June 5 (Bloomberg) -- Asian currencies declined this week, led by India’s rupee and South Korea’s won, as concern Europe’s debt crisis will slow the global economic recovery dimmed the outlook for exports and sapped demand for emerging-market assets.
Tensions on the Korean peninsula plagued the won, the region’s worst-performing currency this year, after a North Korean diplomat in Geneva warned “a war may break out at any moment” with its southern neighbor. Central banks in Indonesia and the Philippines kept interest rates at record lows, judging inflation isn’t yet a threat. The Group of 20 gathered for a weekend meeting in South Korea to discuss the debt crisis and the euro’s slide to a four-year low.
“There’s been a very strong correlation between Asian currencies and the euro, and that is why we haven’t seen a rise in Asian currencies this week,” said Tetsuo Yoshikoshi, a senior economist at Sumitomo Mitsui Banking Corp. in Singapore. “Fiscal problems in Europe have been and will be the big theme as people are thinking about the health of European banks.”
India’s rupee dropped 1 percent this week to 46.84 per dollar, according to data compiled by Bloomberg. The won fell 0.6 percent to 1,201.80, taking its loss for the year to 3.1 percent.
South Korea’s currency yesterday dropped as much as 1.2 percent after North Korea’s deputy ambassador to the UN offices in Geneva, Ri Jang Gon, said the South’s accusation that the communist nation sank one of its warships was a fabrication. South Korean President Lee Myung Bak will urge Pyongyang to forfeit its nuclear arsenal at a security conference in Singapore, the Wall Street Journal reported yesterday.
Forecasts Cut
Morgan Stanley, in a report dated June 3, lowered its forecasts for Asian currencies, including the won and the rupee, saying Europe’s debt crisis will cool demand for exports. The won will likely strengthen to 1,175 per dollar by year-end, compared with an earlier forecast of 1,050, the report said. India’s rupee may climb to 46, compared with the previous estimate of 43.50, it said.
India’s rupee dropped this week after overseas investors pared investment in the nation’s assets amid a surge in global financial-market volatility.
The currency added to last month’s 4.3 percent slide, the biggest since February 2009, as funds based abroad cut stock holdings by $2.1 billion from a record-high $79.4 billion reached on April 30. The rupee’s one-month implied volatility rate, a gauge of expected price swings, touched a 15-month high of 18.5 percent on May 26.
‘Vulnerable’ Rupee
“The rupee is the most vulnerable currency in Asia as it is reliant on support from equity inflows,” said Daniel Hui, a currency strategist at HSBC Holdings Plc in Hong Kong. “The Indian rupee is our least favorite” currency in Asia.
Losses in Asian currencies were limited this week as reports from the U.S. showed manufacturing expanded and home sales rose, fueling optimism a recovery is gaining traction in the world’s biggest economy.
Malaysia’s ringgit bucked the trend, strengthening for a second straight week. A government report released after the close of trading yesterday showed exports climbed 26.6 percent in April from a year earlier, less than the median gain of 38 percent forecast in a Bloomberg survey of economists.
The ringgit climbed 0.6 percent to 3.2750 per dollar, according to data compiled by Bloomberg. The currency has appreciated 2.9 percent since reaching a 12-week low of 3.3675 on May 26.
Thai Economy
Thailand’s baht declined for a fourth week after Bank of Thailand Deputy Governor Bandid Nijathaworn said on June 3 that expansion in Southeast Asia’s second-largest economy will slow this quarter because anti-government protests hurt tourism. The demonstrations, which began in March and ended after a military assault last month, led to riots and left more than 80 dead.
“Some people are afraid that the European debt crisis will get worse, while the Thai economy may be affected by the political turmoil,” said Paisarn Lertkowit, a currency trader at Bangkok Bank Pcl, the country’s biggest lender.
The baht slid 0.2 percent during the week to 32.61 per dollar in Bangkok. It touched 32.63 on June 1, the weakest level since March 15.
Indonesia’s rupiah and the Philippine peso declined this week after central banks left interest rates on hold to support economic growth amid the European crisis. Bank Indonesia kept its policy rate at 6.5 percent and Bangko Sentral ng Pilipinas’s stayed at 4 percent.
The rupiah fell 0.3 percent to 9,195 per dollar and the peso dropped 0.2 percent to 46.30. Singapore’s currency slipped 0.2 percent to S$1.4034.
“Global concerns are still eclipsing the very bullish fundamental stories in Asia,” said Hui at HSBC Holdings.
Friday, June 4, 2010
G-20 Signals Delay on Forcing Banks to Boost Capital
June 5 (Bloomberg) -- Group of 20 finance chiefs signaled they will delay introducing new rules aimed at forcing banks to raise the quality and quantity of capital they hold to buffer against financial crisis.
Finance ministers and central bankers conclude talks in Busan, South Korea, today in agreement that banks need to keep more assets on hand, yet split over the scale and timing of capital increases. With euro-area officials expressing concern that haste would hurt economic growth, U.K. Chancellor of the Exchequer George Osborne echoed U.S. Treasury Secretary Timothy F. Geithner in pushing for the new rules to be agreed this year, with the provision that enactment be delayed.
“Implementation is a variable,” Canadian Finance Minister Jim Flaherty, who is co-chair of this weekend’s meeting, told reporters in Busan. “I think that can be worked out over time. There could be a compromise over that.”
At stake for banks is the potential need to raise as much as $375 billion in fresh capital under the proposals being discussed, according to estimates by UBS AG. Companies from Deutsche Bank AG to Bank of America Corp. warn that forcing them to build up reserves quickly could lead them to cut lending, threatening their profits and imperiling the global recovery.
G-20 officials are debating how to define capital, Flaherty said. The issue is nevertheless too “complex” to be settled as soon as when President Barack Obama and his fellow G-20 leaders convene in Toronto this month, he said.
‘Right Direction’
“If we get some more work accomplished here this weekend, then I would expect the leaders in Toronto would be able to express with assurance that we’re going in the right direction, that we’re on time,” Flaherty said.
Leaders are scheduled to meet again in South Korea in November, the new target for a deal agreed to by Geithner yesterday. Geithner told South Korean Finance Minister Yoon Jeung-hyun that he backs crafting a final framework by then, according to a South Korean official speaking to reporters on condition of anonymity.
Osborne told reporters in Busan yesterday it was important to “end the uncertainty” facing financial markets by agreeing on a blueprint for reform this year even if its introduction may be postponed.
“There’ll be a delay in the implementation,” French Finance Minister Christine Lagarde said. “We also need to do a lot of technical work on the quality of the rules. These subjects are too complicated to be rushed.”
Global Recovery
Both the U.S. and Europe are advocating regulatory models that build on their own existing rulebooks and so would give their banks a competitive edge if implemented globally. Nations such as the U.S. whose economies are largely financed by markets want banks to hold more assets on their balance sheets. Policy makers in continental Europe, where banks provide more financing, are concerned too-high reserves would choke growth.
In a dinner session late yesterday in Busan, G-20 members agreed that global growth is coming back, with variation by region, Lagarde told reporters. She also said that the majority of the group now views deficit reduction as the top priority, with a minority arguing that measures to support growth should take precedence.
‘Grave Situation’
The officials gathered just as a slide in Hungary’s currency served as the latest reminder of investor angst over indebted governments. The forint fell to a 12-month low against the euro as the government warned of a “very grave situation.”
China’s central bank Governor Zhou Xiaochuan told reporters yesterday that his nation is “confident” the European Union and the European Central Bank will be able to contain the risks from the region’s debt crisis.
As they return to profit after governments spent $11 trillion aiding them through the credit crisis, banks are already warning regulators that forcing them to enhance capital levels could backfire if it hurts their ability to lend to customers and consumers. They want more time to be spent gauging the economic fallout from the new regulations.
“It is unrealistic to expect such significant capital raising to occur without a significant impact on lending, businesses and ultimately growth and employment,” Andrew Procter, Deutsche Bank’s global head of government and regulatory affairs, wrote in an April 16 letter to the Basel Committee on Banking Supervision, which is overseeing the rule- writing.
JPMorgan Chase & Co. predicted in February that annual earnings at 13 of the largest banks would drop by $20 billion.
Bank Levy
Banks should increase the quality of the capital they hold by the end of 2012, the Basel Committee said in a report on bank capital and liquidity published in December. The panel said banks must increase the amount of equity and retained earnings they hold to cope with losses better.
G-20 officials also indicated divisions over a proposal backed by the U.S. and some European nations to impose a levy on banks to cover the cost of potential future bailouts. India’s Finance Minister Pranab Mukherjee said in an interview in Busan yesterday that using regulatory measures “instead of taxing the banking system is better.” Flaherty said he saw no “evidence” of a consensus for a bank tax.
Still, German Finance Minister Wolfgang Schaeuble said he’s confident the U.K. and “many others” will join Germany in introducing a European levy in the absence of a G-20 pact.
“We will throw our weight behind European regulation and we won’t be alone in that,” Schaeuble said in an interview.
Japan’s delegation refrained from publicly backing the proposal.
“We have no intention to do something new for the time being,” Vice Finance Minister Naoki Minezaki said today. “Japan has already set up various systems,” including a deposit insurance system. “We should take positively that other countries set up such systems.”
The G-20 accounts for about 85 percent of global GDP. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., U.K. and EU.
Finance ministers and central bankers conclude talks in Busan, South Korea, today in agreement that banks need to keep more assets on hand, yet split over the scale and timing of capital increases. With euro-area officials expressing concern that haste would hurt economic growth, U.K. Chancellor of the Exchequer George Osborne echoed U.S. Treasury Secretary Timothy F. Geithner in pushing for the new rules to be agreed this year, with the provision that enactment be delayed.
