April 30 (Bloomberg) -- The Bank of Japan will probably keep the benchmark interest rate unchanged and debate whether to expand a credit program at a board meeting today as it gauges the strength of the recovery and outlook for deflation.
Governor Masaaki Shirakawa and his colleagues will hold the key interest rate at 0.1 percent, all 16 economists surveyed by Bloomberg News said. Thirteen said they expect the board to refrain from adding funds to the banking system.
BOJ policy makers have signaled over the past month that they may raise their projections for gross domestic product and prices in a twice-yearly outlook report later today. Any upgrade won’t prevent the bank from considering additional monetary stimulus as politicians press it to do more ahead of a July election, according to economist Junko Nishioka.
“Even if the BOJ stands pat this time, it’s widely expected to retain the option of additional easing,” said Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “Beating deflation and propping up economic growth through cooperation between the bank and the government will remain as a focal issue.”
The central bank is expected to announce its policy decision early afternoon and release its economic forecasts at 3 p.m. in Tokyo. Shirakawa will speak to the press at 3:30 p.m.
Economic Data
Government figures published today point to a moderate recovery: Industrial production rose 0.3 percent in March from a month earlier, less than the 0.8 percent median estimate of economists surveyed. The unemployment rate unexpectedly climbed to 5 percent, and consumer prices excluding fresh food slid 1.2 percent, the 13th straight drop.
Meanwhile household spending advanced 4.4 percent last month, the fastest pace since 2004, according to Bloomberg data. A report earlier this week showed retail sales climbed 4.7 percent, the biggest increase in 13 years.
Shirakawa told lawmakers this month that he sees increasing “positive signs” for prices. Deputy Governor Kiyohiko Nishimura said in a speech last week that “beams of light” are visible toward overcoming deflation.
The Nikkei 225 Stock Average gained 1.4 percent at 9:17 a.m. in Tokyo. The yen traded at 93.97 per dollar from 94.03 late yesterday. The yield on Japan’s 10-year bond fell half a basis point to 1.28 percent.
Inflation Outlook
BOJ policy makers will predict an inflation rate of at least zero for the year ending March 2012, up from the current estimate for consumer prices to drop 0.2 percent, according to 14 of the 16 economists.
Politicians may not be satisfied with any upgrade to the BOJ’s inflation outlook. Finance Minister Naoto Kan last week called for price gains of as much as 2 percent and the ruling Democratic Party of Japan this month said it may include an inflation target in its platform for the upper house election.
The International Monetary Fund said last week that the BOJ must remain open to more monetary easing to beat deflation.
“The BOJ will probably have to face up mounting pressure as the election approaches,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “For politicians, it’s easy to blame the central bank for lingering deflation and stagnant economic growth, and by doing that they can show the public they’re taking some action.”
Lending Program
The central bank introduced its bank lending program in December after the yen advanced to a 14-year high against the dollar. It doubled the facility, which provides three-month loans at 0.1 percent, to 20 trillion yen last month.
While Shirakawa said the move was aimed at spurring the recovery, board members Miyako Suda and Tadao Noda opposed the decision, saying it wasn’t justified given the economy’s improvements.
Europe’s mounting debt woes may damp the Bank of Japan’s growing optimism and lead it to consider more easing, said economist Mari Iwashita.
“There is a risk that overseas factors, over which Japanese policy makers can exercise little control, will push down stocks and drive up the yen,” said Iwashita, chief market economist at Nikko Cordial Securities in Tokyo. “Should that happen, it could be a trigger for additional monetary easing.”
Thursday, April 29, 2010
Australian Trade Businesses See Aussie Gains, Commonwealth Says
April 30 (Bloomberg) -- Australia’s importers and exporters forecast the nation’s currency will extend this year’s gains into December while stopping short of a record high, according to Commonwealth Bank of Australia, the nation’s largest lender.
The so-called Aussie climbed 27 percent against the U.S. dollar over the past 12 months, the best performance among the 16 most-traded currencies. It will advance to 95.60 U.S. cents by year-end, according to the weighted average of more than 600 medium-sized importers and exporters in a survey commissioned by the bank. The median forecast of analysts compiled by Bloomberg News is for the Aussie to be at 92 U.S. cents by year-end.
“The levels at which the businesses have traded recently are a dominant theme in their expectations for the future,” said Joseph Capurso, a currency strategist in Sydney for Commonwealth Bank. “That leaves importers in particular exposed to higher costs if the Australian dollar falls.”
Australia’s dollar traded at 92.51 U.S. cents yesterday as of 4 p.m. in Sydney and reached 98.50 cents on July 15, 2008, its strongest level since being freely floated. Commonwealth Bank forecasts the currency will fall to 90 cents by year-end and decline to 88 cents by March 2011.
The so-called Aussie climbed 27 percent against the U.S. dollar over the past 12 months, the best performance among the 16 most-traded currencies. It will advance to 95.60 U.S. cents by year-end, according to the weighted average of more than 600 medium-sized importers and exporters in a survey commissioned by the bank. The median forecast of analysts compiled by Bloomberg News is for the Aussie to be at 92 U.S. cents by year-end.
“The levels at which the businesses have traded recently are a dominant theme in their expectations for the future,” said Joseph Capurso, a currency strategist in Sydney for Commonwealth Bank. “That leaves importers in particular exposed to higher costs if the Australian dollar falls.”
Australia’s dollar traded at 92.51 U.S. cents yesterday as of 4 p.m. in Sydney and reached 98.50 cents on July 15, 2008, its strongest level since being freely floated. Commonwealth Bank forecasts the currency will fall to 90 cents by year-end and decline to 88 cents by March 2011.
