By David Yong - Mar 17, 2012 2:49 AM GMT+0530
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Asian currencies had a second weekly decline as an improving U.S. economy and the Federal Reserve’s decision not to embark on further monetary easing boosted demand for the dollar.
Malaysia’s ringgit led losses after the government reported factory production rose the least in six months in January following data last week showing the smallest increase in exports since 2010. The rupee posted its worst weekly losing streak for the year after policy makers left interest rates unchanged, citing inflation risks caused by higher oil prices.
“This week’s main trend was the dollar’s appreciation supported by signs of U.S. economic improvement,” said Minori Uchida, a senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. “Based on the series of data recently, the market also views the Fed may not keep low interest rates until 2014 as previously predicted.”
The ringgit fell 1.7 percent from a week ago to 3.0613 per dollar in Kuala Lumpur yesterday, after reaching a seven-week low on March 15, according to data compiled by Bloomberg. The Philippine peso declined 1.1 percent to 43.068, the rupee dropped 0.7 percent to 50.1912, and South Korea’s won lost 0.7 percent to 1,125.78.
Other reports from Asia this week signaled economic growth in the region is starting to slow. Thailand’s exports contracted for a third month in January, while China reported its worst trade deficit since at least 1989 for February. The Bloomberg- JPMorgan Asia Dollar Index (ADXY), which tracks the region’s 10 most- active currencies excluding the yen, fell 0.5 percent.
U.S. Data Stimulus
In contrast, U.S. data issued this week showed Americans applied for fewer jobless benefits, growth in retail sales accelerated and manufacturing gained momentum. The Dollar Index (DXY) traded on ICE Futures in New York, which tracks the currency against those of six major trading partners, rose for a third week and reached its highest level in almost two months.
China’s yuan fell for a third week after the government reported the smallest increase in consumer prices in 20 months on March 9. The central bank weakened its daily reference rate by 0.25 percent yesterday, the most in a week, to 6.3200 per dollar. The currency dropped 0.2 percent from March 9 to 6.3227 in Shanghai, according to the China Foreign Exchange Trade System.
“China’s policy makers are definitely increasing volatility,” said Craig Chan, the Singapore-based head of foreign exchange for Asia outside of Japan at Nomura Holdings Inc. “They want to eventually move to a more market-driven currency.”
Oil Pressure
The won traded near a one-month low after the Bank of Korea said on March 14 that the unemployment rate unexpectedly jumped to 3.7 percent in February, the highest in almost a year.
Indonesia’s rupiah dropped 0.4 percent to 9,156 per dollar and hit a two-month low of 9,218 on March 15. The currency completed a second weekly decline after overseas investors cut holdings of sovereign debt on concern government plans to raise energy prices will stoke inflation.
Global funds have trimmed bond ownership by 6.1 trillion rupiah ($665 million) since Feb. 22, when President Susilo Bambang Yudhoyono said fuel subsidies must be reduced.
“The biggest factor driving the rupiah is still the plan to raise fuel prices, which caused inflation expectations in Indonesia to rise significantly,” said Mika Martumpal, an analyst at PT Bank CIMB Niaga in Jakarta.
Elsewhere this week, Thailand’s baht fell 0.5 percent to 30.75 per dollar, while Taiwan’s dollar slipped 0.2 percent to NT$29.562 and Vietnam’s dong rose 0.1 percent to 20,820.
To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.
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Saturday, March 17, 2012
Friday, March 16, 2012
India Deficit Surpassing 5% for Second Year Limits Rate-Cut Room
By Unni Krishnan and Kartik Goyal - Mar 16, 2012
The Reserve Bank of India’s scope for a series of interest-rate cuts to bolster a slowing economy may be hampered by inflation risks from a budget deficit projected to exceed 5 percent for a second year.
Benchmark bonds capped their biggest weekly decline in seven as Finance Minister Pranab Mukherjee unveiled an annual budget yesterday that will require record borrowings of 5.69 trillion rupees ($113 billion) to finance a gap estimated at 5.1 percent of gross domestic product. The deficit for the year through March 31 is projected at 5.9 percent, wider than the 4.6 percent target set in 2011.