“Implementation is a variable,” Canadian Finance Minister Jim Flaherty, who is co-chair of this weekend’s meeting, told reporters in Busan. “I think that can be worked out over time. There could be a compromise over that.”
At stake for banks is the potential need to raise as much as $375 billion in fresh capital under the proposals being discussed, according to estimates by UBS AG. Companies from Deutsche Bank AG to Bank of America Corp. warn that forcing them to build up reserves quickly could lead them to cut lending, threatening their profits and imperiling the global recovery.
G-20 officials are debating how to define capital, Flaherty said. The issue is nevertheless too “complex” to be settled as soon as when President Barack Obama and his fellow G-20 leaders convene in Toronto this month, he said.
‘Right Direction’
“If we get some more work accomplished here this weekend, then I would expect the leaders in Toronto would be able to express with assurance that we’re going in the right direction, that we’re on time,” Flaherty said.
Leaders are scheduled to meet again in South Korea in November, the new target for a deal agreed to by Geithner yesterday. Geithner told South Korean Finance Minister Yoon Jeung-hyun that he backs crafting a final framework by then, according to a South Korean official speaking to reporters on condition of anonymity.
Osborne told reporters in Busan yesterday it was important to “end the uncertainty” facing financial markets by agreeing on a blueprint for reform this year even if its introduction may be postponed.
“There’ll be a delay in the implementation,” French Finance Minister Christine Lagarde said. “We also need to do a lot of technical work on the quality of the rules. These subjects are too complicated to be rushed.”
Global Recovery
Both the U.S. and Europe are advocating regulatory models that build on their own existing rulebooks and so would give their banks a competitive edge if implemented globally. Nations such as the U.S. whose economies are largely financed by markets want banks to hold more assets on their balance sheets. Policy makers in continental Europe, where banks provide more financing, are concerned too-high reserves would choke growth.
In a dinner session late yesterday in Busan, G-20 members agreed that global growth is coming back, with variation by region, Lagarde told reporters. She also said that the majority of the group now views deficit reduction as the top priority, with a minority arguing that measures to support growth should take precedence.
‘Grave Situation’
The officials gathered just as a slide in Hungary’s currency served as the latest reminder of investor angst over indebted governments. The forint fell to a 12-month low against the euro as the government warned of a “very grave situation.”
China’s central bank Governor Zhou Xiaochuan told reporters yesterday that his nation is “confident” the European Union and the European Central Bank will be able to contain the risks from the region’s debt crisis.
As they return to profit after governments spent $11 trillion aiding them through the credit crisis, banks are already warning regulators that forcing them to enhance capital levels could backfire if it hurts their ability to lend to customers and consumers. They want more time to be spent gauging the economic fallout from the new regulations.
“It is unrealistic to expect such significant capital raising to occur without a significant impact on lending, businesses and ultimately growth and employment,” Andrew Procter, Deutsche Bank’s global head of government and regulatory affairs, wrote in an April 16 letter to the Basel Committee on Banking Supervision, which is overseeing the rule- writing.
JPMorgan Chase & Co. predicted in February that annual earnings at 13 of the largest banks would drop by $20 billion.
Bank Levy
Banks should increase the quality of the capital they hold by the end of 2012, the Basel Committee said in a report on bank capital and liquidity published in December. The panel said banks must increase the amount of equity and retained earnings they hold to cope with losses better.
G-20 officials also indicated divisions over a proposal backed by the U.S. and some European nations to impose a levy on banks to cover the cost of potential future bailouts. India’s Finance Minister Pranab Mukherjee said in an interview in Busan yesterday that using regulatory measures “instead of taxing the banking system is better.” Flaherty said he saw no “evidence” of a consensus for a bank tax.
Still, German Finance Minister Wolfgang Schaeuble said he’s confident the U.K. and “many others” will join Germany in introducing a European levy in the absence of a G-20 pact.
“We will throw our weight behind European regulation and we won’t be alone in that,” Schaeuble said in an interview.
Japan’s delegation refrained from publicly backing the proposal.
“We have no intention to do something new for the time being,” Vice Finance Minister Naoki Minezaki said today. “Japan has already set up various systems,” including a deposit insurance system. “We should take positively that other countries set up such systems.”
The G-20 accounts for about 85 percent of global GDP. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., U.K. and EU.
Morgan Stanley to Double Private Bankers in Asia
June 4 (Bloomberg) -- Morgan Stanley plans to double its private bankers in Asia over the next three years as Chief Executive Officer James Gorman aims to boost profits from the global wealth management unit that he’d previously helmed.
The company plans to hire almost 100 bankers in the region this year, Charles Mak, head of private wealth management for Asia, said in an interview. It also appointed Nick Chan, an ex- Goldman Sachs Group Inc. banker who was running New York-based Morgan Stanley’s Indonesian private bank, to a newly-created recruiting and staff development role for Mak’s group this year.
“This will be our most aggressive expansion in the private wealth space in Asia,” Mak said by telephone from Hong Kong. “This region has the best economic growth, the highest levels of wealth creation, and many players are coming to this part of the world, or are expanding.”
The bank is competing with rivals including UBS AG, Citigroup Inc., Credit Suisse Group AG and Julius Baer Group Ltd. to hire financial advisers in a market with an estimated $7.4 trillion of private riches. Growth in the region’s wealth will outstrip the global average as its economies outperform, Capgemini SA and Merrill Lynch Wealth Management said in October.
Morgan Stanley provides services for the so-called ultra- high net worth segment in Asia, aiming at clients who have at least $10 million in wealth. In India and Australia, it also targets people starting with $1 million or more.
Global Operations
Separately today, Morgan Stanley said its Asia chairman Stephen Roach will relocate to New York from Hong Kong and become its non-executive chairman for Asia. The move will take effect on July 1.
Pretax profit for Morgan Stanley’s global-wealth management unit more than doubled to $278 million for the first quarter. The company paid $2.75 billion in cash in June 2009 to create the world’s largest brokerage by gaining control of Citigroup Inc.’s Smith Barney and the biggest U.S. team of financial advisers.
Gorman, who led the brokerage before succeeding John Mack at the helm of Morgan Stanley in January, said in a letter to shareholders in April that the joint venture will play “an increasingly important role in our growth and profitability.”
Morgan Stanley Smith Barney President Charles Johnston has said the venture will look to expand outside the U.S. because those markets are set to grow faster. The unit employed about 18,140 advisers globally and managed client assets of about $1.6 trillion at the end of the quarter, Morgan Stanley said April 21.
Chan, 39, will relocate to Hong Kong from Singapore next week. He joined Morgan Stanley in 2006 with three of his five- member team from Goldman Sachs. He had previously overseen the private banking business in Indonesia from Singapore for Goldman Sachs, after starting his career in investment banking with Smith Barney Asia Inc. in 1994 in Hong Kong.
The company plans to hire almost 100 bankers in the region this year, Charles Mak, head of private wealth management for Asia, said in an interview. It also appointed Nick Chan, an ex- Goldman Sachs Group Inc. banker who was running New York-based Morgan Stanley’s Indonesian private bank, to a newly-created recruiting and staff development role for Mak’s group this year.
“This will be our most aggressive expansion in the private wealth space in Asia,” Mak said by telephone from Hong Kong. “This region has the best economic growth, the highest levels of wealth creation, and many players are coming to this part of the world, or are expanding.”
The bank is competing with rivals including UBS AG, Citigroup Inc., Credit Suisse Group AG and Julius Baer Group Ltd. to hire financial advisers in a market with an estimated $7.4 trillion of private riches. Growth in the region’s wealth will outstrip the global average as its economies outperform, Capgemini SA and Merrill Lynch Wealth Management said in October.
Morgan Stanley provides services for the so-called ultra- high net worth segment in Asia, aiming at clients who have at least $10 million in wealth. In India and Australia, it also targets people starting with $1 million or more.
Global Operations
Separately today, Morgan Stanley said its Asia chairman Stephen Roach will relocate to New York from Hong Kong and become its non-executive chairman for Asia. The move will take effect on July 1.
Pretax profit for Morgan Stanley’s global-wealth management unit more than doubled to $278 million for the first quarter. The company paid $2.75 billion in cash in June 2009 to create the world’s largest brokerage by gaining control of Citigroup Inc.’s Smith Barney and the biggest U.S. team of financial advisers.
Gorman, who led the brokerage before succeeding John Mack at the helm of Morgan Stanley in January, said in a letter to shareholders in April that the joint venture will play “an increasingly important role in our growth and profitability.”
Morgan Stanley Smith Barney President Charles Johnston has said the venture will look to expand outside the U.S. because those markets are set to grow faster. The unit employed about 18,140 advisers globally and managed client assets of about $1.6 trillion at the end of the quarter, Morgan Stanley said April 21.
Chan, 39, will relocate to Hong Kong from Singapore next week. He joined Morgan Stanley in 2006 with three of his five- member team from Goldman Sachs. He had previously overseen the private banking business in Indonesia from Singapore for Goldman Sachs, after starting his career in investment banking with Smith Barney Asia Inc. in 1994 in Hong Kong.
Mukherjee Says Wider European Crisis Would Hurt India
June 4 (Bloomberg) -- India’s economy would be hurt should the sovereign debt crisis that originated in Greece spread in Europe, Finance Minister Pranab Mukherjee said.
“If the whole of Europe is affected by the debt crisis it will be harmful to us,” Mukherjee said today in an interview in Busan, South Korea, where he is attending a meeting of finance officials from the Group of 20 nations.
The European Union is India’s biggest overseas market, accounting for a fifth of the nation’s merchandise exports. The South Asian nation, which opened its market to foreign investors in 1991, has become vulnerable to slowdowns and financial crises abroad as exports play a bigger role in the economy.