Wednesday, April 28, 2010
Asia Risks Overheating, Bubbles on Capital Inflows, IMF Says
April 29 (Bloomberg) -- Asia’s economic recovery that’s outpacing the rest of the world is attracting capital inflows that may cause the region to overheat and lead to the formation of asset bubbles, the International Monetary Fund said.
Expectations of Asian exchange-rate appreciation may be boosting carry trade flows, where investors borrow cheaply in one currency and use the funds to invest in others, the Washington-based lender said in a report today. More flexible currencies and some capital controls can help limit the impact of investment flows, it said.
The World Bank predicts as much as $800 billion in global capital flows this year, compared with about an annualized $450 billion to developing economies in the second half of 2009, it said in a report this month. Emerging markets need to take “urgent action” on the surge of liquidity and capital flowing into their economies because they could spur inflation and trigger another crisis, according to Standard Chartered Plc.
“Brighter economic growth prospects and widening interest rate differentials with advanced economies are likely to attract more capital into the region,” the fund said. “Policy makers will need to be attentive to safeguarding the macro economy and financial system against the build-up of imbalances in local asset and housing markets.”
The IMF expects emerging Asia, which excludes Japan, Australia and New Zealand, to expand 8.5 percent this year and 8.4 percent in 2011. Including those countries, the region may expand 7.1 percent this year and next, it said.
Greek Tragedy
Bonds and stocks plunged across Europe in the past week as Greece’s budget turmoil forced it to seek a bailout from the European Union and the IMF, and Standard & Poor’s downgraded Greece, Portugal and Spain.
“While Greece’s sovereign debt situation has not had a major impact on flows to the region, the main risk scenario is one of worsening global risk aversion, should the jitters spill over to some of the larger European economies,” the report said. “Problems in Europe could force a further retrenchment of European banks from the region, possibly reigniting some dollar and euro funding pressures in Asian markets.”
China, India and Indonesia are countries with “stronger growth prospects” and they have received more capital inflows than other Asian peers, the IMF said.
“Inflows are likely to persist, with European and U.S. managers getting larger mandates to invest in Asia, as the region is expected to outperform advanced economies, where monetary policies are set to remain more accommodative,” the IMF said.
Interest Rates
Some Asian central banks including India and Malaysia are already raising interest rates or taking steps to remove excess cash in their banking systems to fend off inflation risks as the region leads the world recovery. Asian governments pumped more than $950 billion into their economies through increased investment, tax cuts and cash handouts to boost growth.
About a third of the fiscal stimulus injected into Asian economies may be withdrawn this year, the IMF predicts, adding that such policies are still expected to remain accommodative.
“The main near-term policy challenge for policy makers is judging the appropriate pace for normalizing monetary and fiscal policy,” the IMF said. “Policy makers will have to weigh the strength of Asia’s recovery against the fragility of the global recovery, which argues for a cautious and gradual withdrawal of stimulus. Most economies in Asia are fortunate to have some fiscal and monetary space to respond flexibly to external shocks.”
‘Remains Encouraging’
China’s economy grew at the fastest pace in almost three years in the first quarter, supporting Asia’s commodity- exporters including Australia, Indonesia and Malaysia, the IMF said. China is forecast to expand 10 percent this year and 9.9 percent in 2011, according to the report.
Demand for Asian goods “remains encouraging” this year as manufacturers replenish their inventories, boosting the region’s output for most of 2010, the IMF said. Exports will probably grow at “more moderate pace” in 2011 amid “sluggish” domestic demand in advanced economies over the next two years, it said. “The global crisis has highlighted the importance for Asia of a second, domestic ‘engine of growth’ that can substitute for lost demand from the industrialized world,” the report said.
Inflationary pressures will remain “generally contained” in the Asian region this year, the IMF said, adding that China’s price gains maybe “subdued” due to excess capacity. India, Indonesia and Vietnam will see less inflationary pressure in 2011 as commodity prices stabilize and amid tighter monetary policies, the report said.
One of the risks to the region may be commodity prices remaining stronger than expected, adding pressure on food costs, the IMF said.
“Greater-than-expected inflationary pressures may in turn induce more aggressive monetary tightening and weaken the virtuous cycle between strong economic activity, buoyant financial markets, and ample consumer confidence, which thus far has sustained private domestic demand in the region,” it said.
Expectations of Asian exchange-rate appreciation may be boosting carry trade flows, where investors borrow cheaply in one currency and use the funds to invest in others, the Washington-based lender said in a report today. More flexible currencies and some capital controls can help limit the impact of investment flows, it said.
The World Bank predicts as much as $800 billion in global capital flows this year, compared with about an annualized $450 billion to developing economies in the second half of 2009, it said in a report this month. Emerging markets need to take “urgent action” on the surge of liquidity and capital flowing into their economies because they could spur inflation and trigger another crisis, according to Standard Chartered Plc.
“Brighter economic growth prospects and widening interest rate differentials with advanced economies are likely to attract more capital into the region,” the fund said. “Policy makers will need to be attentive to safeguarding the macro economy and financial system against the build-up of imbalances in local asset and housing markets.”
The IMF expects emerging Asia, which excludes Japan, Australia and New Zealand, to expand 8.5 percent this year and 8.4 percent in 2011. Including those countries, the region may expand 7.1 percent this year and next, it said.
Greek Tragedy
Bonds and stocks plunged across Europe in the past week as Greece’s budget turmoil forced it to seek a bailout from the European Union and the IMF, and Standard & Poor’s downgraded Greece, Portugal and Spain.
“While Greece’s sovereign debt situation has not had a major impact on flows to the region, the main risk scenario is one of worsening global risk aversion, should the jitters spill over to some of the larger European economies,” the report said. “Problems in Europe could force a further retrenchment of European banks from the region, possibly reigniting some dollar and euro funding pressures in Asian markets.”
