichiyoshi in Tokyo. “It’s the best scenario, where the price will rise bit by bit, rather than a short-lived popularity.”
The IPO by Dai-ichi, which will change its name to Dai-ichi Life Insurance Co., is also the biggest in Japan since Tokyo- based NTT DoCoMo Inc. went public in 1998, Bloomberg data show.
Dai-ichi’s market capitalization will be equal to 0.56 times embedded value, or the sum of its net assets and the current value of future profits from existing policies. That’s more expensive than T&D Holdings Inc., Japan’s largest publicly listed life insurer, and cheaper than Sony Financial Holdings Inc., the insurance and banking unit of Tokyo-based Sony Corp., data compiled by Bloomberg show.
‘Reasonable’
“The pricing seems reasonable,” said Yoshihiro Ito, a senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $8 billion. “The question is how well it will do the on the first day of trading, given the prospect for life insurers in Japan.”
Dai-ichi is switching from mutual to stock-based ownership to expand fundraising options for acquisitions and partnerships as it grapples with an aging society and the slowest-growing economy in Asia.
Nomura Holdings Inc. and Mizuho Financial Group Inc. in Tokyo and Charlotte, North Carolina-based Bank of America Corp.’s Merrill Lynch unit were hired to manage the offering. New York-based Goldman Sachs Group Inc. was a global arranger.
Overallotment
Dai-ichi will have 10 million shares outstanding, 5 million of which were sold in Japan and 2.1 million overseas, according to the statement. The Tokyo-based company will issue 100,000 shares in an overallotment and another 2.9 million will be distributed to policyholders.
T&D Holdings of Tokyo has a market capitalization of 684.9 billion yen, or 0.47 times its embedded value, based on a sale document distributed by banks involved with the Dai-ichi offering. Tokyo-based Sony Financial has a ratio of 0.84.
Prudential Plc of London, the U.K.’s biggest insurer, paid 1.69 times the embedded value of New York-based American International Group Inc.’s Asian life insurance unit in its takeover announced this month.
Japanese companies had raised $490 million yen in six IPOs so far this year, compared with 15 U.S. deals totalling almost $3 billion, data compiled by Bloomberg show.
The Dai-ichi deal will make this year the biggest for Japanese IPOs since 2006, when companies raised 2.14 trillion yen, Bloomberg data show. Sales sank to 56 billion yen last year as the collapse of New York-based Lehman Brothers Holdings Inc. froze credit markets and the Topix index posted the worst performance in the world’s 20 biggest equity markets.
Acquisitions
Dai-ichi, which had 8.2 million policyholders as of March 2009, will use proceeds of the sale to convert to stock-based ownership from policy-based mutual ownership. The switch will expand fundraising options for acquisitions and partnerships as the population declines, the company told policyholders in June.
Japan’s life insurers are struggling for new customers after the first global recession since World War II. The nation’s economy will grow less than 2 percent annually through at least 2012 after contracting 1.2 percent in 2008 and 5.2 percent last year, estimates compiled by Bloomberg show.
That compares with growth of 9.6 percent projected for China this year, while gross domestic product in the U.S. will rise at least 3 percent annually from 2010 to 2012, the estimates show.
Almost 23 percent of Japan’s 126 million people will be older than 65 this year, compared with 13 percent in the U.S., data compiled by Bloomberg show. Japan is the world’s oldest society, with a median age of 44, according to the United Nations’ World Population Ageing 2009 report.
Monday, March 22, 2010
India ADRs Gain on Speculation Rate Increase Tumble ‘Overdone’
March 23 (Bloomberg) -- Indian companies’ American depositary receipts rebounded from their biggest drop in six weeks on speculation the declines sparked by the central bank’s surprise interest rate increase were overdone.
The Bank of New York Mellon India ADR Index climbed 1.3 percent to 1,112.65 yesterday in New York. The gauge retreated 1.8 percent on March 19 after India’s central bank unexpectedly raised interest rates for the first time since July 2008. The decision was announced after the close of trading in Mumbai. India’s benchmark Sensex Index fell 1 percent yesterday.
“The ADRs fell too much on Friday, there was an overreaction to the rate hike,” said Greg Lesko, who helps manage $750 million at Deltec Asset Management in New York.
U.S.-traded shares of ICICI Bank Ltd., the country’s second-biggest lender, added 0.9 percent to $41.33 after dropping 3.8 percent at the end of last week. Infosys Technologies Ltd., India’s second-largest software exporter, increased 1.5 percent to $61.59 after retreating 1.7 percent.
“India is recovering faster than expected, so this should be taken as a positive indication of the health of the Indian economy,” said Vikas Pershad, the Chicago-based chief executive officer of Veda Investments LLC. “The initial reaction in certain stocks like ICICI Bank Ltd.’s ADRs is overdone.”
The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, according to a statement in Mumbai. The decision came a month before the bank’s scheduled monetary policy meeting.
The Bank of New York Mellon India ADR Index climbed 1.3 percent to 1,112.65 yesterday in New York. The gauge retreated 1.8 percent on March 19 after India’s central bank unexpectedly raised interest rates for the first time since July 2008. The decision was announced after the close of trading in Mumbai. India’s benchmark Sensex Index fell 1 percent yesterday.
“The ADRs fell too much on Friday, there was an overreaction to the rate hike,” said Greg Lesko, who helps manage $750 million at Deltec Asset Management in New York.