Borrowing costs at the highest level since 2008 to fight price rises, policy gridlock and slumping investment contributed to a slowdown in growth to 6.1 percent last quarter, the weakest pace since 2009. Public finances have been “deteriorating and remain a key weakness” in India’s credit rating, Fitch Ratings said after Mukherjee proposed a cap on subsidies and raised service and excise taxes.
“The RBI said that it was waiting for the budget to crystallize on the timing and magnitude of rate cuts,” said Killol Pandya, the Mumbai-based head of fixed-income investment at the local unit of Daiwa Asset Management Co. “This budget does not give any comfort. It raises concern of the RBI pushing back its timelines regarding rate cuts.”
Interest-Rate Decision
The Reserve Bank of India left interest rates unchanged at 8.5 percent for a third meeting on March 15, joining Asian nations from Indonesia to South Korea in holding borrowing costs. While it reiterated that future actions will be toward lowering rates, the central bank said lingering inflation risks will influence the timing and magnitude of such moves.
The monetary authority also said “credible fiscal consolidation” will be an “important factor” in shaping the inflation outlook. After the budget, Deputy Governor Subir Gokarn said the estimated reduction in the budget deficit is a “significant correction” and that the commitment to cap subsidies is important.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose by 17 basis points since March 14 to a more than four-month high of 8.22 percent, reflecting investors’ concern the central bank may delay reduction in interest rates. The rate rose five basis points yesterday. The yield on the 8.79 percent bonds due November 2021 jumped 14 basis points this week to 8.43 percent, the most since the period ended Jan. 27.
Widest BRIC Deficit
Asia’s third-largest economy has the widest fiscal deficit among the so-called BRIC nations that also include Brazil, Russia and China. It has the group’s fastest inflation, with India’s benchmark wholesale-price index climbing 6.95 percent in February from a year earlier.
“It doesn’t appear that the RBI is in a hurry to immediately start cutting rates,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “They will digest the budget arithmetic more closely and they would simultaneously view the cues for global crude prices.”
Brent crude, the benchmark for almost all of India’s imports, has jumped about 15 percent so far this year. India imports three-quarters of its oil.
Mukherjee proposed yesterday a cap of less than 2 percent of GDP in the next fiscal year on a subsidy program that spans diesel to fertilizers. He raised service and excise taxes to 12 percent from 10 percent.
While the subsidy cap would be positive for India, implementation risk is “high” ahead of the 2014 general election, Fitch Ratings said.
Crude Oil Surge
“The government might pass through significant amounts of the tightness in crude prices and if that happens then it will have an impact on inflation,” Daiwa’s Pandya said. “That puts a question mark on the RBI’s stance on interest rates.”
The Reserve Bank raised borrowing costs by a record 3.75 percentage points from 2010 to October last year to fight price rises. It unexpectedly cut the amount of deposits lenders need to set aside as reserves on Jan. 24 and March 9 to ease a cash squeeze, lowering the cash reserve ratio to 4.75 percent.
Prime Minister Manmohan Singh’s government, routed in state elections this year, faces pressure to support the 69 percent of India’s 1.2 billion population living on less than $2 per day.
Moody’s Investors Service said March 8 that India needs “persistent” policy efforts over several years to narrow a deficit that if left unchecked will hurt the economy. Slowing growth has hampered tax revenues even as subsidies and a job guarantee program for rural workers spur spending.
The government predicts GDP may rise 6.9 percent this fiscal year, compared with 8.4 percent in the previous one. Mukherjee estimated GDP may rise as much as 7.85 percent in the year through March 2013 and that inflation will ease in coming months.
The budget “can probably be best described as a good old- fashioned tax and spending plan,” said Robert Prior-Wandesforde, Singapore-based director of Asian economics at Credit Suisse Group AG. “Sadly, but not unexpectedly, proposals for radical economic reform were largely notable by their absence.”
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Shamim Adam in Singapore at sadam2@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The Reserve Bank of India’s scope for a series of interest-rate cuts to bolster a slowing economy may be hampered by inflation risks from a budget deficit projected to exceed 5 percent for a second year.
Benchmark bonds capped their biggest weekly decline in seven as Finance Minister Pranab Mukherjee unveiled an annual budget yesterday that will require record borrowings of 5.69 trillion rupees ($113 billion) to finance a gap estimated at 5.1 percent of gross domestic product. The deficit for the year through March 31 is projected at 5.9 percent, wider than the 4.6 percent target set in 2011.