China, India and Indonesia are countries with “stronger growth prospects” and they have received more capital inflows than other Asian peers, the IMF said.
“Inflows are likely to persist, with European and U.S. managers getting larger mandates to invest in Asia, as the region is expected to outperform advanced economies, where monetary policies are set to remain more accommodative,” the IMF said.
Interest Rates
Some Asian central banks including India and Malaysia are already raising interest rates or taking steps to remove excess cash in their banking systems to fend off inflation risks as the region leads the world recovery. Asian governments pumped more than $950 billion into their economies through increased investment, tax cuts and cash handouts to boost growth.
About a third of the fiscal stimulus injected into Asian economies may be withdrawn this year, the IMF predicts, adding that such policies are still expected to remain accommodative.
“The main near-term policy challenge for policy makers is judging the appropriate pace for normalizing monetary and fiscal policy,” the IMF said. “Policy makers will have to weigh the strength of Asia’s recovery against the fragility of the global recovery, which argues for a cautious and gradual withdrawal of stimulus. Most economies in Asia are fortunate to have some fiscal and monetary space to respond flexibly to external shocks.”
‘Remains Encouraging’
China’s economy grew at the fastest pace in almost three years in the first quarter, supporting Asia’s commodity- exporters including Australia, Indonesia and Malaysia, the IMF said. China is forecast to expand 10 percent this year and 9.9 percent in 2011, according to the report.
Demand for Asian goods “remains encouraging” this year as manufacturers replenish their inventories, boosting the region’s output for most of 2010, the IMF said. Exports will probably grow at “more moderate pace” in 2011 amid “sluggish” domestic demand in advanced economies over the next two years, it said. “The global crisis has highlighted the importance for Asia of a second, domestic ‘engine of growth’ that can substitute for lost demand from the industrialized world,” the report said.
Inflationary pressures will remain “generally contained” in the Asian region this year, the IMF said, adding that China’s price gains maybe “subdued” due to excess capacity. India, Indonesia and Vietnam will see less inflationary pressure in 2011 as commodity prices stabilize and amid tighter monetary policies, the report said.
One of the risks to the region may be commodity prices remaining stronger than expected, adding pressure on food costs, the IMF said.
“Greater-than-expected inflationary pressures may in turn induce more aggressive monetary tightening and weaken the virtuous cycle between strong economic activity, buoyant financial markets, and ample consumer confidence, which thus far has sustained private domestic demand in the region,” it said.
U.K. Employment Index Signals Hiring for First Time Since 2008
April 29 (Bloomberg) -- A U.K. employment index showed recruitment may outpace job cuts this quarter for the first time since 2008 as companies benefit from the economic recovery.
The number of employers planning to increase staff levels in the second quarter exceeded those looking to cut headcount by 5 percentage points, the Chartered Institute of Personnel and Development and KPMG LLP said in an e-mailed statement today. The balance in the first quarter was minus 5 percent.
Prime Minister Gordon Brown, who faces an election on May 6, said yesterday that the U.K. has emerged from recession with “a minimum of unemployment” after stimulus measures limited job cuts. The jobless total still reached the highest in 16 years in the quarter through February.
“A return to spring could mean a growth of full-time jobs in the private sector that may continue if the global economy continues to recover at the same rate,” CIPD spokeswoman Gerwyn Davies said in the statement. “In contrast, public-sector employers will be looking to close the lid on employment, pay and promotion.”
While the net balance of private companies expecting to add jobs was 29 percent, the net balance of government-related employers expecting to shed staff jumped to 43 percent, the highest level since records began in 2004, today’s report found.
Some London financial firms have started hiring bankers again. Lloyds Banking Group Plc, the lender 41 percent owned by the U.K. government, has said it plans to employ more sales and trading staff. Barclays Plc, the U.K.’s second-largest bank, has also been adding bankers at its securities unit.
CIPD and KPMG questioned almost 800 employers last month for the quarterly survey.
The number of employers planning to increase staff levels in the second quarter exceeded those looking to cut headcount by 5 percentage points, the Chartered Institute of Personnel and Development and KPMG LLP said in an e-mailed statement today. The balance in the first quarter was minus 5 percent.
Prime Minister Gordon Brown, who faces an election on May 6, said yesterday that the U.K. has emerged from recession with “a minimum of unemployment” after stimulus measures limited job cuts. The jobless total still reached the highest in 16 years in the quarter through February.
“A return to spring could mean a growth of full-time jobs in the private sector that may continue if the global economy continues to recover at the same rate,” CIPD spokeswoman Gerwyn Davies said in the statement. “In contrast, public-sector employers will be looking to close the lid on employment, pay and promotion.”
While the net balance of private companies expecting to add jobs was 29 percent, the net balance of government-related employers expecting to shed staff jumped to 43 percent, the highest level since records began in 2004, today’s report found.
Some London financial firms have started hiring bankers again. Lloyds Banking Group Plc, the lender 41 percent owned by the U.K. government, has said it plans to employ more sales and trading staff. Barclays Plc, the U.K.’s second-largest bank, has also been adding bankers at its securities unit.
CIPD and KPMG questioned almost 800 employers last month for the quarterly survey.
Tuesday, April 27, 2010
Polish Central Bank Settles Profit Spat, Leaving Bigger Deficit
April 28 (Bloomberg) -- Poland’s central bank, which will probably announce unchanged interest rates today, voted to approve a smaller profit for 2009, ending an internal dispute and reducing the amount of money transferred to the state budget.