U.S.-traded shares of ICICI Bank Ltd., the country’s second-biggest lender, added 0.9 percent to $41.33 after dropping 3.8 percent at the end of last week. Infosys Technologies Ltd., India’s second-largest software exporter, increased 1.5 percent to $61.59 after retreating 1.7 percent.
“India is recovering faster than expected, so this should be taken as a positive indication of the health of the Indian economy,” said Vikas Pershad, the Chicago-based chief executive officer of Veda Investments LLC. “The initial reaction in certain stocks like ICICI Bank Ltd.’s ADRs is overdone.”
The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, according to a statement in Mumbai. The decision came a month before the bank’s scheduled monetary policy meeting.
Bank of Japan Members Split on Economic Outlook, Minutes Show
March 23 (Bloomberg) -- Bank of Japan board members were divided on their views of the economy at their February meeting, reflecting signs of a sustained recovery at the same time as declines in consumer prices were deepening.
“Some members were of the view that upside and downside risks were becoming balanced” while others noted “considerable downside risks to the economy,” minutes of the Feb. 17-18 meeting released today in Tokyo show.
The minutes reflect divisions among a policy board that last week voted 5-2 in favor of expanding a credit program to 20 trillion yen ($222 billion) to prop up economic growth and combat deflation. Prime Minister Yukio Hatoyama applauded the move as he seeks to shore up the recovery ahead of a July upper-house election.
“The BOJ’s latest measure was apparently prompted by political pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The bank can at least avoid any criticism that it’s passive in easing policy, though the measure’s impact on the economy will be limited.”
One of the members who focused on the risks to growth in February “said that the economy would remain highly vulnerable to negative shocks, particularly until around summer 2010, and this warranted attention,” the minutes show.
Some members said the central bank should “act swiftly and decisively” when necessary, particularly as companies had “come to attach their expectations to monetary policy,” according to the minutes. A few said record declines in consumer prices excluding food and energy showed deflation may be “becoming widespread.”
View as Easing
Governor Masaaki Shirakawa said after last week’s meeting that the expansion of the credit program, introduced in December, can be viewed as monetary easing. He also said the economy is improving a bit more than the bank has expected, while adding that it will take time before prices stop falling.
Government officials including Finance Minister Naoto Kan had urged the central bank to do more to stamp out deflation as the government’s ability to explore fiscal stimulus is stymied by public debt approaching twice the size of the economy. The government raised its evaluation of the economy last week for the first time in eight months.
Consumer prices excluding fresh food decreased 1.3 percent in January from a year earlier, an 11th straight drop, and the central bank has said the pace of those declines will moderate as demand picks up. Prices excluding food and energy slid 1.2 percent, matching a record.
“Some members were of the view that upside and downside risks were becoming balanced” while others noted “considerable downside risks to the economy,” minutes of the Feb. 17-18 meeting released today in Tokyo show.
The minutes reflect divisions among a policy board that last week voted 5-2 in favor of expanding a credit program to 20 trillion yen ($222 billion) to prop up economic growth and combat deflation. Prime Minister Yukio Hatoyama applauded the move as he seeks to shore up the recovery ahead of a July upper-house election.
“The BOJ’s latest measure was apparently prompted by political pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The bank can at least avoid any criticism that it’s passive in easing policy, though the measure’s impact on the economy will be limited.”
One of the members who focused on the risks to growth in February “said that the economy would remain highly vulnerable to negative shocks, particularly until around summer 2010, and this warranted attention,” the minutes show.
Some members said the central bank should “act swiftly and decisively” when necessary, particularly as companies had “come to attach their expectations to monetary policy,” according to the minutes. A few said record declines in consumer prices excluding food and energy showed deflation may be “becoming widespread.”
View as Easing
Governor Masaaki Shirakawa said after last week’s meeting that the expansion of the credit program, introduced in December, can be viewed as monetary easing. He also said the economy is improving a bit more than the bank has expected, while adding that it will take time before prices stop falling.
Government officials including Finance Minister Naoto Kan had urged the central bank to do more to stamp out deflation as the government’s ability to explore fiscal stimulus is stymied by public debt approaching twice the size of the economy. The government raised its evaluation of the economy last week for the first time in eight months.
Consumer prices excluding fresh food decreased 1.3 percent in January from a year earlier, an 11th straight drop, and the central bank has said the pace of those declines will moderate as demand picks up. Prices excluding food and energy slid 1.2 percent, matching a record.
Sunday, March 21, 2010
India Rate Rise to Hurt Priciest BRIC Stocks, Boost Rupee
March 22 (Bloomberg) -- Indian stocks, the most expensive in the largest emerging markets, may fall as a surprise interest rate increase hurts financial and consumer shares, while the rupee is poised to extend gains, EM Capital Management LLC and Prudential Financial Inc. said.
SGX S&P CNX Nifty futures for March delivery dropped 1.5 percent as of 9:55 a.m. in Singapore today. The Bank of New York Mellon India ADR Index, which tracks U.S.-traded shares, fell the most in six weeks on March 19 after the central bank raised the reverse repurchase rate to curb inflation.
The benchmark Sensex stock index may drop 200 points in a “knee-jerk reaction” today, according to CNI Research (India) Ltd. Speculation that countries from China to Brazil will raise borrowing costs next may hurt demand for shares in other developing nations as well, according to Prudential. The MSCI Emerging Markets Index climbed 0.4 percent this year, less than half the gain of the MSCI World Index.
“We expect the impact of this rate hike to be relatively bigger on India and other emerging-market stocks,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, a unit of Prudential Financial Inc., which oversees $667 billion. “The start of the interest-rate normalization in India is likely to fuel fears of early rate hikes in China, Brazil and other emerging markets.”