Borrowing costs at the highest level since 2008 to fight price rises, policy gridlock and slumping investment contributed to a slowdown in growth to 6.1 percent last quarter, the weakest pace since 2009. Public finances have been “deteriorating and remain a key weakness” in India’s credit rating, Fitch Ratings said after Mukherjee proposed a cap on subsidies and raised service and excise taxes.
“The RBI said that it was waiting for the budget to crystallize on the timing and magnitude of rate cuts,” said Killol Pandya, the Mumbai-based head of fixed-income investment at the local unit of Daiwa Asset Management Co. “This budget does not give any comfort. It raises concern of the RBI pushing back its timelines regarding rate cuts.”
Interest-Rate Decision
The Reserve Bank of India left interest rates unchanged at 8.5 percent for a third meeting on March 15, joining Asian nations from Indonesia to South Korea in holding borrowing costs. While it reiterated that future actions will be toward lowering rates, the central bank said lingering inflation risks will influence the timing and magnitude of such moves.
The monetary authority also said “credible fiscal consolidation” will be an “important factor” in shaping the inflation outlook. After the budget, Deputy Governor Subir Gokarn said the estimated reduction in the budget deficit is a “significant correction” and that the commitment to cap subsidies is important.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose by 17 basis points since March 14 to a more than four-month high of 8.22 percent, reflecting investors’ concern the central bank may delay reduction in interest rates. The rate rose five basis points yesterday. The yield on the 8.79 percent bonds due November 2021 jumped 14 basis points this week to 8.43 percent, the most since the period ended Jan. 27.
Widest BRIC Deficit
Asia’s third-largest economy has the widest fiscal deficit among the so-called BRIC nations that also include Brazil, Russia and China. It has the group’s fastest inflation, with India’s benchmark wholesale-price index climbing 6.95 percent in February from a year earlier.
“It doesn’t appear that the RBI is in a hurry to immediately start cutting rates,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “They will digest the budget arithmetic more closely and they would simultaneously view the cues for global crude prices.”
Brent crude, the benchmark for almost all of India’s imports, has jumped about 15 percent so far this year. India imports three-quarters of its oil.
Mukherjee proposed yesterday a cap of less than 2 percent of GDP in the next fiscal year on a subsidy program that spans diesel to fertilizers. He raised service and excise taxes to 12 percent from 10 percent.
While the subsidy cap would be positive for India, implementation risk is “high” ahead of the 2014 general election, Fitch Ratings said.
Crude Oil Surge
“The government might pass through significant amounts of the tightness in crude prices and if that happens then it will have an impact on inflation,” Daiwa’s Pandya said. “That puts a question mark on the RBI’s stance on interest rates.”
The Reserve Bank raised borrowing costs by a record 3.75 percentage points from 2010 to October last year to fight price rises. It unexpectedly cut the amount of deposits lenders need to set aside as reserves on Jan. 24 and March 9 to ease a cash squeeze, lowering the cash reserve ratio to 4.75 percent.
Prime Minister Manmohan Singh’s government, routed in state elections this year, faces pressure to support the 69 percent of India’s 1.2 billion population living on less than $2 per day.
Moody’s Investors Service said March 8 that India needs “persistent” policy efforts over several years to narrow a deficit that if left unchecked will hurt the economy. Slowing growth has hampered tax revenues even as subsidies and a job guarantee program for rural workers spur spending.
The government predicts GDP may rise 6.9 percent this fiscal year, compared with 8.4 percent in the previous one. Mukherjee estimated GDP may rise as much as 7.85 percent in the year through March 2013 and that inflation will ease in coming months.
The budget “can probably be best described as a good old- fashioned tax and spending plan,” said Robert Prior-Wandesforde, Singapore-based director of Asian economics at Credit Suisse Group AG. “Sadly, but not unexpectedly, proposals for radical economic reform were largely notable by their absence.”
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Shamim Adam in Singapore at sadam2@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, March 12, 2012
Sovereign Purchases Quadrupling Mimics U.S. Banks’ Holdings: India Credit
By Jeanette Rodrigues and Anoop Agrawal - Mar 12, 2012
India’s banks have quadrupled purchases of government bonds to bring their total ownership to a record, undermining policy makers’ efforts to inject cash into Asia’s third-biggest economy.