The bank yesterday approved a profit of about 4 billion zloty ($1.34 billion) for 2009, a member of the rate-setting Monetary Policy Council, who declined to be identified because the figure hadn’t been published, said in a telephone interview yesterday.
The MPC, in which six of the nine members were appointed last quarter by the government of Prime Minister Donald Tusk, had wanted to double the amount of money available to boost the state budget by reducing provisions set aside to maintain zloty stability. The bank’s management board was against the proposal.
“This is still some support for the budget-deficit financing, though 8 billion zloty would certainly have helped more,” said Maja Goettig, chief economist at Bank BPH in Warsaw.
The decision put to rest a dispute between the management board and the MPC that had threatened the bank’s independence, Monetary Policy Council member Adam Glapinski said in an April 26 interview.
“It’s unfortunate this conflict was ever made public,” Marian Noga, a former member of the rate-setting panel who attended part of the policy meeting, said in an interview.
The MPC this year changed the bank’s rules to reduce provisions set aside, a move that would double the profit to about 8 billion zloty and bolster the state budget.
‘Sackcloth, Ashes’
“The MPC had no need to change the rules in the first place, and now their only recourse is to don sackcloth and ashes, agree to whatever profit figure the management proposes and end this conflict as soon as possible,” Noga said.
The amendment would have raised the bank’s foreign exchange rate risk by reducing reserves held to offset zloty volatility. The European Central Bank said in an April 23 opinion “concerns may arise about whether this process is sound, well-coordinated and transparent.”
Poland’s budget deficit will reach 7.5 percent of gross domestic product this year, the EU forecasts, up from 7.1 percent last year. Inflation in March slowed to 2.6 percent, a 30-month low, just above the central bank’s 2.5 percent target for the end of the year.
The bank will leave the benchmark seven-day reference rate at a record-low 3.5 percent, according to all 18 economists surveyed by Bloomberg. The decision, the first since the death of Governor Slawomir Skrzypek in an April 10 plane crash, will be announced at about noon in Warsaw. The rate meeting, which started yesterday, includes former council members as the bank’s profits are discussed, according to three central bankers who declined to be identified.
The bank yesterday approved a profit of about 4 billion zloty ($1.34 billion) for 2009, a member of the rate-setting Monetary Policy Council, who declined to be identified because the figure hadn’t been published, said in a telephone interview yesterday.
The MPC, in which six of the nine members were appointed last quarter by the government of Prime Minister Donald Tusk, had wanted to double the amount of money available to boost the state budget by reducing provisions set aside to maintain zloty stability. The bank’s management board was against the proposal.
“This is still some support for the budget-deficit financing, though 8 billion zloty would certainly have helped more,” said Maja Goettig, chief economist at Bank BPH in Warsaw.
The decision put to rest a dispute between the management board and the MPC that had threatened the bank’s independence, Monetary Policy Council member Adam Glapinski said in an April 26 interview.
“It’s unfortunate this conflict was ever made public,” Marian Noga, a former member of the rate-setting panel who attended part of the policy meeting, said in an interview.
The MPC this year changed the bank’s rules to reduce provisions set aside, a move that would double the profit to about 8 billion zloty and bolster the state budget.
‘Sackcloth, Ashes’
“The MPC had no need to change the rules in the first place, and now their only recourse is to don sackcloth and ashes, agree to whatever profit figure the management proposes and end this conflict as soon as possible,” Noga said.
The amendment would have raised the bank’s foreign exchange rate risk by reducing reserves held to offset zloty volatility. The European Central Bank said in an April 23 opinion “concerns may arise about whether this process is sound, well-coordinated and transparent.”
Poland’s budget deficit will reach 7.5 percent of gross domestic product this year, the EU forecasts, up from 7.1 percent last year. Inflation in March slowed to 2.6 percent, a 30-month low, just above the central bank’s 2.5 percent target for the end of the year.
The bank will leave the benchmark seven-day reference rate at a record-low 3.5 percent, according to all 18 economists surveyed by Bloomberg. The decision, the first since the death of Governor Slawomir Skrzypek in an April 10 plane crash, will be announced at about noon in Warsaw. The rate meeting, which started yesterday, includes former council members as the bank’s profits are discussed, according to three central bankers who declined to be identified.
Stocks, Euro Plunge as Treasuries Gain on Greece, Portugal Debt
April 28 (Bloomberg) -- Stocks worldwide tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank.
The MSCI Asia Pacific Index declined 1.4 percent at 9:30 a.m. in Tokyo. The S&P 500 lost 2.3 percent yesterday in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields soared to almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to a record. Oil sank 2.1 percent, while gold rallied 0.7 percent.
S&P lowered Greek debt to junk and Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut its budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. Financial shares led U.S. stocks lower as the Senate’s interrogation of Goldman Sachs Group Inc. executives spurred concern of tighter regulation.
“It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.”
Goldman Hearings
The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs executives in Washington. U.S. trading volume slipped while Fabrice Tourre, an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released.
U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.”
“What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler, a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.”
Goldman Rises
Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16.
“The damage is already built into the stock price,” said Jason Weisberg, director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.”
Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent.
Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Japan’s bonds advanced, pushing 10-year yields to the lowest level in four months. The yield fell 2.5 basis points to 1.28 percent.
Debt Insurance
Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365.
The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22.
The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008.
Winning Streak
The sell-off in the U.S. follows eight straight weeks of gains for the Dow Jones Industrial Average, the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade.
The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against the greenback.
S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+.
Greece said the downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening.
‘Sustainable’ Plan
German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible.
“I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo, director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.”
Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd., the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped.
Copper Dives
Copper for three-month delivery dropped as much as 1.6 percent to $7,373 per metric ton, the lowest level since March 26, extending a 4.1 percent slump yesterday.