Bond Gains
The Sensex has advanced 96 percent in the past year to 17,578.23 and the rupee rose 11 percent. Benchmark Indian bonds climbed 16 percent over the same period, according to JPMorgan Chase & Co. data. The gains made India the third-best performing stock, bond and currency market in Asia.
The advance in shares drove Sensex’s valuations to 21.4 times estimated earnings, almost three times the 7.9 multiple in November 2008. That’s the most expensive among the BRICs and also in Asia excluding Japan, data compiled by Bloomberg show.
“Predictions are that Indian stocks will slide when the market opens,” said Seth Freeman, chief executive officer of San Francisco-based EM Capital.
Freeman, whose 159 percent return in Indian stocks over the past year beat 96 percent of 420 funds investing in the nation’s equities, said banks, developers and some consumer stocks such as automakers may be affected by the rate increase. “Better buys” in the market include Financial Technologies (India) Ltd., operator of a commodities exchange, and Fortis Healthcare Ltd., which runs a chain of hospitals, he said.
Containing Inflation
The Reserve Bank of India’s decision to raise the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent came a month before its scheduled monetary policy meeting. Policy makers said containing inflation has become “imperative” after the wholesale-price inflation rate reached a 16-month high of 9.89 percent last month.
The central bank will probably raise interest rates again next month as the first increase in two years is only the initial step in the battle against inflation, BNP Paribas SA and Standard Chartered Plc said.
China raised the amount banks need to set aside as reserves two times this year, while Malaysia and Vietnam increased lending rates as inflation accelerates. Brazil’s central bank kept its benchmark interest rate at a record low this month in a less-than-unanimous decision, signaling that borrowing costs may rise as soon as April.
‘Fully Valued’
The Indian stock market is “fully valued,” said Sanjeev Prasad, an executive director at Kotak Securities Ltd. who is India’s top-ranked analyst in the past four years in Asiamoney polls. He said automakers and developers will be hurt most by an expected 2 percentage point rate increase in the fiscal year starting April 1. State-run banks may also have to write down the value of investments, he said.
SBI Funds Management Ltd., a unit of the nation’s biggest bank, predicts the yield on India’s benchmark 10-year bonds will peak at between 8.25 percent and 8.50 percent from 7.83 percent, providing an opportunity to lock in relatively high yields.
“If one takes a long-term call, these levels should be good to accumulate as it would provide an adequate cushion against inflation,” SBI Funds Chief Investment Officer Navneet Munot said in an interview. “The long-term inflationary expectations are getting anchored around 5 percent.”
Foreign Buying
Foreigners more than doubled holdings of Indian debt this fiscal year, raising total ownership to an all-time high of $11.2 billion on March 18, to benefit from the rising yields on the nation’s assets. Outstanding overseas investment in stocks also climbed to a record $76 billion on the same day.
“The rate hike is proof that the economy is doing very well and I would draw some comfort from that,” said Krishnamurthy Harihar, treasurer at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services company. He predicts the rupee may rise as much as 2.2 percent to 44.50 by June on increased foreign inflows and a cooling in food-price inflation.
Prudential’s Praveen, who said the higher borrowing costs won’t “choke” the economic recovery, expects the rupee to rise as the U.S. Federal Reserve keeps lending rates low. India’s $1.2 trillion economy, Asia’s biggest after Japan and China, is expected to expand 8.2 percent in the next fiscal year, compared with 7.2 percent in the year to March 31, the Finance Ministry said in February.
Opposition parties repeatedly stalled proceedings in parliament this month and accused Prime Minister Manmohan Singh’s government of being anti-poor and failing to curb prices. The World Bank estimates three-quarters of the nation’s 1.2 billion people live on less than $2 a day.
The rate increase underscores the “seriousness of the inflation problem,” said Jagannadham Thunuguntla, chief strategist at SMC Capitals Ltd., the investment banking arm of SMC Group in New Delhi. “Investors can surely liquidate half of their portfolios.”
SGX S&P CNX Nifty futures for March delivery dropped 1.5 percent as of 9:55 a.m. in Singapore today. The Bank of New York Mellon India ADR Index, which tracks U.S.-traded shares, fell the most in six weeks on March 19 after the central bank raised the reverse repurchase rate to curb inflation.
The benchmark Sensex stock index may drop 200 points in a “knee-jerk reaction” today, according to CNI Research (India) Ltd. Speculation that countries from China to Brazil will raise borrowing costs next may hurt demand for shares in other developing nations as well, according to Prudential. The MSCI Emerging Markets Index climbed 0.4 percent this year, less than half the gain of the MSCI World Index.
“We expect the impact of this rate hike to be relatively bigger on India and other emerging-market stocks,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, a unit of Prudential Financial Inc., which oversees $667 billion. “The start of the interest-rate normalization in India is likely to fuel fears of early rate hikes in China, Brazil and other emerging markets.”
Bond Gains
The Sensex has advanced 96 percent in the past year to 17,578.23 and the rupee rose 11 percent. Benchmark Indian bonds climbed 16 percent over the same period, according to JPMorgan Chase & Co. data. The gains made India the third-best performing stock, bond and currency market in Asia.
The advance in shares drove Sensex’s valuations to 21.4 times estimated earnings, almost three times the 7.9 multiple in November 2008. That’s the most expensive among the BRICs and also in Asia excluding Japan, data compiled by Bloomberg show.