Trade represented 35 percent of gross domestic product for the year ended March 31, 2008, up from 21 percent in 1997-98, the year of the Asian financial crisis, according to the central bank.
India’s economic growth accelerated to 8.6 percent last quarter, the fastest pace after China among the world’s major economies.
Growing consumer demand is stoking inflation, with the benchmark wholesale-price index climbing 9.59 percent in April.
Inflation is “an area of concern, but I’m not pressing the panic button,” Mukherjee said. “There is a disturbing signal as core inflation is likely to go up.”
Core Inflation
Core inflation, which excludes food and fuel prices, is currently close to 6 percent from 1.8 percent at the end of 2009, Kaushik Basu, chief economic adviser in the finance ministry, said yesterday.
The Reserve Bank of India has raised interest rates twice since mid-March by a quarter percentage point each time. The bank’s benchmark reverse-repurchase rate is 3.75 percent.
Last month, Subir Gokarn, the deputy governor in charge of monetary policy at the Reserve Bank, said the central bank will pursue a “cautious” pace of monetary tightening because of risks to growth posed by Europe.
The G-20 is meeting at a time when the U.S. and Europe are split on the scale and timing of increases in bank-capital requirements, which have been under discussion since governments were forced to bail out lenders, an official from a G-20 government said.
Countries such as the U.S., whose economies are largely financed by markets, want banks to be required to hold more assets on their balance sheets to buffer against future crises, the official told reporters on condition he not be named.
Policy makers in continental Europe, where banks provide more financing, are concerned that too-high reserves risk choking off growth, the official said.
Mukherjee said “regulated mechanisms, instead of taxing the banking system, are better,” without providing details.
“If the whole of Europe is affected by the debt crisis it will be harmful to us,” Mukherjee said today in an interview in Busan, South Korea, where he is attending a meeting of finance officials from the Group of 20 nations.
The European Union is India’s biggest overseas market, accounting for a fifth of the nation’s merchandise exports. The South Asian nation, which opened its market to foreign investors in 1991, has become vulnerable to slowdowns and financial crises abroad as exports play a bigger role in the economy.
Trade represented 35 percent of gross domestic product for the year ended March 31, 2008, up from 21 percent in 1997-98, the year of the Asian financial crisis, according to the central bank.
India’s economic growth accelerated to 8.6 percent last quarter, the fastest pace after China among the world’s major economies.
Growing consumer demand is stoking inflation, with the benchmark wholesale-price index climbing 9.59 percent in April.
Inflation is “an area of concern, but I’m not pressing the panic button,” Mukherjee said. “There is a disturbing signal as core inflation is likely to go up.”
Core Inflation
Core inflation, which excludes food and fuel prices, is currently close to 6 percent from 1.8 percent at the end of 2009, Kaushik Basu, chief economic adviser in the finance ministry, said yesterday.
The Reserve Bank of India has raised interest rates twice since mid-March by a quarter percentage point each time. The bank’s benchmark reverse-repurchase rate is 3.75 percent.
Last month, Subir Gokarn, the deputy governor in charge of monetary policy at the Reserve Bank, said the central bank will pursue a “cautious” pace of monetary tightening because of risks to growth posed by Europe.
The G-20 is meeting at a time when the U.S. and Europe are split on the scale and timing of increases in bank-capital requirements, which have been under discussion since governments were forced to bail out lenders, an official from a G-20 government said.
Countries such as the U.S., whose economies are largely financed by markets, want banks to be required to hold more assets on their balance sheets to buffer against future crises, the official told reporters on condition he not be named.
Policy makers in continental Europe, where banks provide more financing, are concerned that too-high reserves risk choking off growth, the official said.
Mukherjee said “regulated mechanisms, instead of taxing the banking system, are better,” without providing details.
Service Industries in U.S. Probably Grew by Most Since 2006
June 3 (Bloomberg) -- Service industries expanded in May at the fastest pace in four years, showing the U.S. recovery is broadening as employment improves, economists said before reports today.
The Institute for Supply Management’s index of non- manufacturing businesses, which covers almost 90 percent of the economy, rose to 55.6 from 55.4 in April, according to the median forecast of 76 economists surveyed by Bloomberg News. Other reports may show firings eased and private payrolls rose.
Companies increased staffs by almost half a million workers through April, leading to gains in incomes and spending that will help sustain the economic rebound after government support wanes. Target Corp. and Dow Chemical Co. are among those seeing a pickup in sales that indicates confidence is growing even as the European debt crisis roils financial markets.
“We seem to be transitioning from a recovery supported by fiscal stimulus and inventories to one more supported by underlying demand from the consumer and businesses,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.
The Tempe, Arizona-based ISM’s report is due at 10 a.m. in New York. Readings greater than 50 point to expansion, and survey estimates ranged from 53.9 to 57. Last month’s projected outcome would be the highest since May 2006.
Payrolls, Claims
A report from ADP Employer Services due at 8:15 a.m. is forecast to show businesses added 70,000 jobs in May, the best performance since the recession began in December 2007, according to the survey median. Figures from the Labor Department at 8:30 a.m. may show the number of claims for jobless benefits fell for a second week, to 455,000, according to the median projection.
The releases come a day before the Labor Department’s monthly jobs report. Payrolls climbed by 515,000 in May, the fifth straight month of gains and the biggest since 1983, according the median forecast. The jump probably reflected a surge in government hiring of temporary help to conduct the census and a 175,000 increase in private employment.
The ADP report doesn’t include government jobs, meaning it isn’t picking up the increase in federal census hiring.
Private employment has grown by 483,000 workers in the first four months of the year, according to figures from the Labor Department. Wages and salaries advanced 1.4 percent over the period, the best four-month gain in two years.
Factory Orders
Also today, a 10 a.m. Commerce Department report may show factory orders rose 1.8 percent, according to the survey median. Factories helped kick-start the recovery from the worst recession since the 1930s as exports grew and companies replenished depleted stockpiles.
Figures from the supply managers’ group on June 1 showed manufacturing grew in May at a faster pace than forecast as factories added workers, sales overseas rose at the fastest pace in two decades and U.S. orders also climbed.
Midland, Michigan-based Dow, the world’s second-largest chemical maker, yesterday said financial markets shouldn’t panic over the European debt crisis or concern growth in China will slow because its sales show consumer demand is improving in both regions.
“We are seeing good momentum and the momentum is continuing in the second quarter,” Dow’s Chief Executive Officer Andrew Liveris said in a webcast from New York. U.S. consumer spending is rising on everything from appliances and cars to electronics, he said.
Target Earnings
Other areas are now also seeing improvement. Target, the second-largest U.S. discount retailer, last month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes.
Concern over Europe’s sovereign-debt crisis, heightened tensions on the Korean peninsula and Middle East, and the oil spill in the Gulf of Mexico have combined to hurt shares. The Standard & Poor’s 500 Index has dropped 9.8 percent since reaching a 19-month high on April 23.
Bloomberg Survey
=============================================================
ADP Initial Factory ISM Non-
Payroll Claims Orders Manu
,000’s ,000’s MOM% Index
=============================================================
Date of Release 06/03 06/03 06/03 06/03
Observation Period May 29-May April May
-------------------------------------------------------------
Median 70 455 1.8% 55.6
Average 77 453 1.8% 55.6
High Forecast 180 475 3.5% 57.0
Low Forecast 35 440 0.6% 53.9
Number of Participants 34 41 68 76
Previous 32 460 1.1% 55.4
-------------------------------------------------------------
4CAST Ltd. 50 455 1.7% 55.5
Action Economics 40 450 1.8% 55.5
Aletti Gestielle SGR --- --- 2.2% 56.5
Ameriprise Financial 180 --- 0.8% 55.0
Banesto 55 --- 0.9% 55.6
Bank of Tokyo- Mitsubishi --- 456 1.7% 53.9
Bantleon Bank AG --- --- 2.3% 55.7
Barclays Capital --- 455 1.5% 56.0
Bayerische Landesbank --- --- 1.6% 55.7
BBVA 52 458 1.4% 55.6
BMO Capital Markets 60 450 1.9% 56.0
BNP Paribas 75 445 3.5% 56.0
BofA Merrill Lynch Research 70 450 2.5% 54.5
Briefing.com 60 450 2.0% 55.7
Capital Economics --- --- 1.8% 57.0
CIBC World Markets --- --- 3.5% 54.0
Citi --- 440 1.9% 55.0
ClearView Economics --- --- 2.0% 56.0
Commerzbank AG 90 --- 2.0% 55.5
Credit Agricole CIB --- --- 1.5% ---
Credit Suisse --- 445 2.0% 55.0
Daiwa Securities America --- --- 2.0% 55.5
Danske Bank --- --- --- 55.7
DekaBank --- --- 1.4% 56.0
Desjardins Group --- 455 1.8% 55.0
Deutsche Bank Securities --- --- 1.0% 55.0
Deutsche Postbank AG --- --- --- 55.8
DZ Bank 90 --- 1.5% 56.6
First Trust Advisors --- 448 2.0% 55.2
Fortis --- --- 1.5% 56.0
FTN Financial --- --- --- 55.0
Goldman, Sachs & Co. --- --- 1.5% 55.5
Helaba --- 450 1.6% 55.0
High Frequency Economics 100 460 2.9% 57.0
HSBC Markets 100 460 1.7% 56.0
IDEAglobal 100 445 0.8% 57.0
IHS Global Insight --- --- --- 55.0
Informa Global Markets 65 455 1.7% 54.0
ING Financial Markets 75 450 1.8% 55.5
Insight Economics 100 --- 1.5% 56.0
Intesa-SanPaulo --- --- --- 55.8
J.P. Morgan Chase --- 445 2.0% 54.0
Janney Montgomery Scott 70 --- 2.1% 55.0
Jefferies & Co. 50 470 1.5% 57.0
Johnson Illington Advisors --- --- --- 56.0
Landesbank Berlin --- 440 2.0% 55.5
Landesbank BW 70 --- 1.5% 56.0
Maria Fiorini Ramirez --- 450 2.5% 56.0
MF Global --- 455 2.0% 54.5
MFC Global Investment --- 450 2.0% 56.0
Mizuho Securities 50 460 1.5% 55.0
Moody’s Economy.com 150 455 1.5% 56.5
Morgan Keegan & Co. --- --- 2.5% ---
National Bank Financial --- --- --- 56.5
Natixis 60 --- --- 55.9
Nomura Securities Intl. 160 --- 1.3% 57.0
Nord/LB 50 450 0.6% 55.5
Pierpont Securities LLC --- 460 2.5% 55.7
PineBridge Investments --- --- 2.5% 57.0
PNC Bank --- --- 1.8% 54.5
Prestige Economics --- --- --- 55.5
Raiffeisen Zentralbank --- --- 1.0% ---
Raymond James --- 445 1.4% 56.0
Ried, Thunberg & Co. --- 455 2.0% 57.0
Scotia Capital 60 460 1.1% 55.4
Societe Generale --- --- --- 55.5
Standard Chartered 35 --- 1.0% 55.0
State Street Global Markets 74 456 1.9% 55.9
Stone & McCarthy Research --- 475 1.5% 54.2
TD Securities 70 450 1.6% 55.0
Thomson Reuters/IFR 85 455 1.9% 55.3
UBS --- 455 1.7% 55.0
UniCredit Research --- 445 --- 55.5
University of Maryland 50 450 1.6% 56.0
Wells Fargo & Co. --- --- 1.9% 55.4
WestLB AG 55 --- 1.1% 55.8
Westpac Banking Co. 35 460 2.5% 55.0
Woodley Park Research --- --- 1.9% 55.0
Wrightson Associates 125 455 2.0% 56.0
=============================================================
The Institute for Supply Management’s index of non- manufacturing businesses, which covers almost 90 percent of the economy, rose to 55.6 from 55.4 in April, according to the median forecast of 76 economists surveyed by Bloomberg News. Other reports may show firings eased and private payrolls rose.