The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar.
The MSCI Asia Pacific Index declined 1.4 percent at 9:30 a.m. in Tokyo. The S&P 500 lost 2.3 percent yesterday in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields soared to almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to a record. Oil sank 2.1 percent, while gold rallied 0.7 percent.
S&P lowered Greek debt to junk and Portugal was cut two steps as contagion from Greece’s debt crisis spreads through the euro region. The downgrades come as German officials insist Greece must outline further steps to cut its budget deficit before they will endorse the release of funds from a 45 billion euro ($60 billion) rescue package. Financial shares led U.S. stocks lower as the Senate’s interrogation of Goldman Sachs Group Inc. executives spurred concern of tighter regulation.
“It’s the fear that Greece or Portugal may affect other areas of Europe and derail this economic recovery,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s now a perception that we might see Greece or Portugal failing. If that happens, we may see more headwinds.”
Goldman Hearings
The ratings downgrades for Greece and Portugal were a one- two punch for securities markets distracted by the congressional testimony of Goldman Sachs executives in Washington. U.S. trading volume slipped while Fabrice Tourre, an executive director at the New York-based firm, read a prepared statement on his role marketing a collateralized debt obligation, then surged after the headlines on Greece were released.
U.S. senators probed the bank’s mortgage business with Senator Carl Levin asked why it sold a set of investments the lender had itself labeled “shitty.”
“What’s punctuating the downside of the market is the tense exchange between the Goldman Sachs executives and Carl Levin and other legislators,” said Matthew Kaufler, a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “From Wall Street’s perspective, the timing couldn’t be worse because it raises the specter of financial reform being pushed through with perhaps sharper teeth than it otherwise would have had.”
Goldman Rises
Goldman Sachs shares rose 0.7 percent, posting the only gain among 79 companies in the S&P 500 Financial Index. Goldman Sachs has still lost 17 percent since the Securities and Exchange Commission sued the company for fraud on April 16.
“The damage is already built into the stock price,” said Jason Weisberg, director of institutional trading at Seaport Securities Corp. on the floor of the New York Stock Exchange. “Their ability to make money is unprecedented and if the rules change they’ll figure out a new way to do it.”
Greece’s benchmark ASE equity index tumbled 6 percent to a one-year low. The market in Athens closed before S&P cut the nation’s rating. Portugal’s PSI-20 Index slumped 5.4 percent, the most since October 2008, and Ireland’s ISEQ Overall Index declined 4.5 percent, the biggest decline since October 2009. Spain’s IBEX 35 fell 4.2 percent.
Yields on 10-year Portuguese bonds jumped 48 basis points to 5.69 percent and Irish 10-year yields surged 19 basis points to 5.10 percent. Japan’s bonds advanced, pushing 10-year yields to the lowest level in four months. The yield fell 2.5 basis points to 1.28 percent.
Debt Insurance
Credit-default swaps on European sovereign debt surged to records. Contracts tied to Greek government bonds climbed 111 basis points to 821, according to CMA DataVision. Portugal rose 54 basis points to 365.
The International Monetary Fund last week raised its forecast for global growth this year while cautioning that a failure to contain soaring public debt may have “severe” consequences for the world economy. Global economic expansion may hit 4.2 percent in 2010, the fastest rate since 2007, the Washington-based fund estimated. “Fiscal fragilities” pose the biggest threat to meeting the forecast, the IMF said April 22.
The S&P 500 retreated from a 19-month high for a second day as growing concern over European debt overshadowed better-than- estimated earnings and consumer confidence. The Chicago Board Options Exchange Volatility Index, the benchmark index for U.S. stock options known as the VIX, surged as much as 33 percent, the most intraday since October 2008.
Winning Streak
The sell-off in the U.S. follows eight straight weeks of gains for the Dow Jones Industrial Average, the longest streak since 2004, and a 9.2 percent rally in the S&P 500 through April 23 that gave the index the largest advance among the world’s 15 biggest markets. The S&P 500’s valuation of 18.2 times earnings in the past 12 months matches its average over the last decade.
The dollar rose against all 16 major counterparts except the yen as investors fled riskier assets. The euro sank to a one-year low of $1.3166 against the greenback.
S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+.
Greece said the downgrade of its rating by S&P doesn’t reflect the “real facts” of the economy, according to an e- mail from the country’s finance ministry this evening.
‘Sustainable’ Plan
German Chancellor Angela Merkel said yesterday she won’t release funds to help Greece shore up its finances until the nation has a “sustainable” plan to reduce its budget deficit. Germany’s Economy Minister Rainer Bruederle said Greece needs to present a plan to overcome its debt crisis as soon as possible.
“I think it’s directly related to Germany’s indecisiveness and whether they’re going to participate in the bailout,” said Matthew DiFilippo, director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, which manages $1 billion. “If Germany doesn’t stand behind Greece, are they going to stand behind Portugal? Greece isn’t significant enough contributor to the EU overall in terms of GDP but it’s maybe just an implication of how this all plays out in other countries like Portugal and Ireland.”
Basic resources stocks posted the largest losses among 19 industry groups in the Stoxx 600, losing 4.8 percent as a group. BHP Billiton Ltd., the world’s biggest mining company, fell 4.2 percent in London. Antofagasta Plc, which owns copper mines in Chile, retreated 3.7 percent. Banco Popular Espanol SA declined 6.1 percent in Madrid after the Spanish lender said first- quarter profit slipped.
Copper Dives
Copper for three-month delivery dropped as much as 1.6 percent to $7,373 per metric ton, the lowest level since March 26, extending a 4.1 percent slump yesterday.