Lenders, which bought 130 billion rupees ($2.6 billion) in the final three months of last year, added 522 billion rupees this quarter, taking holdings to 17.4 trillion rupees. Federal securities will be a “good investment proposition,” Indian Overseas Bank Chairman and Managing Director M. Narendra said in an interview from the southern Indian city of Chennai yesterday.
The central bank cut reserve requirements for lenders by 75 basis points on March 9 to ease a shortage of cash in the financial system as companies pay taxes this month. In the U.S., banks and treasuries bought more government and related debt in the first two months of 2012 than they did in all of 2011.
Indian notes have returned an annualized 17.5 percent this year, compared with Chinese securities that earned 1.1 percent and U.S. debt that lost 3.1 percent, according to Bank of America-Merrill Lynch data. Yields on rupee-denominated bonds will drop further as the central bank cuts its benchmark repurchase rate by 100 basis points in the fiscal year starting April, according to IDBI Bank Ltd. (IDBI) and IndusInd Bank Ltd.
‘High Amount’
“Government securities are very attractive, and with rate cuts expected, bank treasuries would be buying bonds,” N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI, said in an interview on March 9. “Sovereign yields are likely to fall further.”
Commercial lenders in the U.S. purchased $78.2 billion of Treasuries and securities of agencies in January and February, compared with $62.6 billion in all of 2011, bringing their holdings to $1.78 trillion, Federal Reserve data show.
India’s banks boosted holdings of government bonds by 415.3 billion rupees in the two weeks through Feb. 10, the largest increase since the period ended Oct. 7. Lenders hold a “high amount” of sovereign debt and need to reduce ownership, Reserve Bank of India Governor Duvvuri Subbarao said on March 9, when the monetary authority cut reserve requirements to 4.75 percent.
The yield on India’s benchmark bonds rose one basis point, or 0.01 percentage point, to 8.31 percent today, before tomorrow’s government data that economists predict will show inflation accelerated to 6.7 percent in February from 6.6 percent the month before. The increase in yield pared the drop for this year to 27 basis points. Yields on similar-maturity securities have climbed 11 basis points in China (CTCNY10Y) in 2012 and 16 basis points in the U.S (USGG10YR).
Slowing Economy
Credit growth at Indian banks is slowing as lenders put more money into government bonds. Loans rose 15.6 percent in the year through Feb. 24, the least since 12 months through January 2010, according to central bank data.
Rupee-denominated debt will rally further as a stalling economy prompts policy makers to cut the repurchase rate by 50 basis points in 2012, according to state-owned Bank of India. Gross domestic product rose 6.1 percent in three months through December, the least since the first quarter of 2009, according to government data.
“It is reasonable to position oneself with expectations that rate reductions will start soon,” N. Seshadri, a Mumbai- based executive director at Bank of India, said in an interview yesterday. “The present level of interest rates aren’t helping achieve sustainable growth.”
Bank Borrowings
The rally in bonds is attracting global funds, which have boosted their holdings of Indian debt every month since October. They have raised their ownership by $5.1 billion in 2012, spurring gains in the rupee. The currency strengthened 0.1 percent to 49.9250 per dollar today. The rupee has rebounded 6.3 percent this year after slumping 16 percent in 2011, the worst performance in Asia.
Cash availability at lenders has worsened on speculation the central bank kept buying rupees to stem the decline in the currency. Banks borrowed an average 1.33 trillion rupees a day from the Reserve Bank this month, more than double the 600 billion-rupee limit favored by the monetary authority.
The shortage of funds is likely to persist as Finance Minister Pranab Mukherjee will announce a higher borrowing program for the fiscal year starting April when he unveils the federal budget on March 16, according to FirstRand Ltd., a unit of South Africa’s second-largest banking group. The government increased its borrowing plan by 23 percent in the current fiscal year as revenue dropped because of slowing economic growth.
‘Likely to Persist’
“The market seems to be pricing in repo-rate reductions starting as early as April,” Krishnamurthy Harihar, a Mumbai- based treasurer at FirstRand, said in an interview on March 9. “However, with the likelihood of a large and front-loaded government borrowing program next fiscal year, liquidity tightness is likely to persist and yields are unlikely to fall much.”
The 10-year yield could stay at about 8.25 percent “for the coming months,” he predicted.