Companies increased staffs by almost half a million workers through April, leading to gains in incomes and spending that will help sustain the economic rebound after government support wanes. Target Corp. and Dow Chemical Co. are among those seeing a pickup in sales that indicates confidence is growing even as the European debt crisis roils financial markets.
“We seem to be transitioning from a recovery supported by fiscal stimulus and inventories to one more supported by underlying demand from the consumer and businesses,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.
The Tempe, Arizona-based ISM’s report is due at 10 a.m. in New York. Readings greater than 50 point to expansion, and survey estimates ranged from 53.9 to 57. Last month’s projected outcome would be the highest since May 2006.
Payrolls, Claims
A report from ADP Employer Services due at 8:15 a.m. is forecast to show businesses added 70,000 jobs in May, the best performance since the recession began in December 2007, according to the survey median. Figures from the Labor Department at 8:30 a.m. may show the number of claims for jobless benefits fell for a second week, to 455,000, according to the median projection.
The releases come a day before the Labor Department’s monthly jobs report. Payrolls climbed by 515,000 in May, the fifth straight month of gains and the biggest since 1983, according the median forecast. The jump probably reflected a surge in government hiring of temporary help to conduct the census and a 175,000 increase in private employment.
The ADP report doesn’t include government jobs, meaning it isn’t picking up the increase in federal census hiring.
Private employment has grown by 483,000 workers in the first four months of the year, according to figures from the Labor Department. Wages and salaries advanced 1.4 percent over the period, the best four-month gain in two years.
Factory Orders
Also today, a 10 a.m. Commerce Department report may show factory orders rose 1.8 percent, according to the survey median. Factories helped kick-start the recovery from the worst recession since the 1930s as exports grew and companies replenished depleted stockpiles.
Figures from the supply managers’ group on June 1 showed manufacturing grew in May at a faster pace than forecast as factories added workers, sales overseas rose at the fastest pace in two decades and U.S. orders also climbed.
Midland, Michigan-based Dow, the world’s second-largest chemical maker, yesterday said financial markets shouldn’t panic over the European debt crisis or concern growth in China will slow because its sales show consumer demand is improving in both regions.
“We are seeing good momentum and the momentum is continuing in the second quarter,” Dow’s Chief Executive Officer Andrew Liveris said in a webcast from New York. U.S. consumer spending is rising on everything from appliances and cars to electronics, he said.
Target Earnings
Other areas are now also seeing improvement. Target, the second-largest U.S. discount retailer, last month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes.
Concern over Europe’s sovereign-debt crisis, heightened tensions on the Korean peninsula and Middle East, and the oil spill in the Gulf of Mexico have combined to hurt shares. The Standard & Poor’s 500 Index has dropped 9.8 percent since reaching a 19-month high on April 23.
Bloomberg Survey
=============================================================
ADP Initial Factory ISM Non-
Payroll Claims Orders Manu
,000’s ,000’s MOM% Index
=============================================================
Date of Release 06/03 06/03 06/03 06/03
Observation Period May 29-May April May
-------------------------------------------------------------
Median 70 455 1.8% 55.6
Average 77 453 1.8% 55.6
High Forecast 180 475 3.5% 57.0
Low Forecast 35 440 0.6% 53.9
Number of Participants 34 41 68 76
Previous 32 460 1.1% 55.4
-------------------------------------------------------------
4CAST Ltd. 50 455 1.7% 55.5
Action Economics 40 450 1.8% 55.5
Aletti Gestielle SGR --- --- 2.2% 56.5
Ameriprise Financial 180 --- 0.8% 55.0
Banesto 55 --- 0.9% 55.6
Bank of Tokyo- Mitsubishi --- 456 1.7% 53.9
Bantleon Bank AG --- --- 2.3% 55.7
Barclays Capital --- 455 1.5% 56.0
Bayerische Landesbank --- --- 1.6% 55.7
BBVA 52 458 1.4% 55.6
BMO Capital Markets 60 450 1.9% 56.0
BNP Paribas 75 445 3.5% 56.0
BofA Merrill Lynch Research 70 450 2.5% 54.5
Briefing.com 60 450 2.0% 55.7
Capital Economics --- --- 1.8% 57.0
CIBC World Markets --- --- 3.5% 54.0
Citi --- 440 1.9% 55.0
ClearView Economics --- --- 2.0% 56.0
Commerzbank AG 90 --- 2.0% 55.5
Credit Agricole CIB --- --- 1.5% ---
Credit Suisse --- 445 2.0% 55.0
Daiwa Securities America --- --- 2.0% 55.5
Danske Bank --- --- --- 55.7
DekaBank --- --- 1.4% 56.0
Desjardins Group --- 455 1.8% 55.0
Deutsche Bank Securities --- --- 1.0% 55.0
Deutsche Postbank AG --- --- --- 55.8
DZ Bank 90 --- 1.5% 56.6
First Trust Advisors --- 448 2.0% 55.2
Fortis --- --- 1.5% 56.0
FTN Financial --- --- --- 55.0
Goldman, Sachs & Co. --- --- 1.5% 55.5
Helaba --- 450 1.6% 55.0
High Frequency Economics 100 460 2.9% 57.0
HSBC Markets 100 460 1.7% 56.0
IDEAglobal 100 445 0.8% 57.0
IHS Global Insight --- --- --- 55.0
Informa Global Markets 65 455 1.7% 54.0
ING Financial Markets 75 450 1.8% 55.5
Insight Economics 100 --- 1.5% 56.0
Intesa-SanPaulo --- --- --- 55.8
J.P. Morgan Chase --- 445 2.0% 54.0
Janney Montgomery Scott 70 --- 2.1% 55.0
Jefferies & Co. 50 470 1.5% 57.0
Johnson Illington Advisors --- --- --- 56.0
Landesbank Berlin --- 440 2.0% 55.5
Landesbank BW 70 --- 1.5% 56.0
Maria Fiorini Ramirez --- 450 2.5% 56.0
MF Global --- 455 2.0% 54.5
MFC Global Investment --- 450 2.0% 56.0
Mizuho Securities 50 460 1.5% 55.0
Moody’s Economy.com 150 455 1.5% 56.5
Morgan Keegan & Co. --- --- 2.5% ---
National Bank Financial --- --- --- 56.5
Natixis 60 --- --- 55.9
Nomura Securities Intl. 160 --- 1.3% 57.0
Nord/LB 50 450 0.6% 55.5
Pierpont Securities LLC --- 460 2.5% 55.7
PineBridge Investments --- --- 2.5% 57.0
PNC Bank --- --- 1.8% 54.5
Prestige Economics --- --- --- 55.5
Raiffeisen Zentralbank --- --- 1.0% ---
Raymond James --- 445 1.4% 56.0
Ried, Thunberg & Co. --- 455 2.0% 57.0
Scotia Capital 60 460 1.1% 55.4
Societe Generale --- --- --- 55.5
Standard Chartered 35 --- 1.0% 55.0
State Street Global Markets 74 456 1.9% 55.9
Stone & McCarthy Research --- 475 1.5% 54.2
TD Securities 70 450 1.6% 55.0
Thomson Reuters/IFR 85 455 1.9% 55.3
UBS --- 455 1.7% 55.0
UniCredit Research --- 445 --- 55.5
University of Maryland 50 450 1.6% 56.0
Wells Fargo & Co. --- --- 1.9% 55.4
WestLB AG 55 --- 1.1% 55.8
Westpac Banking Co. 35 460 2.5% 55.0
Woodley Park Research --- --- 1.9% 55.0
Wrightson Associates 125 455 2.0% 56.0
=============================================================
Corporate Bond Risk Falls on Speculation U.S. to Drive Growth
June 3 (Bloomberg) -- The cost of insuring against default on European corporate bonds fell on speculation recovery in the U.S. economy will bolster global growth.
Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield ratings dropped 30 basis points to 553, the lowest level in a week, according to Markit Group Ltd. prices. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments declined 7.5 basis points at 147, CMA DataVision prices show.
Service industries in the U.S. probably expanded in May at the fastest pace in four years while factory orders rose and firings eased, according to Bloomberg surveys of economists. The Labor Department’s monthly employment report tomorrow is forecast to show payrolls climbed by the most since 1983.
“For now it’s all eyes on the positive data out of the U.S. and investors are enjoying basking in its glow,” said Peter Chatwell, a London-based strategist at Credit Agricole Corporate & Investment Bank.
Stocks rose around the world and the euro rose against the dollar on renewed confidence that a stronger U.S. economy will help contain the fallout of Europe’s sovereign budget deficit crisis.
The cost of insuring against losses on Greek government debt dropped 21 basis points to 717, according to CMA. Swaps on Italy declined 11 basis points to 223, Spain fell 12 to 238 and Portugal was 5 basis points lower at 330.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield ratings dropped 30 basis points to 553, the lowest level in a week, according to Markit Group Ltd. prices. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments declined 7.5 basis points at 147, CMA DataVision prices show.
Service industries in the U.S. probably expanded in May at the fastest pace in four years while factory orders rose and firings eased, according to Bloomberg surveys of economists. The Labor Department’s monthly employment report tomorrow is forecast to show payrolls climbed by the most since 1983.
“For now it’s all eyes on the positive data out of the U.S. and investors are enjoying basking in its glow,” said Peter Chatwell, a London-based strategist at Credit Agricole Corporate & Investment Bank.
Stocks rose around the world and the euro rose against the dollar on renewed confidence that a stronger U.S. economy will help contain the fallout of Europe’s sovereign budget deficit crisis.
The cost of insuring against losses on Greek government debt dropped 21 basis points to 717, according to CMA. Swaps on Italy declined 11 basis points to 223, Spain fell 12 to 238 and Portugal was 5 basis points lower at 330.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
India Bonds Gain as RBI May Slow Rate Increases on Europe Woes
June 2 (Bloomberg) -- India’s bonds rose on speculation the central bank will refrain from raising interest rates before its next policy meeting in July as Europe’s debt crisis threatens to damp the global economic recovery.
Yields on 10-year notes fell to their lowest level in a week after the European Central Bank said in a May 31 report the region’s banks may have to write off $237 billion of bad debt by 2011. Reserve Bank of India Deputy Governor Subir Gokarn said last month that rates will be tightened at a “cautious” pace because of Europe’s fiscal troubles.
“Investors are more or less convinced the central bank may increase rates slowly as they want to balance growth and inflation,” said Mukesh Kumar, a fixed-income trader with State Bank of Bikaner & Jaipur in Mumbai. “The overall sentiment is positive for bonds now.”
The yield on the 7.80 percent note due May 2020 fell one basis point to 7.50 percent as of the 5:30 p.m. close in Mumbai, according to the central bank’s trading system. The price rose 0.08 per 100 rupee face amount, or 8 paise, to 102.06.
India’s central bank raised its benchmark rate in March and April by a quarter percentage point each to the current level of 3.75 percent.
Fitch Ratings on May 28 stripped Spain of its AAA credit grade, saying the nation’s debt burden may weigh on economic growth. Greek Prime Minister George Papandreou has announced three rounds of deficit-reduction measures this year, spurring violent protests against cuts to wages and pensions. An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, according to the European Commission.
The cost of India’s five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was little changed. The rate, a fixed payment made to receive floating rates, was at 6.51 percent, compared with 6.50 percent yesterday, according to data compiled by Bloomberg.
Yields on 10-year notes fell to their lowest level in a week after the European Central Bank said in a May 31 report the region’s banks may have to write off $237 billion of bad debt by 2011. Reserve Bank of India Deputy Governor Subir Gokarn said last month that rates will be tightened at a “cautious” pace because of Europe’s fiscal troubles.
“Investors are more or less convinced the central bank may increase rates slowly as they want to balance growth and inflation,” said Mukesh Kumar, a fixed-income trader with State Bank of Bikaner & Jaipur in Mumbai. “The overall sentiment is positive for bonds now.”
The yield on the 7.80 percent note due May 2020 fell one basis point to 7.50 percent as of the 5:30 p.m. close in Mumbai, according to the central bank’s trading system. The price rose 0.08 per 100 rupee face amount, or 8 paise, to 102.06.
India’s central bank raised its benchmark rate in March and April by a quarter percentage point each to the current level of 3.75 percent.
Fitch Ratings on May 28 stripped Spain of its AAA credit grade, saying the nation’s debt burden may weigh on economic growth. Greek Prime Minister George Papandreou has announced three rounds of deficit-reduction measures this year, spurring violent protests against cuts to wages and pensions. An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, according to the European Commission.
The cost of India’s five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was little changed. The rate, a fixed payment made to receive floating rates, was at 6.51 percent, compared with 6.50 percent yesterday, according to data compiled by Bloomberg.
IMF, World Bank Tell Ukraine to Be ‘Ambitious’ With Reforms
June 2 (Bloomberg) -- The International Monetary Fund and World Bank urged Ukraine’s political leaders to set more ambitious targets for narrowing the budget deficit and meeting inflation goals.
“The proposal to reduce the budget deficit by 1 percent a year is not ambitious,” said Max Alier, head of the IMF office in Ukraine, at a meeting of the economic reform committee headed by President Viktor Yanukovych in Kiev today. “It will result in growing public debt for several years before it stabilizes.”
Ukraine should improve the pension system and raise energy tariffs “significantly” faster than planned in the reform program that the president and government presented today, said Martin Raiser, the World Bank’s country director for Ukraine, Belarus and Moldova, at the same event.
Yanukovych seeks to lure investment and resume cooperation with the IMF to resuscitate economic growth after a 15 percent contraction last year, presenting a program of measures he said could achieve a 5 percent annual expansion. Ukraine seeks to start a new program with the Washington-based fund after receiving $10.6 billion in several tranches since November 2008.
“I will do everything to resume cooperation with the IMF,” Yanukovych said today. The IMF program is “the most acceptable” source of getting cheap, long-term credit to stabilize the state’s finances, he said.
Yanukovych said Ukraine needs “justified” tariffs for energy and the government must provide targeted support for the poor while the rich “pay a fair price”. Yanukovych also said he wants the government of Prime Minister Mykola Azarov to ensure stable finances of state energy company NAK Naftogaz Ukrayiny, a smaller deficit and an improved pension system.
‘Not Ambitious’
Yanukovych said inflation in Ukraine will slow to 6 percent by 2014 and the deficit will narrow to 2 percent of gross domestic product in 2013 and 2014.
The deficit target should be an objective per se and not merely an indicator of success, Alier said, adding that the same concerns inflation expectations by the government. The inflation target of 6 percent in 2014 is “not ambitious” he said.
The inflation rate fell to 9.7 percent in April, according to the statistics office. Prices fell 0.3 percent on month.
Azarov’s government approved a budget for this year with a 5.3 percent deficit.
“The proposal to reduce the budget deficit by 1 percent a year is not ambitious,” said Max Alier, head of the IMF office in Ukraine, at a meeting of the economic reform committee headed by President Viktor Yanukovych in Kiev today. “It will result in growing public debt for several years before it stabilizes.”
Ukraine should improve the pension system and raise energy tariffs “significantly” faster than planned in the reform program that the president and government presented today, said Martin Raiser, the World Bank’s country director for Ukraine, Belarus and Moldova, at the same event.
Yanukovych seeks to lure investment and resume cooperation with the IMF to resuscitate economic growth after a 15 percent contraction last year, presenting a program of measures he said could achieve a 5 percent annual expansion. Ukraine seeks to start a new program with the Washington-based fund after receiving $10.6 billion in several tranches since November 2008.
“I will do everything to resume cooperation with the IMF,” Yanukovych said today. The IMF program is “the most acceptable” source of getting cheap, long-term credit to stabilize the state’s finances, he said.
Yanukovych said Ukraine needs “justified” tariffs for energy and the government must provide targeted support for the poor while the rich “pay a fair price”. Yanukovych also said he wants the government of Prime Minister Mykola Azarov to ensure stable finances of state energy company NAK Naftogaz Ukrayiny, a smaller deficit and an improved pension system.
‘Not Ambitious’
Yanukovych said inflation in Ukraine will slow to 6 percent by 2014 and the deficit will narrow to 2 percent of gross domestic product in 2013 and 2014.
The deficit target should be an objective per se and not merely an indicator of success, Alier said, adding that the same concerns inflation expectations by the government. The inflation target of 6 percent in 2014 is “not ambitious” he said.
The inflation rate fell to 9.7 percent in April, according to the statistics office. Prices fell 0.3 percent on month.
Azarov’s government approved a budget for this year with a 5.3 percent deficit.
Monday, May 31, 2010
* India Risks ‘Falling Behind’ on Rates as Growth Spurs
June 1 (Bloomberg) -- India’s central bank needs to be less wary of the fallout of Europe’s debt crisis and raise interest rates to curb inflation stoked by growth, economists said.