The MSCI Emerging Markets Index fell for the first time in three days, tumbling 1.9 percent. Brazil’s Bovespa index sank 3.4 percent, the most in almost three months, and the real fell the most in three weeks versus the U.S. dollar.
CLP to Set Up Thai Solar Farm, Wind Plants in India (Update1)
April 27 (Bloomberg) -- CLP Holdings Ltd., Hong Kong’s biggest electricity producer, will build a solar farm in Thailand and set up three wind projects in India as the utility turns to clean energy sources to generate power.
The power producer is “close to” setting up a 55-megawatt solar project north of Bangkok with a venture partner, Chief Executive Officer Andrew Brandler said at a media briefing after the company’s annual general meeting today, without elaborating.
CLP produces about 10 percent of its electricity from clean energy, including nuclear power, and wants 20 percent to be generated by non-fossil fuels by 2020. Among its renewable energy investments are plans for a wind farm offshore Hong Kong, estimated to cost HK$7 billion ($900 million).
The utility will set up three wind-power plants in India in the next few months, Chairman Michael Kadoorie said at the briefing, without giving more details.
In Hong Kong, CLP will increase the number of charging stations for electric cars that it operates by 11 this year to 21, the company said in a statement today.
The shares have risen 8.1 percent in Hong Kong trading this year, compared with the 2.3 percent drop in the benchmark Hang Seng Index. CLP fell 0.4 percent to HK$56.70 at the midday break.
The power producer is “close to” setting up a 55-megawatt solar project north of Bangkok with a venture partner, Chief Executive Officer Andrew Brandler said at a media briefing after the company’s annual general meeting today, without elaborating.
CLP produces about 10 percent of its electricity from clean energy, including nuclear power, and wants 20 percent to be generated by non-fossil fuels by 2020. Among its renewable energy investments are plans for a wind farm offshore Hong Kong, estimated to cost HK$7 billion ($900 million).
The utility will set up three wind-power plants in India in the next few months, Chairman Michael Kadoorie said at the briefing, without giving more details.
In Hong Kong, CLP will increase the number of charging stations for electric cars that it operates by 11 this year to 21, the company said in a statement today.
The shares have risen 8.1 percent in Hong Kong trading this year, compared with the 2.3 percent drop in the benchmark Hang Seng Index. CLP fell 0.4 percent to HK$56.70 at the midday break.
India Plans to Sell Stake in Biggest Company by March
April 27 (Bloomberg) -- India may sell a stake in the nation’s biggest company as part of a plan to raise a record 400 billion rupees ($9 billion) from asset sales and use the proceeds to reduce the government’s budget deficit.
The government may sell shares in Indian Oil Corp. by March 31, Sidhartha Pradhan, joint secretary in the department of disinvestment, told reporters in Mumbai today. The company’s Chairman, B.M. Bansal, said he wasn’t aware of the government’s plan when called for comment. India also plans to sell shares in Hindustan Copper Ltd. and Power Grid Corp.
Prime Minister Manmohan Singh’s administration plans to sell shares in one state-run company almost every month. Asia’s largest economy after Japan and China is selling assets and airwaves to cut its budget deficit to 5.5 percent of gross domestic product in the year that started April 1 from 6.9 percent in the 12 months through March 31, the sharpest reduction in 19 years.
“We are very confident that we will be able to raise” the targeted amount, Pradhan said.
Indian Oil shares, which have declined 8 percent this year, gained 0.3 percent to 281.5 rupees at close of trading in Mumbai, giving the company a market value of $15.4 billion. The government owned 79 percent of the refiner as of Dec. 31, while state-owned explorer Oil & Natural Gas Corp. held 8.8 percent, according to data compiled by Bloomberg.
Highest Revenue
Indian Oil’s revenue was $53.6 billion rupees in the year ended March 31, the most by an Indian company.
The government may raise 12 billion rupees selling shares in Engineers India Ltd. in June, Pradhan said. Stakes will also be sold in Coal India Ltd. and Steel Authority of India Ltd.
India plans to raise as much as 130 billion rupees selling shares in Coal India in July, in the nation’s biggest initial public offering, two government officials with direct knowledge of the sale said on April 20.
“We think this will be the largest public issue to hit the Indian markets,” Pradhan said of the Coal India IPO.
The largest IPO in India’s markets to date was Reliance Power Ltd.’s share sale in January 2008, which raised 115.6 billion rupees, according to Bloomberg data.
SJVN Ltd., a state-owned Indian power utility, plans to offer shares for 23 rupees to 26 rupees each in a sale that opens on April 29, according to a release from the company.
The government is auctioning spectrum for operating 3G services in India’s 22 designated telephone zones. The plan to sell 93 licenses to provide high-speed data to mobile phones and computers may raise an estimated 500 billion rupees.
The government may sell shares in Indian Oil Corp. by March 31, Sidhartha Pradhan, joint secretary in the department of disinvestment, told reporters in Mumbai today. The company’s Chairman, B.M. Bansal, said he wasn’t aware of the government’s plan when called for comment. India also plans to sell shares in Hindustan Copper Ltd. and Power Grid Corp.
Prime Minister Manmohan Singh’s administration plans to sell shares in one state-run company almost every month. Asia’s largest economy after Japan and China is selling assets and airwaves to cut its budget deficit to 5.5 percent of gross domestic product in the year that started April 1 from 6.9 percent in the 12 months through March 31, the sharpest reduction in 19 years.
“We are very confident that we will be able to raise” the targeted amount, Pradhan said.