“Predictions are that Indian stocks will slide when the market opens,” said Seth Freeman, chief executive officer of San Francisco-based EM Capital.
Freeman, whose 159 percent return in Indian stocks over the past year beat 96 percent of 420 funds investing in the nation’s equities, said banks, developers and some consumer stocks such as automakers may be affected by the rate increase. “Better buys” in the market include Financial Technologies (India) Ltd., operator of a commodities exchange, and Fortis Healthcare Ltd., which runs a chain of hospitals, he said.
Containing Inflation
The Reserve Bank of India’s decision to raise the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent came a month before its scheduled monetary policy meeting. Policy makers said containing inflation has become “imperative” after the wholesale-price inflation rate reached a 16-month high of 9.89 percent last month.
The central bank will probably raise interest rates again next month as the first increase in two years is only the initial step in the battle against inflation, BNP Paribas SA and Standard Chartered Plc said.
China raised the amount banks need to set aside as reserves two times this year, while Malaysia and Vietnam increased lending rates as inflation accelerates. Brazil’s central bank kept its benchmark interest rate at a record low this month in a less-than-unanimous decision, signaling that borrowing costs may rise as soon as April.
‘Fully Valued’
The Indian stock market is “fully valued,” said Sanjeev Prasad, an executive director at Kotak Securities Ltd. who is India’s top-ranked analyst in the past four years in Asiamoney polls. He said automakers and developers will be hurt most by an expected 2 percentage point rate increase in the fiscal year starting April 1. State-run banks may also have to write down the value of investments, he said.
SBI Funds Management Ltd., a unit of the nation’s biggest bank, predicts the yield on India’s benchmark 10-year bonds will peak at between 8.25 percent and 8.50 percent from 7.83 percent, providing an opportunity to lock in relatively high yields.
“If one takes a long-term call, these levels should be good to accumulate as it would provide an adequate cushion against inflation,” SBI Funds Chief Investment Officer Navneet Munot said in an interview. “The long-term inflationary expectations are getting anchored around 5 percent.”
Foreign Buying
Foreigners more than doubled holdings of Indian debt this fiscal year, raising total ownership to an all-time high of $11.2 billion on March 18, to benefit from the rising yields on the nation’s assets. Outstanding overseas investment in stocks also climbed to a record $76 billion on the same day.
“The rate hike is proof that the economy is doing very well and I would draw some comfort from that,” said Krishnamurthy Harihar, treasurer at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services company. He predicts the rupee may rise as much as 2.2 percent to 44.50 by June on increased foreign inflows and a cooling in food-price inflation.
Prudential’s Praveen, who said the higher borrowing costs won’t “choke” the economic recovery, expects the rupee to rise as the U.S. Federal Reserve keeps lending rates low. India’s $1.2 trillion economy, Asia’s biggest after Japan and China, is expected to expand 8.2 percent in the next fiscal year, compared with 7.2 percent in the year to March 31, the Finance Ministry said in February.
Opposition parties repeatedly stalled proceedings in parliament this month and accused Prime Minister Manmohan Singh’s government of being anti-poor and failing to curb prices. The World Bank estimates three-quarters of the nation’s 1.2 billion people live on less than $2 a day.
The rate increase underscores the “seriousness of the inflation problem,” said Jagannadham Thunuguntla, chief strategist at SMC Capitals Ltd., the investment banking arm of SMC Group in New Delhi. “Investors can surely liquidate half of their portfolios.”
House Approves Landmark Bill to Extend Health Care to Millions
WASHINGTON — Congress gave final approval on Sunday to legislation that would provide medical coverage to tens of millions of uninsured Americans and remake the nation’s health care system along the lines proposed by President Obama.
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Times Topic: Health Care Reform
Stephen Crowley/The New York Times
Representative Bart Stupak of Michigan said that anti-abortion Democrats were satisfied with a proposed executive order “to ensure that federal funds are not used for abortion services.”
By a vote of 219 to 212, the House passed the bill after a day of tumultuous debate that echoed the epic struggle of the last year. The action sent the bill to President Obama, whose crusade for such legislation has been a hallmark of his presidency.
Democrats hailed the vote as historic, comparable to the establishment of Medicare and Social Security and a long overdue step forward in social justice. “This is the civil rights act of the 21st century,” said Representative James E. Clyburn of South Carolina, the No. 3 Democrat in the House.
After a year of partisan combat and weeks of legislative brinksmanship, House Democrats and the White House clinched their victory only hours before the voting started on Sunday. They agreed to a deal with opponents of abortion rights within their party to reiterate in an executive order that federal money provided by the bill could not be used for abortions, giving the Democrats the final votes. Democrats said that in expanding access to health coverage for uninsured Americans, they were creating a new program every bit as important as Social Security and Medicare, while also putting downward pressure on rising health care costs and reining in federal budget deficits.
Republicans said the plan would saddle the nation with unaffordable levels of debt, leave states with expensive new obligations, weaken Medicare and give the government a huge new role in the health care system.
The debate on the legislation has highlighted the deep partisan and ideological divides in the nation and set up a bitter midterm Congressional election campaign, with Republicans promising an effort to repeal it or block its provisions in the states.
Representative Marcy Kaptur, Democrat of Ohio, said the bill heralded “a new day in America.” Representative Doris Matsui, Democrat of California, said it would “improve the quality of life for millions of American families.”
But Representative Paul D. Ryan, Republican of Wisconsin, denounced the bill as “a fiscal Frankenstein.” Representative Lincoln Diaz-Balart, Republican of Florida, called it “a decisive step in the weakening of the United States.” Representative Virginia Foxx, Republican of North Carolina, said it was “one of the most offensive pieces of social engineering legislation in the history of the United States.”
