Published: January 28 2009 00:43 | Last updated: January 28 2009 00:43
The Mexican economy is heading towards a significant recession this year, contracting by as much as 1.8 per cent as it struggles to cope with the US financial crisis and global downturn, the country’s central bank forecast on Tuesday.
Guillermo Ortiz, the central bank president, said this year’s estimated economic growth now ranged between -0.8 per cent and -1.8 per cent. “The reduced perspectives of the Mexican economy in 2009 stem principally from the severe deterioration of the external environment,” he said.
EDITOR’S CHOICE
Mexico rebuffs ‘failed state’ claims - Jan-18
Mexico’s central bank cuts rates by 0.5% - Jan-17
Mexico poised to cut interest rates - Jan-16
Mexico rules out growth this year - Jan-09
Oil price drop casts cloud over Pemex reform - Dec-08
Mexico helpless as drugs war rages - Dec-03
At the same time, Mr Ortiz said that Mexico was likely to lose between 160,000 and 340,000 jobs this year – a particularly worrying prospect, given that the country’s relatively young population pushes 1m new people into the job market every year.
The central bank estimated inflation would finish the year at less than 4 per cent, within the bank’s target range of 2-4 per cent.
The estimates were well below those of Mexico’s finance ministry, which this month predicted that growth this year would be flat.
They also underline the growing pessimism surrounding the Mexican economy as it begins to suffer from its close economic relationship with the US. About 80 per cent of Mexico’s exports go directly to the US, and their value is equivalent to about 25 per cent of gross domestic product.
Inegi, the national statistics agency, added to the gloom with the news that manufacturing exports in December slumped by 11.5 per cent compared with the same month in 2007. In September, Inegi reported that these exports grew more than 12 per cent compared with a year previously.
Tuesday, January 27, 2009
GE, Molex, RF Micro Devices, Sun, Yahoo: U.S. Equity Preview
Jan. 27 (Bloomberg) -- Shares of the following companies may have unusual fluctuations in U.S. trading tomorrow. Stock symbols are in parentheses, and prices are as of 6:21 p.m. in New York.
Standard & Poor’s 500 Index futures expiring in March rose 1.4 percent to 850.50. Dow Jones Industrial Average futures added 91 points, or 1.1 percent, to 8,184.
General Electric Co. (GE:US) fell 1.4 percent to $12.87. GE and its finance arm may lose their top-level Aaa ratings as the global recession and credit crisis lessen the chance GE Capital can make a $5 billion profit goal this year, Moody’s Investors Service said.
Molex Inc. (MOLX:US) fell 5.9 percent to $13.15. The maker of electrical components for phones and computers said third- quarter sales may be as low as $500 million. Analysts estimated $616.9 million on average.
RF Micro Devices Inc. (RFMD:US) lost 13 percent to $1.06. The maker of chips for mobile phones predicted that fourth- quarter sales will decline “more than seasonally” due to weak demand for its products. The company suspended detailed quarterly forecasts, citing “uncertainty regarding customer demand.”
Sun Microsystems Inc. (JAVA:US) rose 6.3 percent to $4.24. The world’s fourth-largest maker of server computers reported an unexpected second-quarter profit after cutting jobs to cope with the recession.
VistaPrint Ltd. (VPRT:US) rose 23 percent to $20.01. The online provider of printing services forecast sales of at least $495 million in fiscal 2009. Analysts surveyed by Bloomberg projected an average of $492 million.
Yahoo! Inc. (YHOO:US) rose 4.9 percent to $11.90. The second-biggest search engine forecast first-quarter revenue of no less than $1.53 billion. That exceeded the average analyst estimate of $1.30 billion.
Standard & Poor’s 500 Index futures expiring in March rose 1.4 percent to 850.50. Dow Jones Industrial Average futures added 91 points, or 1.1 percent, to 8,184.
General Electric Co. (GE:US) fell 1.4 percent to $12.87. GE and its finance arm may lose their top-level Aaa ratings as the global recession and credit crisis lessen the chance GE Capital can make a $5 billion profit goal this year, Moody’s Investors Service said.
Molex Inc. (MOLX:US) fell 5.9 percent to $13.15. The maker of electrical components for phones and computers said third- quarter sales may be as low as $500 million. Analysts estimated $616.9 million on average.
RF Micro Devices Inc. (RFMD:US) lost 13 percent to $1.06. The maker of chips for mobile phones predicted that fourth- quarter sales will decline “more than seasonally” due to weak demand for its products. The company suspended detailed quarterly forecasts, citing “uncertainty regarding customer demand.”