Indian Oil shares, which have declined 8 percent this year, gained 0.3 percent to 281.5 rupees at close of trading in Mumbai, giving the company a market value of $15.4 billion. The government owned 79 percent of the refiner as of Dec. 31, while state-owned explorer Oil & Natural Gas Corp. held 8.8 percent, according to data compiled by Bloomberg.
Highest Revenue
Indian Oil’s revenue was $53.6 billion rupees in the year ended March 31, the most by an Indian company.
The government may raise 12 billion rupees selling shares in Engineers India Ltd. in June, Pradhan said. Stakes will also be sold in Coal India Ltd. and Steel Authority of India Ltd.
India plans to raise as much as 130 billion rupees selling shares in Coal India in July, in the nation’s biggest initial public offering, two government officials with direct knowledge of the sale said on April 20.
“We think this will be the largest public issue to hit the Indian markets,” Pradhan said of the Coal India IPO.
The largest IPO in India’s markets to date was Reliance Power Ltd.’s share sale in January 2008, which raised 115.6 billion rupees, according to Bloomberg data.
SJVN Ltd., a state-owned Indian power utility, plans to offer shares for 23 rupees to 26 rupees each in a sale that opens on April 29, according to a release from the company.
The government is auctioning spectrum for operating 3G services in India’s 22 designated telephone zones. The plan to sell 93 licenses to provide high-speed data to mobile phones and computers may raise an estimated 500 billion rupees.
Monday, April 26, 2010
India's Poor to Get $2 for Lost Wages While Getting Eye Scans for Database
Billionaire Nandan Nilekani, who heads the government agency tasked with giving Indians a unique identity number, said the country will offer $2 to its poorest to compensate them for lost wages while they get iris scans.
India’s Finance Commission has granted 30 billion rupees ($676 million) over five years to the Nilekani-headed Unique Identification Authority of India to entice the nation’s poor to sign up for the world’s largest biometric database.
“Since the poor have to forego their income and go through great inconvenience to get the number, they should get reimbursed at least 100 rupees,” Nilekani, one of the founders of Bangalore-based software developer Infosys Technologies Ltd., said at a press conference in New Delhi yesterday. He stepped down as co-chairman of Infosys in July to set up the authority.
India appointed Nilekani to set up a fraud-proof system that will help the government provide access to banking services and state benefits such as food subsidies to the poorest, who are often excluded because they can’t prove their identity. Subsidies accounted for about 13 percent of the government’s total expenditure in the year ended March 31.
The plan to set up an identity database is part of Prime Minister Manmohan Singh’s effort to increase incomes and provide benefits to more of the 456 million Indians the World Bank says live on less than $1.25 a day.
Nilekani and his family rank 721st in Forbes magazine’s list of world billionaires.
Iris Scans
The authority plans to provide the first set of numbers between August through February, said its Director General R.S. Sharma at the press conference today. The agency plans to cover at least half of India’s 1.2 billion people by the summer of 2014.
The agency decided to use iris scans in addition to fingerprints because people engaged in activities such as making local hand-rolled cigarettes called bidis have worn out fingerprints, Sharma said. The authority is in the process of hiring companies to develop software to build the database that will include names, dates of birth and iris scans, he said.
The enrollment incentive will be given only to the poorest, identified as those living below the so-called poverty line, Nilekani said.
Finance Minister Pranab Mukherjee has allocated 19 billion rupees to the authority for this financial year, which ends March 31.
India, the world’s fastest-growing major economy after China, may expand by as much as 8.25 percent in the year that began April 1, Prime Minister Singh said last week.
India’s Finance Commission has granted 30 billion rupees ($676 million) over five years to the Nilekani-headed Unique Identification Authority of India to entice the nation’s poor to sign up for the world’s largest biometric database.
“Since the poor have to forego their income and go through great inconvenience to get the number, they should get reimbursed at least 100 rupees,” Nilekani, one of the founders of Bangalore-based software developer Infosys Technologies Ltd., said at a press conference in New Delhi yesterday. He stepped down as co-chairman of Infosys in July to set up the authority.
India appointed Nilekani to set up a fraud-proof system that will help the government provide access to banking services and state benefits such as food subsidies to the poorest, who are often excluded because they can’t prove their identity. Subsidies accounted for about 13 percent of the government’s total expenditure in the year ended March 31.
The plan to set up an identity database is part of Prime Minister Manmohan Singh’s effort to increase incomes and provide benefits to more of the 456 million Indians the World Bank says live on less than $1.25 a day.
Nilekani and his family rank 721st in Forbes magazine’s list of world billionaires.
Iris Scans
The authority plans to provide the first set of numbers between August through February, said its Director General R.S. Sharma at the press conference today. The agency plans to cover at least half of India’s 1.2 billion people by the summer of 2014.
The agency decided to use iris scans in addition to fingerprints because people engaged in activities such as making local hand-rolled cigarettes called bidis have worn out fingerprints, Sharma said. The authority is in the process of hiring companies to develop software to build the database that will include names, dates of birth and iris scans, he said.
The enrollment incentive will be given only to the poorest, identified as those living below the so-called poverty line, Nilekani said.
Finance Minister Pranab Mukherjee has allocated 19 billion rupees to the authority for this financial year, which ends March 31.
India, the world’s fastest-growing major economy after China, may expand by as much as 8.25 percent in the year that began April 1, Prime Minister Singh said last week.
Inflation Is `Big Worry' for India's Economy, Reserve Bank's Subbarao Says
April 27 (Bloomberg) --- Reserve Bank of India Governor Duvvuri Subbarao said faster inflation is a “big worry” for the country’s economy and the central bank plans to remove monetary stimulus in a gradual manner to ensure sustained growth.