Asia’s biggest economy after Japan and China expanded 8.6 percent last quarter from 6.5 percent in the previous three months, India’s statistics office said in New Delhi yesterday. The acceleration in growth came even as consumer spending slowed, a drag that may lift in coming months, according to HSBC Group Plc economist Frederic Neumann.
The Reserve Bank of India said last month it will be “cautious” in tightening the monetary policy even as the country’s consumer-price inflation rate is the highest among Group of 20 nations. India’s stance, in the face of risks to growth posed by Europe’s sovereign-debt crisis, may be echoed across the Asia Pacific this week as central banks from Australia to the Philippines set interest rates.
“If India’s central bank pays too much attention to Europe and waits for clarity, then it risks falling behind the curve,” said Ramya Suryanarayanan, an economist at DBS Bank Ltd. in Singapore. “It is important that interest rates are normalized.” She expects a quarter-percentage point increase in rates by the end of June.
The Mumbai-based Reserve Bank has raised interest rates twice since mid-March by a quarter-percentage point each time.
Consumer Prices
The bank’s benchmark reverse-repurchase rate is 3.75 percent while the consumer-price inflation rate for industrial workers touched about 13 percent in April. Prices paid by farm workers are close to 15 percent, hurting the purchasing power of the 650 million people who live in India’s countryside.
In contrast, consumer prices are running at 2.9 percent in Australia, 3.9 percent in Indonesia and 4.4 percent in the Philippines. The Reserve Bank of Australia may leave the overnight cash rate target at 4.5 percent today, according to a Bloomberg News survey. Bank Indonesia will probably maintain its benchmark rate on June 4 and borrowing costs in Philippines may be kept unchanged on June 3, separate surveys showed.
“The euro jitters may have left policy makers across the world in a more accommodative mood, but in India tightening is now needed to avoid a hard landing later on,” HSBC’s Neumann said. “They should add some urgency to the tightening cycle.”
Yields Rise
Benchmark 10-year Indian government bond yields rose 17 basis points last week, the biggest increase in more than a month, as traders increased bets Governor Duvvuri Subbarao will boost rates. The yield closed at 7.56 percent yesterday.
The rupee lost 4.3 percent against the U.S. dollar last month and the Sensitive Index declined 3.5 percent in the period.
India’s economy along with Brazil and China may be overheating and developing asset bubbles, said Nouriel Roubini, the New York University professor who predicted the global financial crisis before markets peaked.
Brazil and India are still in a “better shape” than China regarding the strength of domestic demand, Roubini said yesterday in Sao Paulo.
As growth in India accelerated last quarter, consumption by individuals and companies increased 2.6 percent, the weakest pace in eight years, data from the statistics office showed.
“This, presumably, reflects in part soaring food prices, which eroded real disposable incomes and made shoppers generally more cautious,” the Hong Kong-based Neumann said. “With agriculture prices now easing, we expect consumption to get a real kick over the coming quarter, helped, too, by rising incomes as a tightening labor market spurs wage growth.”
‘Normal’ Rains
Rains in this year’s June-September monsoon season will be “normal,” the weather office forecast in April, boosting prospects for agriculture and rural incomes.
Salaries are increasing in urban areas as well with companies including Tata Consultancy Services Ltd., India’s biggest exporter of software services, boosting employees’ pay. Tata Consultancy said in April it plans to spend about $200 million on wage increases this year.
The central bank acknowledges that consumer demand is strengthening, making inflation a “visible” concern, Subir Gokarn, who is in charge of monetary policy at the Reserve Bank, said in an interview in Warsaw on May 26. Still, he said the “pace and magnitude” of monetary policy actions will be “conditioned” by global developments.
Asia’s biggest economy after Japan and China expanded 8.6 percent last quarter from 6.5 percent in the previous three months, India’s statistics office said in New Delhi yesterday. The acceleration in growth came even as consumer spending slowed, a drag that may lift in coming months, according to HSBC Group Plc economist Frederic Neumann.
The Reserve Bank of India said last month it will be “cautious” in tightening the monetary policy even as the country’s consumer-price inflation rate is the highest among Group of 20 nations. India’s stance, in the face of risks to growth posed by Europe’s sovereign-debt crisis, may be echoed across the Asia Pacific this week as central banks from Australia to the Philippines set interest rates.
“If India’s central bank pays too much attention to Europe and waits for clarity, then it risks falling behind the curve,” said Ramya Suryanarayanan, an economist at DBS Bank Ltd. in Singapore. “It is important that interest rates are normalized.” She expects a quarter-percentage point increase in rates by the end of June.
The Mumbai-based Reserve Bank has raised interest rates twice since mid-March by a quarter-percentage point each time.
Consumer Prices
The bank’s benchmark reverse-repurchase rate is 3.75 percent while the consumer-price inflation rate for industrial workers touched about 13 percent in April. Prices paid by farm workers are close to 15 percent, hurting the purchasing power of the 650 million people who live in India’s countryside.
In contrast, consumer prices are running at 2.9 percent in Australia, 3.9 percent in Indonesia and 4.4 percent in the Philippines. The Reserve Bank of Australia may leave the overnight cash rate target at 4.5 percent today, according to a Bloomberg News survey. Bank Indonesia will probably maintain its benchmark rate on June 4 and borrowing costs in Philippines may be kept unchanged on June 3, separate surveys showed.
“The euro jitters may have left policy makers across the world in a more accommodative mood, but in India tightening is now needed to avoid a hard landing later on,” HSBC’s Neumann said. “They should add some urgency to the tightening cycle.”
Yields Rise
Benchmark 10-year Indian government bond yields rose 17 basis points last week, the biggest increase in more than a month, as traders increased bets Governor Duvvuri Subbarao will boost rates. The yield closed at 7.56 percent yesterday.
The rupee lost 4.3 percent against the U.S. dollar last month and the Sensitive Index declined 3.5 percent in the period.
India’s economy along with Brazil and China may be overheating and developing asset bubbles, said Nouriel Roubini, the New York University professor who predicted the global financial crisis before markets peaked.
Brazil and India are still in a “better shape” than China regarding the strength of domestic demand, Roubini said yesterday in Sao Paulo.
As growth in India accelerated last quarter, consumption by individuals and companies increased 2.6 percent, the weakest pace in eight years, data from the statistics office showed.
“This, presumably, reflects in part soaring food prices, which eroded real disposable incomes and made shoppers generally more cautious,” the Hong Kong-based Neumann said. “With agriculture prices now easing, we expect consumption to get a real kick over the coming quarter, helped, too, by rising incomes as a tightening labor market spurs wage growth.”
‘Normal’ Rains
Rains in this year’s June-September monsoon season will be “normal,” the weather office forecast in April, boosting prospects for agriculture and rural incomes.
Salaries are increasing in urban areas as well with companies including Tata Consultancy Services Ltd., India’s biggest exporter of software services, boosting employees’ pay. Tata Consultancy said in April it plans to spend about $200 million on wage increases this year.
The central bank acknowledges that consumer demand is strengthening, making inflation a “visible” concern, Subir Gokarn, who is in charge of monetary policy at the Reserve Bank, said in an interview in Warsaw on May 26. Still, he said the “pace and magnitude” of monetary policy actions will be “conditioned” by global developments.
CBS eyes India TV foray with Reliance
Reliance Media World, controlled by Indian industrialist Anil Ambani, is in talks to form a television joint venture with CBS Broadcasting of the US in what would be the latest foray by a US network into India.
CBS was one of “a number of groups” Reliance was in talks with about the plan to roll out a group of channels for Indian pay television, a Reliance spokesperson said, declining to give details.
The discussions involved the creation of three English-language channels on Reliance’s Pay TV platform that would run mostly CBS-created shows such as NCIS and CSI, people familiar with the discussions said.
A deal, similar to one CBS struck with Chellomedia, a UK subsidiary of Liberty Global, last September, is expected to be reached in the next few weeks, countering local reports of a deal this week.
The joint venture might also look at developing a Hindi-language general entertainment channel.
The joint venture would be 50 per cent owned by each party, these people said.
The partnership would give CBS access to one of the fastest growing emerging media and entertainment markets.
India has the second-biggest number of cable viewing households after China at more than 80m.
This, together with India’s relatively liberal foreign ownership and content regimes has made it the most important market in Asia for many media groups.
Indian television generated Rs257bn ($5.5bn) in revenue last year and clocked a compound annual growth rate of 12 per cent between 2006 and 2009, according to a report by KPMG, the consultancy.
CBS could bring its hit television sitcoms to India in competition with the existing local ventures of US-based networks, including News Corp, Time Warner, Viacom and Walt Disney.
Any move into television by Reliance Media World, which runs a number of radio stations, would round out Mr Ambani’s ambitions of building a large-scale media group.
He has a tie-up with US director Steven Spielberg to produce films and has signed production agreements with Hollywood stars, including Brad Pitt and George Clooney.
He has interests in Hindi and Indian regional language film production and distribution.
This month, the group’s film arm, Reliance Big Pictures, released Kites, for Hindi and English-speaking audiences. It was the first Bollywood offering to make the top 10 in the US on an opening weekend.
But if CBS enters India with Reliance, it will be stepping into a highly competitive market with low revenue per household.
Local cable operators under-report their revenue to broadcasters, forcing networks to cram their programming with advertising to generate more revenue.
“The combination of a strong economy, a larger pay TV audience and digitisation will ... boost the market for broadcast groups,” Vivek Couto, executive director at Media partners Asia, a research group, said in a recent report.
But he added: “Competition will remain intense, as the main theatre of war shifts to regional markets.”
CBS was one of “a number of groups” Reliance was in talks with about the plan to roll out a group of channels for Indian pay television, a Reliance spokesperson said, declining to give details.
The discussions involved the creation of three English-language channels on Reliance’s Pay TV platform that would run mostly CBS-created shows such as NCIS and CSI, people familiar with the discussions said.