The cost of protecting the debt of State Bank of India (SBIN) against default has slid this year. Credit-default swaps on the lender, which some investors consider a proxy for the sovereign, have fallen to 319 basis points from 395 basis points at the end of last year, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay face value should a company fail to adhere to its agreements.
The difference between India’s 10-year bonds and similar- maturity U.S. Treasuries has narrowed to 626 basis points from a record 697 basis points touched in November.
“Government bonds are going to be a good investment proposition,” Indian Overseas Bank’s Narendra said in a telephone interview. “Yields have priced in most of the risks and they are above where they should be. I expect a slide.”
To contact the reporters on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
India’s banks have quadrupled purchases of government bonds to bring their total ownership to a record, undermining policy makers’ efforts to inject cash into Asia’s third-biggest economy.
Lenders, which bought 130 billion rupees ($2.6 billion) in the final three months of last year, added 522 billion rupees this quarter, taking holdings to 17.4 trillion rupees. Federal securities will be a “good investment proposition,” Indian Overseas Bank Chairman and Managing Director M. Narendra said in an interview from the southern Indian city of Chennai yesterday.
The central bank cut reserve requirements for lenders by 75 basis points on March 9 to ease a shortage of cash in the financial system as companies pay taxes this month. In the U.S., banks and treasuries bought more government and related debt in the first two months of 2012 than they did in all of 2011.
Indian notes have returned an annualized 17.5 percent this year, compared with Chinese securities that earned 1.1 percent and U.S. debt that lost 3.1 percent, according to Bank of America-Merrill Lynch data. Yields on rupee-denominated bonds will drop further as the central bank cuts its benchmark repurchase rate by 100 basis points in the fiscal year starting April, according to IDBI Bank Ltd. (IDBI) and IndusInd Bank Ltd.
‘High Amount’
“Government securities are very attractive, and with rate cuts expected, bank treasuries would be buying bonds,” N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI, said in an interview on March 9. “Sovereign yields are likely to fall further.”
Commercial lenders in the U.S. purchased $78.2 billion of Treasuries and securities of agencies in January and February, compared with $62.6 billion in all of 2011, bringing their holdings to $1.78 trillion, Federal Reserve data show.
India’s banks boosted holdings of government bonds by 415.3 billion rupees in the two weeks through Feb. 10, the largest increase since the period ended Oct. 7. Lenders hold a “high amount” of sovereign debt and need to reduce ownership, Reserve Bank of India Governor Duvvuri Subbarao said on March 9, when the monetary authority cut reserve requirements to 4.75 percent.
The yield on India’s benchmark bonds rose one basis point, or 0.01 percentage point, to 8.31 percent today, before tomorrow’s government data that economists predict will show inflation accelerated to 6.7 percent in February from 6.6 percent the month before. The increase in yield pared the drop for this year to 27 basis points. Yields on similar-maturity securities have climbed 11 basis points in China (CTCNY10Y) in 2012 and 16 basis points in the U.S (USGG10YR).
Slowing Economy
Credit growth at Indian banks is slowing as lenders put more money into government bonds. Loans rose 15.6 percent in the year through Feb. 24, the least since 12 months through January 2010, according to central bank data.
Rupee-denominated debt will rally further as a stalling economy prompts policy makers to cut the repurchase rate by 50 basis points in 2012, according to state-owned Bank of India. Gross domestic product rose 6.1 percent in three months through December, the least since the first quarter of 2009, according to government data.
“It is reasonable to position oneself with expectations that rate reductions will start soon,” N. Seshadri, a Mumbai- based executive director at Bank of India, said in an interview yesterday. “The present level of interest rates aren’t helping achieve sustainable growth.”
Bank Borrowings
The rally in bonds is attracting global funds, which have boosted their holdings of Indian debt every month since October. They have raised their ownership by $5.1 billion in 2012, spurring gains in the rupee. The currency strengthened 0.1 percent to 49.9250 per dollar today. The rupee has rebounded 6.3 percent this year after slumping 16 percent in 2011, the worst performance in Asia.
Cash availability at lenders has worsened on speculation the central bank kept buying rupees to stem the decline in the currency. Banks borrowed an average 1.33 trillion rupees a day from the Reserve Bank this month, more than double the 600 billion-rupee limit favored by the monetary authority.