While the tightening of monetary policy may be “anti- growth” in the short term, it is “certainly in the best interest” of the economy in the longer term, Subbarao said in a speech yesterday at the Peterson Institute for International Economics in Washington. The country’s central bank chief on April 20 raised three policy rates by a quarter point each to slow inflation from a 17-month high.
“The big worry is inflation,” Subbarao said. “Supply- side inflation pressures are abating only gradually, meanwhile demand-side pressures are building up.”
Benchmark wholesale-price inflation in India accelerated to 9.9 percent in March, the fastest in 17 months, government data showed. Consumer prices paid by industrial workers in India rose 14.9 percent in February from a year earlier. The price pressures are in part due to the lack of adequate infrastructure such as roads and ports.
To combat inflation, the RBI last week raised the benchmark reverse-repurchase rate to 3.75 percent from 3.5 percent and the repurchase rate to 5.25 percent from 5 percent. It also ordered lenders to set aside more cash as reserves, raising the cash reserve ratio to 6 percent from 5.75 percent.
“We have begun the process of monetary tightening in earnest,” Subbarao said. “We need to be calibrated” in exiting from fiscal and monetary stimulus because private consumption and investment haven’t fully recovered, he said.
Leading Global Recovery
In Asia, which is leading the recovery from the global recession, central banks including Malaysia and Vietnam are also raising interest rates or taking steps to remove excess cash from their banking systems to fend off inflation risks.
India’s $1.2 trillion economy, Asia’s largest after Japan and China, probably expanded as much as 7.5 percent in the fiscal year ended March 31, and may grow 8 percent in the current year, Subbarao said yesterday. The International Monetary Fund estimates India will expand 8.8 percent this year and 8.4 percent next year, higher than it projected in January.
“India’s growth is getting more broad-based,” Subbarao said. “Industrial growth is quite robust. Credit growth is picking up.”
While India is coping with the fastest inflation among Group of 20 nations, “supportive liquidity conditions” are needed to help the government sell more debt, the RBI chief said last week when he raised rates for the second time in a month.
Capital Flows
Emerging markets need to take urgent action on the surge of liquidity and capital flowing into their economies because they could spur inflation and trigger another crisis, economists at Standard Chartered Plc wrote in a report.
India may attract large capital flows from overseas, posing a “challenge” for currency and monetary management, Subbarao said in a statement April 24.
India “may well employ” some form of capital controls on inflows should such investments surge, he said yesterday.
“If capital flows resume and we intervene in the foreign exchange markets for whatever reason, there’ll be pressures on the liquidity side, and that will put further pressures on inflation,” he said, adding that he was not suggesting the central bank will step in.
A lack of intervention may raise concerns about an appreciation of the rupee, which would hurt export growth, he said. India’s currency is the second-best performer in Asia this year, having climbed 4.8 percent against the dollar compared with a gain of 7.6 percent for Malaysia’s ringgit.
While the tightening of monetary policy may be “anti- growth” in the short term, it is “certainly in the best interest” of the economy in the longer term, Subbarao said in a speech yesterday at the Peterson Institute for International Economics in Washington. The country’s central bank chief on April 20 raised three policy rates by a quarter point each to slow inflation from a 17-month high.
“The big worry is inflation,” Subbarao said. “Supply- side inflation pressures are abating only gradually, meanwhile demand-side pressures are building up.”
Benchmark wholesale-price inflation in India accelerated to 9.9 percent in March, the fastest in 17 months, government data showed. Consumer prices paid by industrial workers in India rose 14.9 percent in February from a year earlier. The price pressures are in part due to the lack of adequate infrastructure such as roads and ports.
To combat inflation, the RBI last week raised the benchmark reverse-repurchase rate to 3.75 percent from 3.5 percent and the repurchase rate to 5.25 percent from 5 percent. It also ordered lenders to set aside more cash as reserves, raising the cash reserve ratio to 6 percent from 5.75 percent.
“We have begun the process of monetary tightening in earnest,” Subbarao said. “We need to be calibrated” in exiting from fiscal and monetary stimulus because private consumption and investment haven’t fully recovered, he said.
Leading Global Recovery
In Asia, which is leading the recovery from the global recession, central banks including Malaysia and Vietnam are also raising interest rates or taking steps to remove excess cash from their banking systems to fend off inflation risks.
India’s $1.2 trillion economy, Asia’s largest after Japan and China, probably expanded as much as 7.5 percent in the fiscal year ended March 31, and may grow 8 percent in the current year, Subbarao said yesterday. The International Monetary Fund estimates India will expand 8.8 percent this year and 8.4 percent next year, higher than it projected in January.
“India’s growth is getting more broad-based,” Subbarao said. “Industrial growth is quite robust. Credit growth is picking up.”
While India is coping with the fastest inflation among Group of 20 nations, “supportive liquidity conditions” are needed to help the government sell more debt, the RBI chief said last week when he raised rates for the second time in a month.
Capital Flows
Emerging markets need to take urgent action on the surge of liquidity and capital flowing into their economies because they could spur inflation and trigger another crisis, economists at Standard Chartered Plc wrote in a report.
India may attract large capital flows from overseas, posing a “challenge” for currency and monetary management, Subbarao said in a statement April 24.
India “may well employ” some form of capital controls on inflows should such investments surge, he said yesterday.
“If capital flows resume and we intervene in the foreign exchange markets for whatever reason, there’ll be pressures on the liquidity side, and that will put further pressures on inflation,” he said, adding that he was not suggesting the central bank will step in.
A lack of intervention may raise concerns about an appreciation of the rupee, which would hurt export growth, he said. India’s currency is the second-best performer in Asia this year, having climbed 4.8 percent against the dollar compared with a gain of 7.6 percent for Malaysia’s ringgit.
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