The passions swirling round the bill were evident Sunday on the sun-splashed lawn south of the Capitol. Hundreds of protesters chanted, “Kill the bill” and waved yellow flags declaring, “Don’t Tread on Me.” They carried signs saying, “Doctors, Not Dictators.”
The health care bill would require most Americans to have health insurance, would add 16 million people to the Medicaid rolls and would subsidize private coverage for low- and middle-income people, at a cost to the government of $938 billion over 10 years, the Congressional Budget Office said.
The bill would require many employers to offer coverage to employees or pay a penalty. Each state would set up a marketplace, or exchange, where consumers without such coverage could shop for insurance meeting federal standards.
The budget office estimates that the bill would provide coverage to 32 million uninsured people, but still leave 23 million uninsured in 2019. One-third of those remaining uninsured would be illegal immigrants.
The new costs, according to the budget office, would be more than offset by savings in Medicare and by new taxes and fees, including a tax on high-cost employer-sponsored health plans and a tax on the investment income of the most affluent Americans.
Cost estimates by the Congressional Budget Office, showing that the bill would reduce federal budget deficits by $143 billion in the next 10 years, persuaded some fiscally conservative Democrats that they should vote for the bill.
Democrats said Americans would embrace the bill when they saw its benefits, including some provisions that take effect later this year.
Health insurers, for example, could not deny coverage to children with medical problems or suddenly drop coverage for people who become ill. Insurers must allow children to stay on their parents’ policies up to their 26th birthday. Small businesses could obtain tax credits to help them buy insurance.
The Democratic effort to secure the 216 votes needed for passage of the legislation came together only after last-minute negotiations involving the White House, the House leadership and a group of Democratic opponents of abortion rights, led by Representative Bart Stupak of Michigan. On Sunday afternoon, members of the group announced that they would support the legislation after Mr. Obama promised to issue an executive order to “ensure that federal funds are not used for abortion services.”
Mr. Stupak described the order as a significant guarantee that would “protect the sanctity of life in health care reform.” But supporters of abortion rights — and some opponents — said the order merely reaffirmed what was in the bill.
The procedural vote on Sunday, approving the terms of debate, had put the House on track to approve the health care bill that was passed by the Senate on Dec. 24, on a party-line vote. That bill will soon become the law of the land, the White House said.
House Democrats were also poised to pass a separate measure that would make significant changes and corrections to the Senate bill. That measure would go to the Senate, where the majority leader, Harry Reid, Democrat of Nevada, has promised to take it up in short order. Mr. Reid said he had the votes to pass it, though he faces resistance from Republicans.
The House galleries were full, and the floor was unusually crowded, for the historic debate on health care. Passage of the bill would be a triumph for Mr. Obama and Speaker Nancy Pelosi. Working together, they revived the legislation when it appeared dead after Democrats lost their 60th vote in the Senate and with it their ability to shut off Republican filibusters.
Republicans said they would use the outcome to bludgeon Democrats in this year’s Congressional elections. The White House is planning an intensive effort to convince people of the bill’s benefits. But if Democrats suffer substantial losses in November, Mr. Obama could be stymied on other issues, including his efforts to pass major energy and immigration bills.
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Times Topic: Health Care Reform
Stephen Crowley/The New York Times
Representative Bart Stupak of Michigan said that anti-abortion Democrats were satisfied with a proposed executive order “to ensure that federal funds are not used for abortion services.”
By a vote of 219 to 212, the House passed the bill after a day of tumultuous debate that echoed the epic struggle of the last year. The action sent the bill to President Obama, whose crusade for such legislation has been a hallmark of his presidency.
Democrats hailed the vote as historic, comparable to the establishment of Medicare and Social Security and a long overdue step forward in social justice. “This is the civil rights act of the 21st century,” said Representative James E. Clyburn of South Carolina, the No. 3 Democrat in the House.
After a year of partisan combat and weeks of legislative brinksmanship, House Democrats and the White House clinched their victory only hours before the voting started on Sunday. They agreed to a deal with opponents of abortion rights within their party to reiterate in an executive order that federal money provided by the bill could not be used for abortions, giving the Democrats the final votes. Democrats said that in expanding access to health coverage for uninsured Americans, they were creating a new program every bit as important as Social Security and Medicare, while also putting downward pressure on rising health care costs and reining in federal budget deficits.
Republicans said the plan would saddle the nation with unaffordable levels of debt, leave states with expensive new obligations, weaken Medicare and give the government a huge new role in the health care system.
The debate on the legislation has highlighted the deep partisan and ideological divides in the nation and set up a bitter midterm Congressional election campaign, with Republicans promising an effort to repeal it or block its provisions in the states.
Representative Marcy Kaptur, Democrat of Ohio, said the bill heralded “a new day in America.” Representative Doris Matsui, Democrat of California, said it would “improve the quality of life for millions of American families.”
But Representative Paul D. Ryan, Republican of Wisconsin, denounced the bill as “a fiscal Frankenstein.” Representative Lincoln Diaz-Balart, Republican of Florida, called it “a decisive step in the weakening of the United States.” Representative Virginia Foxx, Republican of North Carolina, said it was “one of the most offensive pieces of social engineering legislation in the history of the United States.”
The passions swirling round the bill were evident Sunday on the sun-splashed lawn south of the Capitol. Hundreds of protesters chanted, “Kill the bill” and waved yellow flags declaring, “Don’t Tread on Me.” They carried signs saying, “Doctors, Not Dictators.”