A deal, similar to one CBS struck with Chellomedia, a UK subsidiary of Liberty Global, last September, is expected to be reached in the next few weeks, countering local reports of a deal this week.
The joint venture might also look at developing a Hindi-language general entertainment channel.
The joint venture would be 50 per cent owned by each party, these people said.
The partnership would give CBS access to one of the fastest growing emerging media and entertainment markets.
India has the second-biggest number of cable viewing households after China at more than 80m.
This, together with India’s relatively liberal foreign ownership and content regimes has made it the most important market in Asia for many media groups.
Indian television generated Rs257bn ($5.5bn) in revenue last year and clocked a compound annual growth rate of 12 per cent between 2006 and 2009, according to a report by KPMG, the consultancy.
CBS could bring its hit television sitcoms to India in competition with the existing local ventures of US-based networks, including News Corp, Time Warner, Viacom and Walt Disney.
Any move into television by Reliance Media World, which runs a number of radio stations, would round out Mr Ambani’s ambitions of building a large-scale media group.
He has a tie-up with US director Steven Spielberg to produce films and has signed production agreements with Hollywood stars, including Brad Pitt and George Clooney.
He has interests in Hindi and Indian regional language film production and distribution.
This month, the group’s film arm, Reliance Big Pictures, released Kites, for Hindi and English-speaking audiences. It was the first Bollywood offering to make the top 10 in the US on an opening weekend.
But if CBS enters India with Reliance, it will be stepping into a highly competitive market with low revenue per household.
Local cable operators under-report their revenue to broadcasters, forcing networks to cram their programming with advertising to generate more revenue.
“The combination of a strong economy, a larger pay TV audience and digitisation will ... boost the market for broadcast groups,” Vivek Couto, executive director at Media partners Asia, a research group, said in a recent report.
But he added: “Competition will remain intense, as the main theatre of war shifts to regional markets.”
Asian Stocks Fall on Japan Policy Concern, China Manufacturing
June 1 (Bloomberg) -- Asian stocks fell, extending the MSCI Asia Pacific Index’s biggest monthly drop since October 2008, as investors speculated over the future of Japan’s prime minister and Chinese manufacturing growth slowed.
Sony Corp., which gets 69 percent of its sales outside Japan, sank 1.9 percent as a stronger yen threatened to hurt the value of overseas revenue. Anhui Conch Cement Co. dropped 2.7 percent in Shanghai after purchasing managers’ indexes showed China’s manufacturing industry grew at a slower pace in May. Hitachi Ltd., Japan’s No. 3 company by revenue, slumped 3.8 percent after the Financial Times cited the company’s president as saying it’s affected by Europe’s debt crisis.
The MSCI Asia Pacific Index sank 0.8 percent to 112.61 as of 1:17 p.m. in Tokyo, snapping a four-day advance. The gauge slumped 9.8 percent last month, the most since October 2008 on mounting concern that budget deficits in Europe and Chinese measures to control property prices will hurt the global economy.
“People are becoming aware of slowing momentum in the global economy,” said Hiroshi Morikawa, a strategist at MU Investments Co., which manages the equivalent of $14 billion in Tokyo. “Political instability will hinder Japan’s ability to react to a crisis in these turbulent times.”
Japan’s Nikkei 225 Stock Average lost 0.7 percent before a meeting between Prime Minister Yukio Hatoyama and Ichiro Ozawa, secretary-general of the ruling party, to discuss the party’s future. Hatoyama pledged “appropriate” action in the face of plunging approval ratings.
U.S. Futures Fall
China’s Shanghai Composite Index slumped 1 percent and Hong Kong’s Hang Seng Index lost 0.6 percent. Australia’s S&P/ASX 200 Index dropped 0.6 percent, while the Kospi Index declined 0.4 percent in Seoul.
Futures on the Standard & Poor’s 500 Index fell 0.7 percent, signaling a decline in U.S. markets when they resume trading today after a holiday yesterday.
Exporters in Japan declined as the yen strengthened to 111.33 per euro today from 112.59 at the 3 p.m. close of stock trading in Tokyo yesterday, while appreciating to 90.89 per dollar from 91.52.
Sony dropped 1.6 percent to 2,770 yen. Toyota Motor Corp., which gets 71 percent of its revenue outside Japan, lost 0.9 percent to 3,250 yen. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated.
Japanese stocks fell after Prime Minister Hatoyama said he will consider his political future and do “what’s best for the people of Japan.” Polls showed four in five voters want him to step down six weeks before mid-term elections.
Low Valuations
“Political turmoil may make some investors refrain from buying stocks,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “There’s also risk in selling stocks, considering the earnings recovery and relatively low valuations.”
The MSCI Asia Pacific Index has lost 13 percent from its high this year on April 15 amid concern measures to contain mounting government deficits in Europe will hurt the region’s economy, denting global growth in the process. The slump has dragged down the average price of stocks in the MSCI gauge to 14.4 times estimated earnings, near the lowest level since January 2009.
Hitachi, whose products range from rice cookers to nuclear power plants, slumped 3.8 percent to 358 yen. President Hiroaki Nakanishi said the “financial confusion in Europe is affecting various parts of our business,” the Financial Times reported, citing an interview. Hitachi yesterday set a sales target of 10.5 trillion yen ($115 billion) for the year ending March 2013.
Purchasing Managers
Anhui Conch, China’s biggest cement maker, lost 2.7 percent to 34.25 yuan. Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, sank 1.4 percent to 6.26 yuan.
The Purchasing Managers’ Index fell to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said today. That was less than the median 54.5 estimate in a Bloomberg News economist survey. Readings above 50 indicate an expansion. A separate purchasing managers’ index from HSBC Holdings Plc and Markit Economics fell to 52.7 in May from 55.2 in April.
Chinese property stocks declined after the Shanghai Securities News reported that real estate closings in Beijing, Shanghai and Shenzhen in May plunged as contract numbers dropped by as much as 70 percent from April.
Poly Real Estate Group Co, China’s second-largest developer by market value, slumped 3.5 percent to 10.66 yuan. Gemdale Corp., the fourth-largest, fell 2.5 percent to 6.28 yuan.
Roubini Forecast
The Shanghai Composite Index has tumbled 22 percent this year as the People’s Bank of China raised bank reserve requirements three times to help cool property markets.
Chinese economic growth may slow to an annual rate of 7 percent to 8 percent by the end of the year or early 2011, from 11.9 percent in the first quarter of 2010, Nouriel Roubini, the New York University professor who predicted the global financial crisis before markets peaked, said in Sao Paulo yesterday.
A gauge of utilities in the MSCI Asia Pacific Index gained the most of 10 industry groups after Goldman Sachs Group Inc. upgraded its recommendation on Japan’s power industry to “neutral” from “cautious.”
Tokyo Electric Power Co. jumped 4.2 percent to 2,352 yen after Goldman Sachs boosted its rating on the stock to “buy” from “neutral.” Chugoku Electric Power Co. rose 1.2 percent to 1,740 yen.
Sony Corp., which gets 69 percent of its sales outside Japan, sank 1.9 percent as a stronger yen threatened to hurt the value of overseas revenue. Anhui Conch Cement Co. dropped 2.7 percent in Shanghai after purchasing managers’ indexes showed China’s manufacturing industry grew at a slower pace in May. Hitachi Ltd., Japan’s No. 3 company by revenue, slumped 3.8 percent after the Financial Times cited the company’s president as saying it’s affected by Europe’s debt crisis.
The MSCI Asia Pacific Index sank 0.8 percent to 112.61 as of 1:17 p.m. in Tokyo, snapping a four-day advance. The gauge slumped 9.8 percent last month, the most since October 2008 on mounting concern that budget deficits in Europe and Chinese measures to control property prices will hurt the global economy.
“People are becoming aware of slowing momentum in the global economy,” said Hiroshi Morikawa, a strategist at MU Investments Co., which manages the equivalent of $14 billion in Tokyo. “Political instability will hinder Japan’s ability to react to a crisis in these turbulent times.”
Japan’s Nikkei 225 Stock Average lost 0.7 percent before a meeting between Prime Minister Yukio Hatoyama and Ichiro Ozawa, secretary-general of the ruling party, to discuss the party’s future. Hatoyama pledged “appropriate” action in the face of plunging approval ratings.
U.S. Futures Fall
China’s Shanghai Composite Index slumped 1 percent and Hong Kong’s Hang Seng Index lost 0.6 percent. Australia’s S&P/ASX 200 Index dropped 0.6 percent, while the Kospi Index declined 0.4 percent in Seoul.
Futures on the Standard & Poor’s 500 Index fell 0.7 percent, signaling a decline in U.S. markets when they resume trading today after a holiday yesterday.
Exporters in Japan declined as the yen strengthened to 111.33 per euro today from 112.59 at the 3 p.m. close of stock trading in Tokyo yesterday, while appreciating to 90.89 per dollar from 91.52.
Sony dropped 1.6 percent to 2,770 yen. Toyota Motor Corp., which gets 71 percent of its revenue outside Japan, lost 0.9 percent to 3,250 yen. A stronger yen reduces the value of overseas sales at Japanese companies when repatriated.
Japanese stocks fell after Prime Minister Hatoyama said he will consider his political future and do “what’s best for the people of Japan.” Polls showed four in five voters want him to step down six weeks before mid-term elections.
Low Valuations
“Political turmoil may make some investors refrain from buying stocks,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “There’s also risk in selling stocks, considering the earnings recovery and relatively low valuations.”
The MSCI Asia Pacific Index has lost 13 percent from its high this year on April 15 amid concern measures to contain mounting government deficits in Europe will hurt the region’s economy, denting global growth in the process. The slump has dragged down the average price of stocks in the MSCI gauge to 14.4 times estimated earnings, near the lowest level since January 2009.