The shortage of funds is likely to persist as Finance Minister Pranab Mukherjee will announce a higher borrowing program for the fiscal year starting April when he unveils the federal budget on March 16, according to FirstRand Ltd., a unit of South Africa’s second-largest banking group. The government increased its borrowing plan by 23 percent in the current fiscal year as revenue dropped because of slowing economic growth.
‘Likely to Persist’
“The market seems to be pricing in repo-rate reductions starting as early as April,” Krishnamurthy Harihar, a Mumbai- based treasurer at FirstRand, said in an interview on March 9. “However, with the likelihood of a large and front-loaded government borrowing program next fiscal year, liquidity tightness is likely to persist and yields are unlikely to fall much.”
The 10-year yield could stay at about 8.25 percent “for the coming months,” he predicted.
The cost of protecting the debt of State Bank of India (SBIN) against default has slid this year. Credit-default swaps on the lender, which some investors consider a proxy for the sovereign, have fallen to 319 basis points from 395 basis points at the end of last year, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay face value should a company fail to adhere to its agreements.
The difference between India’s 10-year bonds and similar- maturity U.S. Treasuries has narrowed to 626 basis points from a record 697 basis points touched in November.
“Government bonds are going to be a good investment proposition,” Indian Overseas Bank’s Narendra said in a telephone interview. “Yields have priced in most of the risks and they are above where they should be. I expect a slide.”
To contact the reporters on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, March 11, 2012
India’s Industrial Output Growth Beats Estimates, Spurring Sensex Advance
India’s Industrial Output Rises at Fastest Pace in Seven Months
By Kartik Goyal - Mar 12, 2012
India’s industrial production rose at the fastest pace in seven months in January, weathering the highest interest rates since 2008 and weaker global growth.
Output at factories, utilities and mines advanced 6.8 percent from a year earlier, after a revised 2.5 percent climb in December, the Central Statistical Office said in a statement in New Delhi today. The figure exceeded all 26 estimates in a Bloomberg News survey.
The gain signals production is withstanding the impact of the elevated cost of credit on domestic demand and the fallout for exports from Europe’s debt crisis. India’s central bank, which moved to inject cash into the economy last week and reviews rates on March 15, has signaled readiness to join nations from Brazil to the Philippines in cutting borrowing costs as inflation eases.
“Notwithstanding today’s data, which has been quite volatile, growth is likely to remain weak in the coming quarters,” said N.R. Bhanumurthy, a New-Delhi based economist at the National Institute of Public Finance and Policy. “The RBI will be watching inflation data more closely to decide on its rate moves.”
The rupee weakened 0.2 percent to 49.9775 per dollar at 11:10 a.m. local time. It has rebounded 6.2 percent so far in 2012 after sliding 16 percent last year, the worst fall in Asia. The BSE India Sensitive Index rose 0.7 percent. The yield on the 8.79 percent note due November 2021 rose three basis points, or 0.03 percentage point, to 8.29 percent after the report.
Deteriorating Outlook
Policy gridlock and fiscal and trade deficits have fanned concern that the outlook for Asia’s third-largest economy is deteriorating.
Finance Minister Pranab Mukherjee presents the budget for the year through March 2013 the day after the Reserve Bank of India assesses rates. The central bank has signaled steps to tackle price pressures by paring the fiscal gap can boost its scope to cut borrowing costs.
India’s gross domestic product rose 6.1 percent last quarter from a year earlier, the slowest pace since 2009. It climbed 8.4 percent in each of the last two fiscal years.
The Reserve Bank raised its repurchase rate by a record 3.75 percentage points from March 2010 to October 2011, to 8.5 percent, to restrain the cost of living in a nation where more than two-thirds of the population live on less than $2 per day.
Easing Inflation
Inflation held at close to the lowest level in 26 months in February, with the wholesale-price index gaining 6.7 percent from a year earlier, according to a Bloomberg survey.
That would still be the fastest pace in the so-called BRIC group of economies that also includes Brazil, Russia and China. This year’s 17 percent climb in the price of Brent crude oil, the benchmark for almost all of India’s imports, threatens to spur price rises.
“Growth is slowing and at the same time there are fresh risks to inflation from rising crude oil prices,” said Radhika Rao, an economist at Forecast Pte in Singapore.