The health care bill would require most Americans to have health insurance, would add 16 million people to the Medicaid rolls and would subsidize private coverage for low- and middle-income people, at a cost to the government of $938 billion over 10 years, the Congressional Budget Office said.
The bill would require many employers to offer coverage to employees or pay a penalty. Each state would set up a marketplace, or exchange, where consumers without such coverage could shop for insurance meeting federal standards.
The budget office estimates that the bill would provide coverage to 32 million uninsured people, but still leave 23 million uninsured in 2019. One-third of those remaining uninsured would be illegal immigrants.
The new costs, according to the budget office, would be more than offset by savings in Medicare and by new taxes and fees, including a tax on high-cost employer-sponsored health plans and a tax on the investment income of the most affluent Americans.
Cost estimates by the Congressional Budget Office, showing that the bill would reduce federal budget deficits by $143 billion in the next 10 years, persuaded some fiscally conservative Democrats that they should vote for the bill.
Democrats said Americans would embrace the bill when they saw its benefits, including some provisions that take effect later this year.
Health insurers, for example, could not deny coverage to children with medical problems or suddenly drop coverage for people who become ill. Insurers must allow children to stay on their parents’ policies up to their 26th birthday. Small businesses could obtain tax credits to help them buy insurance.
The Democratic effort to secure the 216 votes needed for passage of the legislation came together only after last-minute negotiations involving the White House, the House leadership and a group of Democratic opponents of abortion rights, led by Representative Bart Stupak of Michigan. On Sunday afternoon, members of the group announced that they would support the legislation after Mr. Obama promised to issue an executive order to “ensure that federal funds are not used for abortion services.”
Mr. Stupak described the order as a significant guarantee that would “protect the sanctity of life in health care reform.” But supporters of abortion rights — and some opponents — said the order merely reaffirmed what was in the bill.
The procedural vote on Sunday, approving the terms of debate, had put the House on track to approve the health care bill that was passed by the Senate on Dec. 24, on a party-line vote. That bill will soon become the law of the land, the White House said.
House Democrats were also poised to pass a separate measure that would make significant changes and corrections to the Senate bill. That measure would go to the Senate, where the majority leader, Harry Reid, Democrat of Nevada, has promised to take it up in short order. Mr. Reid said he had the votes to pass it, though he faces resistance from Republicans.
The House galleries were full, and the floor was unusually crowded, for the historic debate on health care. Passage of the bill would be a triumph for Mr. Obama and Speaker Nancy Pelosi. Working together, they revived the legislation when it appeared dead after Democrats lost their 60th vote in the Senate and with it their ability to shut off Republican filibusters.
Republicans said they would use the outcome to bludgeon Democrats in this year’s Congressional elections. The White House is planning an intensive effort to convince people of the bill’s benefits. But if Democrats suffer substantial losses in November, Mr. Obama could be stymied on other issues, including his efforts to pass major energy and immigration bills.
Subbarao Begins India Battle to Contain Accelerating Inflation
March 22 (Bloomberg) -- India central bank Governor Duvvuri Subbarao may add to his first interest rate increase since the end of the global recession after falling in danger of being judged too slow to contain accelerating consumer prices.
The next move may come as soon as next month, according to Morgan Stanley and IHS Global Insight. The Reserve Bank of India boosted the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent on March 19, saying curbing inflation has become “imperative.”
The announcement followed Nomura Holdings Inc. saying the RBI was “behind the curve” after inflation hit a 16-month high and exceeded the rate in all other Group of Twenty economies. Indian stocks may tumble today as investors anticipate higher borrowing costs, with the benchmark Sensitive Index at risk of a 200-point drop, according CNI Research (India) Ltd. in Mumbai.
“The strength of India’s domestic demand will keep inflation fairly high,” Jyoti Narasimhan, research director for India at IHS Global in Lexington, Massachusetts, said in an interview. “This is definitely the first of many rate increases to come. We could see another hike in April. Twenty five basis points is not a heroic move.”
The quarter-point rise was a down payment on 3 percentage points of increases that the central bank will need to enact this year to stem inflation, according to Goldman Sachs Group Inc.
Global Trend
India followed Australia and Malaysia in lifting borrowing costs this month, while Norway and Israel did so at the end of last year, as the global economy recovered from the worst recession since World War II.
Inflation has returned to Asia as the region leads the global economic recovery. India’s wholesale-price inflation rate touched 9.89 percent in February, exceeding the central bank’s 8.5 percent forecast by March-end.
Factory output in Malaysia rose 12.7 percent in January. Consumer prices in China rose to a 16-month high of 2.7 percent in February from a year earlier as industrial production grew 20.7 percent in the first two months of 2010, the most in more than five years.
Still lagging behind India are central banks in the Group of Seven economies with the Federal Reserve and European Central Bank among those waiting for evidence of a more concrete recovery before they reverse record low borrowing costs. Canada may be the first G-7 central bank to shift after data showed its core inflation rate unexpectedly accelerated last month.
Before Meeting
Subbarao moved a month before the bank’s scheduled April 20 monetary policy meeting after India’s industrial output gained 16.7 percent in January from a year earlier, following a 17.6 percent increase in December that was the biggest jump since at least 1994, according to Bloomberg data.
“Given the lags in monetary policy, it is better to respond in a timely manner, even if it is outside the scheduled policy reviews, than take stronger measures at a later stage when inflationary expectations have accentuated,” the central bank said in its March 19 statement.