Hitachi, whose products range from rice cookers to nuclear power plants, slumped 3.8 percent to 358 yen. President Hiroaki Nakanishi said the “financial confusion in Europe is affecting various parts of our business,” the Financial Times reported, citing an interview. Hitachi yesterday set a sales target of 10.5 trillion yen ($115 billion) for the year ending March 2013.
Purchasing Managers
Anhui Conch, China’s biggest cement maker, lost 2.7 percent to 34.25 yuan. Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, sank 1.4 percent to 6.26 yuan.
The Purchasing Managers’ Index fell to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said today. That was less than the median 54.5 estimate in a Bloomberg News economist survey. Readings above 50 indicate an expansion. A separate purchasing managers’ index from HSBC Holdings Plc and Markit Economics fell to 52.7 in May from 55.2 in April.
Chinese property stocks declined after the Shanghai Securities News reported that real estate closings in Beijing, Shanghai and Shenzhen in May plunged as contract numbers dropped by as much as 70 percent from April.
Poly Real Estate Group Co, China’s second-largest developer by market value, slumped 3.5 percent to 10.66 yuan. Gemdale Corp., the fourth-largest, fell 2.5 percent to 6.28 yuan.
Roubini Forecast
The Shanghai Composite Index has tumbled 22 percent this year as the People’s Bank of China raised bank reserve requirements three times to help cool property markets.
Chinese economic growth may slow to an annual rate of 7 percent to 8 percent by the end of the year or early 2011, from 11.9 percent in the first quarter of 2010, Nouriel Roubini, the New York University professor who predicted the global financial crisis before markets peaked, said in Sao Paulo yesterday.
A gauge of utilities in the MSCI Asia Pacific Index gained the most of 10 industry groups after Goldman Sachs Group Inc. upgraded its recommendation on Japan’s power industry to “neutral” from “cautious.”
Tokyo Electric Power Co. jumped 4.2 percent to 2,352 yen after Goldman Sachs boosted its rating on the stock to “buy” from “neutral.” Chugoku Electric Power Co. rose 1.2 percent to 1,740 yen.
India’s economy grows 8.6 per cent
Under the hot sun in the Mahabubnagar district of Andhra Pradesh, in southern India, the farmers are preparing for the worst.
The smallholders, who till the arid lands east of the state capital Hyderabad, are taking steps to protect their meagre livelihoods from poor monsoon rains. They are sharing groundwater, planting crops that require less water such as groundnuts, rigging up dripwater systems and digging weather-proof compost pits.
With the memory of the worst rains for 30 years last season still fresh in the mind, they are even opting for heat-resistant sheep breeds and, with the help of the World Bank and local non-governmental organisations, insuring against loss.
India, the world’s fastest growing large economy after China, has returned to almost where it was before the global financial crisis struck in October 2008.
On Monday, the Central Statistical Organisation showed the economy was in touching distance of a talismanic 9 per cent growth rate, having expanded 8.6 per cent in the quarter ending in March compared with the same period last year.
For the entire year, India’s economy grew 7.4 per cent. This year, Pranab Mukerjee, the finance minister, expects it to top 8.5 per cent on its way to 10 per cent in years to come.
India has weathered the global downturn well, but for its economic managers really to triumph they need to address the underperforming agricultural sector.
While industrial output has grown in healthy double digits, agricultural output rose only 0.7 per cent in the quarter to the end of March. In the previous quarter, it contracted 1.8 per cent, reflecting the hazards of a sector dependent on seasonal rains.
Most of India’s 1.2bn people still derive their income from the rural economy, although farm output now represents about 20 per cent of GDP. Over the past months, they have been hit by a double blight: rising prices and low output.
A good monsoon, likely to start this month, will bring relief. More abundant farm produce will help cool food prices rising at an alarming 16 per cent.
But neither this nor worries about European sovereign debt are likely to throw the Reserve Bank of India off its course of rising interest rates. Rising growth and “uncomfortably high” inflation are expected to induce the RBI to raise the repo rate – the rate at which the central bank lends to other banks – by 100 basis points over the next six months.
“The impact of euro-area developments and the upcoming monsoon season are the main uncertainties facing policymakers, but we continue to expect further rate increases in the months ahead,” said Brian Jackson, senior strategist at the Royal Bank of Canada.
Manmohan Singh, India’s prime minister, has come under sharp criticism for high prices. The Hindu nationalist opposition Bharatiya Janata party has decided that inflation is his Achilles heel.
“The first and the foremost flaw of the government is that the government has not taken any steps to fight the inflation,” says Arun Jaitley, a BJP leader.
He and his party say that prices have rocketed since polling day in parliamentary elections just over a year ago. They say that Mr Singh’s quest for 10 per cent growth in the “medium term” will punish its poor people most in the short term.
Mr Singh has responded by giving assurances that the government would help pull wholesale price inflation back to 5-6 per cent by December from near double digits.
Some observers warn of complacency in an economy whose fast-paced growth is largely supported by domestic consumption, and public spending is one of India’s biggest challenges. They have called for the speedier adoption of measures to address the inadequacies of education, health and infrastructure.
Senior policymakers have largely shrugged off fears of any fallout from the European sovereign debt crisis in spite of falls in the rupee and local stock markets.
Some analysts believe the confidence is not misplaced.
“Forget talk about drought and global financial jitters,” says Frederic Neuman, co-head of Asian Economics research at HSBC, the banking group. “India’s economy is shaking off such obstacles with apparent ease.”
Pleasing the drought-wary farmers of Andhra Pradesh may yet be easier than calming global jitters.
Montek Singh Ahluwalia, the deputy chairman of the powerful planning commission, describes India’s economic management during the downturn as “excellent”. But he also recognises that without a recovery in the global economy, India’s quest for higher growth will be much more difficult.
“Going from 9 per cent to 10 per cent is not impossible,” he says. “But obviously, it has to be based on what global conditions are like [and] how quickly will the world get back to normal.”
The smallholders, who till the arid lands east of the state capital Hyderabad, are taking steps to protect their meagre livelihoods from poor monsoon rains. They are sharing groundwater, planting crops that require less water such as groundnuts, rigging up dripwater systems and digging weather-proof compost pits.
With the memory of the worst rains for 30 years last season still fresh in the mind, they are even opting for heat-resistant sheep breeds and, with the help of the World Bank and local non-governmental organisations, insuring against loss.
India, the world’s fastest growing large economy after China, has returned to almost where it was before the global financial crisis struck in October 2008.
On Monday, the Central Statistical Organisation showed the economy was in touching distance of a talismanic 9 per cent growth rate, having expanded 8.6 per cent in the quarter ending in March compared with the same period last year.
For the entire year, India’s economy grew 7.4 per cent. This year, Pranab Mukerjee, the finance minister, expects it to top 8.5 per cent on its way to 10 per cent in years to come.
India has weathered the global downturn well, but for its economic managers really to triumph they need to address the underperforming agricultural sector.
While industrial output has grown in healthy double digits, agricultural output rose only 0.7 per cent in the quarter to the end of March. In the previous quarter, it contracted 1.8 per cent, reflecting the hazards of a sector dependent on seasonal rains.
Most of India’s 1.2bn people still derive their income from the rural economy, although farm output now represents about 20 per cent of GDP. Over the past months, they have been hit by a double blight: rising prices and low output.
A good monsoon, likely to start this month, will bring relief. More abundant farm produce will help cool food prices rising at an alarming 16 per cent.
But neither this nor worries about European sovereign debt are likely to throw the Reserve Bank of India off its course of rising interest rates. Rising growth and “uncomfortably high” inflation are expected to induce the RBI to raise the repo rate – the rate at which the central bank lends to other banks – by 100 basis points over the next six months.
“The impact of euro-area developments and the upcoming monsoon season are the main uncertainties facing policymakers, but we continue to expect further rate increases in the months ahead,” said Brian Jackson, senior strategist at the Royal Bank of Canada.
Manmohan Singh, India’s prime minister, has come under sharp criticism for high prices. The Hindu nationalist opposition Bharatiya Janata party has decided that inflation is his Achilles heel.
“The first and the foremost flaw of the government is that the government has not taken any steps to fight the inflation,” says Arun Jaitley, a BJP leader.
He and his party say that prices have rocketed since polling day in parliamentary elections just over a year ago. They say that Mr Singh’s quest for 10 per cent growth in the “medium term” will punish its poor people most in the short term.
Mr Singh has responded by giving assurances that the government would help pull wholesale price inflation back to 5-6 per cent by December from near double digits.
Some observers warn of complacency in an economy whose fast-paced growth is largely supported by domestic consumption, and public spending is one of India’s biggest challenges. They have called for the speedier adoption of measures to address the inadequacies of education, health and infrastructure.
Senior policymakers have largely shrugged off fears of any fallout from the European sovereign debt crisis in spite of falls in the rupee and local stock markets.
Some analysts believe the confidence is not misplaced.
“Forget talk about drought and global financial jitters,” says Frederic Neuman, co-head of Asian Economics research at HSBC, the banking group. “India’s economy is shaking off such obstacles with apparent ease.”
Pleasing the drought-wary farmers of Andhra Pradesh may yet be easier than calming global jitters.
Montek Singh Ahluwalia, the deputy chairman of the powerful planning commission, describes India’s economic management during the downturn as “excellent”. But he also recognises that without a recovery in the global economy, India’s quest for higher growth will be much more difficult.
“Going from 9 per cent to 10 per cent is not impossible,” he says. “But obviously, it has to be based on what global conditions are like [and] how quickly will the world get back to normal.”
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