Steel production by companies including Tata Steel Ltd., India’s biggest producer of the alloy, declined 2.9 percent in January from a year earlier, compared with an 8.7 percent gain in December, according to commerce ministry data. Electricity output gained 2.4 percent, easing from an 8.9 percent pace.
The Reserve Bank reduced the amount of deposits lenders need to set aside as reserves on March 9, to 4.75 percent from 5.5 percent, saying the cut will add 480 billion rupees ($9.6 billion) into lenders. The bank last reduced the ratio on Jan. 24, by 0.5 percentage point, as it strives to ease a cash squeeze.
Indian officials are under pressure to revive growth. Prime Minister Manmohan Singh is trying to preserve an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies. Singh’s ruling Congress party was recently routed in regional elections.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Shamim Adam in Singapore at sadam2@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
By Kartik Goyal - Mar 12, 2012
India’s industrial production rose at the fastest pace in seven months in January, weathering the highest interest rates since 2008 and weaker global growth.
Output at factories, utilities and mines advanced 6.8 percent from a year earlier, after a revised 2.5 percent climb in December, the Central Statistical Office said in a statement in New Delhi today. The figure exceeded all 26 estimates in a Bloomberg News survey.
The gain signals production is withstanding the impact of the elevated cost of credit on domestic demand and the fallout for exports from Europe’s debt crisis. India’s central bank, which moved to inject cash into the economy last week and reviews rates on March 15, has signaled readiness to join nations from Brazil to the Philippines in cutting borrowing costs as inflation eases.
“Notwithstanding today’s data, which has been quite volatile, growth is likely to remain weak in the coming quarters,” said N.R. Bhanumurthy, a New-Delhi based economist at the National Institute of Public Finance and Policy. “The RBI will be watching inflation data more closely to decide on its rate moves.”
The rupee weakened 0.2 percent to 49.9775 per dollar at 11:10 a.m. local time. It has rebounded 6.2 percent so far in 2012 after sliding 16 percent last year, the worst fall in Asia. The BSE India Sensitive Index rose 0.7 percent. The yield on the 8.79 percent note due November 2021 rose three basis points, or 0.03 percentage point, to 8.29 percent after the report.
Deteriorating Outlook
Policy gridlock and fiscal and trade deficits have fanned concern that the outlook for Asia’s third-largest economy is deteriorating.
Finance Minister Pranab Mukherjee presents the budget for the year through March 2013 the day after the Reserve Bank of India assesses rates. The central bank has signaled steps to tackle price pressures by paring the fiscal gap can boost its scope to cut borrowing costs.
India’s gross domestic product rose 6.1 percent last quarter from a year earlier, the slowest pace since 2009. It climbed 8.4 percent in each of the last two fiscal years.
The Reserve Bank raised its repurchase rate by a record 3.75 percentage points from March 2010 to October 2011, to 8.5 percent, to restrain the cost of living in a nation where more than two-thirds of the population live on less than $2 per day.
Easing Inflation
Inflation held at close to the lowest level in 26 months in February, with the wholesale-price index gaining 6.7 percent from a year earlier, according to a Bloomberg survey.
That would still be the fastest pace in the so-called BRIC group of economies that also includes Brazil, Russia and China. This year’s 17 percent climb in the price of Brent crude oil, the benchmark for almost all of India’s imports, threatens to spur price rises.
“Growth is slowing and at the same time there are fresh risks to inflation from rising crude oil prices,” said Radhika Rao, an economist at Forecast Pte in Singapore.
Steel production by companies including Tata Steel Ltd., India’s biggest producer of the alloy, declined 2.9 percent in January from a year earlier, compared with an 8.7 percent gain in December, according to commerce ministry data. Electricity output gained 2.4 percent, easing from an 8.9 percent pace.
The Reserve Bank reduced the amount of deposits lenders need to set aside as reserves on March 9, to 4.75 percent from 5.5 percent, saying the cut will add 480 billion rupees ($9.6 billion) into lenders. The bank last reduced the ratio on Jan. 24, by 0.5 percentage point, as it strives to ease a cash squeeze.
Indian officials are under pressure to revive growth. Prime Minister Manmohan Singh is trying to preserve an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies. Singh’s ruling Congress party was recently routed in regional elections.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Shamim Adam in Singapore at sadam2@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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