The bank will “maintain this tightening path,” Morgan Stanley economist Chetan Ahya said in a note on March 19. He expects Subbarao to increase rates by another 25 basis points on April 20. The rates may go up by one percentage point in 2010, including last week’s raise, he said.
‘Growing Discomfort’
The rate increase will end a rally in the government bond market and the benchmark 10-year note yield may rise to around 8 percent this week, said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai.
India’s 10-year notes completed their best week since September on March 19, and stocks had their biggest weekly gain in nine months, after Standard & Poor’s upgraded the nation’s debt-rating outlook to stable from negative on optimism for economic growth and government plans to narrow the budget gap.
Yields declined 18 basis points to 7.83 percent in Mumbai last week, while the Sensitive index rose 2.4 percent to 17,578.23 during the period.
The central bank said economic “recovery is increasingly taking hold” and pointed to the latest industrial production data as evidence of a “revival of private demand.”
India’s passenger-car sales gained to a record in February amid rising incomes in the world’s second-most populous nation. The demand is encouraging Ford Motor Co. and Volkswagen AG to build plants and unveil new models in the South Asian nation.
India’s $1.2 trillion economy, Asia’s biggest after Japan and China, may expand 8.2 percent in the next fiscal year, compared with 7.2 percent in the year to March 31, the finance ministry said in February.
Inflation is politically sensitive in a country such as India, where the World Bank estimates almost three-quarters of the nation’s 1.2 billion people live on less than $2 a day.
Opposition parties led by the Bharatiya Janata Party repeatedly stalled proceedings in parliament this month, accusing Prime Minister Manmohan Singh’s government of being anti-poor and failing to curb prices.
The next move may come as soon as next month, according to Morgan Stanley and IHS Global Insight. The Reserve Bank of India boosted the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent on March 19, saying curbing inflation has become “imperative.”
The announcement followed Nomura Holdings Inc. saying the RBI was “behind the curve” after inflation hit a 16-month high and exceeded the rate in all other Group of Twenty economies. Indian stocks may tumble today as investors anticipate higher borrowing costs, with the benchmark Sensitive Index at risk of a 200-point drop, according CNI Research (India) Ltd. in Mumbai.
“The strength of India’s domestic demand will keep inflation fairly high,” Jyoti Narasimhan, research director for India at IHS Global in Lexington, Massachusetts, said in an interview. “This is definitely the first of many rate increases to come. We could see another hike in April. Twenty five basis points is not a heroic move.”
The quarter-point rise was a down payment on 3 percentage points of increases that the central bank will need to enact this year to stem inflation, according to Goldman Sachs Group Inc.
Global Trend
India followed Australia and Malaysia in lifting borrowing costs this month, while Norway and Israel did so at the end of last year, as the global economy recovered from the worst recession since World War II.
Inflation has returned to Asia as the region leads the global economic recovery. India’s wholesale-price inflation rate touched 9.89 percent in February, exceeding the central bank’s 8.5 percent forecast by March-end.
Factory output in Malaysia rose 12.7 percent in January. Consumer prices in China rose to a 16-month high of 2.7 percent in February from a year earlier as industrial production grew 20.7 percent in the first two months of 2010, the most in more than five years.
Still lagging behind India are central banks in the Group of Seven economies with the Federal Reserve and European Central Bank among those waiting for evidence of a more concrete recovery before they reverse record low borrowing costs. Canada may be the first G-7 central bank to shift after data showed its core inflation rate unexpectedly accelerated last month.
Before Meeting
Subbarao moved a month before the bank’s scheduled April 20 monetary policy meeting after India’s industrial output gained 16.7 percent in January from a year earlier, following a 17.6 percent increase in December that was the biggest jump since at least 1994, according to Bloomberg data.
“Given the lags in monetary policy, it is better to respond in a timely manner, even if it is outside the scheduled policy reviews, than take stronger measures at a later stage when inflationary expectations have accentuated,” the central bank said in its March 19 statement.
The bank will “maintain this tightening path,” Morgan Stanley economist Chetan Ahya said in a note on March 19. He expects Subbarao to increase rates by another 25 basis points on April 20. The rates may go up by one percentage point in 2010, including last week’s raise, he said.
‘Growing Discomfort’
The rate increase will end a rally in the government bond market and the benchmark 10-year note yield may rise to around 8 percent this week, said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai.
India’s 10-year notes completed their best week since September on March 19, and stocks had their biggest weekly gain in nine months, after Standard & Poor’s upgraded the nation’s debt-rating outlook to stable from negative on optimism for economic growth and government plans to narrow the budget gap.
Yields declined 18 basis points to 7.83 percent in Mumbai last week, while the Sensitive index rose 2.4 percent to 17,578.23 during the period.
The central bank said economic “recovery is increasingly taking hold” and pointed to the latest industrial production data as evidence of a “revival of private demand.”
India’s passenger-car sales gained to a record in February amid rising incomes in the world’s second-most populous nation. The demand is encouraging Ford Motor Co. and Volkswagen AG to build plants and unveil new models in the South Asian nation.
India’s $1.2 trillion economy, Asia’s biggest after Japan and China, may expand 8.2 percent in the next fiscal year, compared with 7.2 percent in the year to March 31, the finance ministry said in February.
Inflation is politically sensitive in a country such as India, where the World Bank estimates almost three-quarters of the nation’s 1.2 billion people live on less than $2 a day.
Opposition parties led by the Bharatiya Janata Party repeatedly stalled proceedings in parliament this month, accusing Prime Minister Manmohan Singh’s government of being anti-poor and failing to curb prices.
India wins funding for solar power drive
The International Finance Corporation is investing in India’s first commercially viable solar power project, giving a vote of confidence to the country’s ambitions to develop the technology.
The IFC’s investment in Azure Power Private, India’s first “megawatt-scale” solar power developer, comes at a time when the country is keen to build its capability in this technology to compete with China. Beijing controls about 43 per cent of capacity in the solar power industry.
EDITOR’S CHOICE
India raises key rate to help fight inflation - Mar-19
India races to match China’s double digit - Mar-07
India forecasts growth of up to 8.75% - Feb-25
India balks at curb on nuclear liability - Mar-15
India’s tribes in land fight with business - Mar-09
New Delhi boost for women MPs - Mar-09
The $10m (€7.4m, £6.6m) investment comes as a decline in the industry’s raw-material prices is making the technology more commercially viable, particularly in emerging markets. Prices for polysilicon have fallen to about a quarter of their former peak.
“With the reduction in the pricing of solar panels, the break-even point has moved down dramatically,” Lars Thunell, the IFC’s Washington-based chief executive, said in an interview.
The push by the IFC, the World Bank’s private sector arm, into solar power comes as private sector funds are also targeting India’s generating companies, including those with significant portfolios of renewable energy.
A consortium of funds, including Morgan Stanley Infrastructure Partners, General Atlantic and Goldman Sachs Investment Management, invested $425m in Asian Genco, a Singapore-based company building power plants in India. That was one of India’s biggest private equity deals in the past two years and will include a large hydropower project in Sikkim state.
India is engaged in a vast expansion of power infrastructure to drive its rapidly growing economy and aid its 1.14bn population, more than half of whom do not have access to electricity. The country is seeking to increase its solar power generation capacity from near zero today to 20,000 megawatts by 2022.
The Azure project also provides a precedent in India for connecting solar plants to the national grid. This method could be used for future similar projects by other producers.
Founded by a young entrepreneur, Inderpreet Wadhwa, Azure is India’s first solar plant large enough at 2MW to be considered “utility scale”. When connected to the country’s electricity grid, the plant supplies power to 20,000 people in 32 villages in the Amritsar district of the Punjab.
“It’s small right now but the ambition is to grow very quickly and scale up,” said Anita George, IFC infrastructure director for Asia.
The IFC, meanwhile, has been rapidly increasing its investment in renewable energy, allocating $720m to the area last year compared with only $65m five years earlier.
Mr Thunell said the group was planning increases in its total investment in renewable energy and other climate-related areas, depending on the availability of capital from the IFC board.
“We want to double our investment in that area,” he said.
In a project in Senegal, the IFC has a 25-year electricity distribution concession to provide power to 20,000 households in nearly 300 villages. It will do this through grid-connections and individual solar kits, helped by a government subsidy for connection costs.
The IFC’s investment in Azure Power Private, India’s first “megawatt-scale” solar power developer, comes at a time when the country is keen to build its capability in this technology to compete with China. Beijing controls about 43 per cent of capacity in the solar power industry.
EDITOR’S CHOICE
India raises key rate to help fight inflation - Mar-19
India races to match China’s double digit - Mar-07
India forecasts growth of up to 8.75% - Feb-25
India balks at curb on nuclear liability - Mar-15
India’s tribes in land fight with business - Mar-09
New Delhi boost for women MPs - Mar-09
The $10m (€7.4m, £6.6m) investment comes as a decline in the industry’s raw-material prices is making the technology more commercially viable, particularly in emerging markets. Prices for polysilicon have fallen to about a quarter of their former peak.
“With the reduction in the pricing of solar panels, the break-even point has moved down dramatically,” Lars Thunell, the IFC’s Washington-based chief executive, said in an interview.
The push by the IFC, the World Bank’s private sector arm, into solar power comes as private sector funds are also targeting India’s generating companies, including those with significant portfolios of renewable energy.
A consortium of funds, including Morgan Stanley Infrastructure Partners, General Atlantic and Goldman Sachs Investment Management, invested $425m in Asian Genco, a Singapore-based company building power plants in India. That was one of India’s biggest private equity deals in the past two years and will include a large hydropower project in Sikkim state.
India is engaged in a vast expansion of power infrastructure to drive its rapidly growing economy and aid its 1.14bn population, more than half of whom do not have access to electricity. The country is seeking to increase its solar power generation capacity from near zero today to 20,000 megawatts by 2022.
The Azure project also provides a precedent in India for connecting solar plants to the national grid. This method could be used for future similar projects by other producers.
Founded by a young entrepreneur, Inderpreet Wadhwa, Azure is India’s first solar plant large enough at 2MW to be considered “utility scale”. When connected to the country’s electricity grid, the plant supplies power to 20,000 people in 32 villages in the Amritsar district of the Punjab.
“It’s small right now but the ambition is to grow very quickly and scale up,” said Anita George, IFC infrastructure director for Asia.
The IFC, meanwhile, has been rapidly increasing its investment in renewable energy, allocating $720m to the area last year compared with only $65m five years earlier.
Mr Thunell said the group was planning increases in its total investment in renewable energy and other climate-related areas, depending on the availability of capital from the IFC board.
“We want to double our investment in that area,” he said.
In a project in Senegal, the IFC has a 25-year electricity distribution concession to provide power to 20,000 households in nearly 300 villages. It will do this through grid-connections and individual solar kits, helped by a government subsidy for connection costs.
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