Sun Microsystems Inc. (JAVA:US) rose 6.3 percent to $4.24. The world’s fourth-largest maker of server computers reported an unexpected second-quarter profit after cutting jobs to cope with the recession.
VistaPrint Ltd. (VPRT:US) rose 23 percent to $20.01. The online provider of printing services forecast sales of at least $495 million in fiscal 2009. Analysts surveyed by Bloomberg projected an average of $492 million.
Yahoo! Inc. (YHOO:US) rose 4.9 percent to $11.90. The second-biggest search engine forecast first-quarter revenue of no less than $1.53 billion. That exceeded the average analyst estimate of $1.30 billion.
WTO Ruling Says China Must Bolster Its Copyright Law
Jan. 27 (Bloomberg) -- The World Trade Organization said China must destroy counterfeit software or movies that are confiscated by authorities and provide more legal protection to foreign products, in a ruling on a case brought by the U.S.
A WTO panel of judges yesterday sided with the U.S. in two of the three arguments in the complaint filed in 2007, while deciding that China doesn’t need to alter its laws that exempt small-scale counterfeiters from criminal prosecution.
“It’s a mixed victory for the United States,” said Lyle Vander Schaaf, a lawyer at Bryan Cave LLP in Washington.
At stake is an issue that has become one of the biggest irritants in the U.S.-China commercial relationship. Improvements in China’s protection of patents for products such as pharmaceuticals, auto parts and copyrights for movies and software might help American companies even more than changes its currency policies, many analysts say.
“Intellectual property protection and enforcement will become an even higher priority” for the Obama administration, Myron Brilliant, vice president of the U.S. Chamber of Commerce, said in an interview. “China has taken some steps, but IPR enforcement is not as strong as we would like it to be.”
Still, it’s not clear how much leverage the WTO ruling will give the U.S., because of the mixed decision, Vander Schaaf said.
Copyright Protection
The U.S. lawyers failed to convince the WTO that thresholds for criminal prosecution of those pirating copyrighted goods are so high they effectively allow sales on a commercial scale of illegal items. The issue of those thresholds had dominated complaints by the U.S. against China during the past four years.
China’s Ministry of Commerce said it “welcomed” the judges’ ruling on the threshold for criminal prosecution, while it “regretted” their decision to rule against the country on the two other issues relating to copyright protection and auctioning of counterfeit goods.
“China has always placed a high degree of importance to the protection of intellectual property,” spokesman Yao Jian said in a statement on the ministry’s Web site today. “We will continue to strengthen the work of copyright protection.”
Under WTO rules, both countries can appeal. If the decision is upheld, China must change those laws to conform to the judges’ ruling or the U.S. can ask for authority to retaliate against the Asian nation’s products.
Global Rules
China’s illegal copying of movies, music and software cost companies $3 billion in 2007 sales, according to an estimate by lobby groups representing Microsoft Corp.,Walt Disney Co., and Vivendi SA. The WTO complaint, brought in 2007, is the first by the U.S. against China for breaching intellectual property rights, and yesterday’s ruling is likely to help establish the global rules for patent and copyright protection.
Neil Turkewitz, executive vice president of the Recording Industry Association of America, said he hopes the decision “leads China and other WTO members to enhance their protection of intellectual property.”
A WTO panel of judges yesterday sided with the U.S. in two of the three arguments in the complaint filed in 2007, while deciding that China doesn’t need to alter its laws that exempt small-scale counterfeiters from criminal prosecution.
“It’s a mixed victory for the United States,” said Lyle Vander Schaaf, a lawyer at Bryan Cave LLP in Washington.
At stake is an issue that has become one of the biggest irritants in the U.S.-China commercial relationship. Improvements in China’s protection of patents for products such as pharmaceuticals, auto parts and copyrights for movies and software might help American companies even more than changes its currency policies, many analysts say.
“Intellectual property protection and enforcement will become an even higher priority” for the Obama administration, Myron Brilliant, vice president of the U.S. Chamber of Commerce, said in an interview. “China has taken some steps, but IPR enforcement is not as strong as we would like it to be.”
Still, it’s not clear how much leverage the WTO ruling will give the U.S., because of the mixed decision, Vander Schaaf said.
Copyright Protection
The U.S. lawyers failed to convince the WTO that thresholds for criminal prosecution of those pirating copyrighted goods are so high they effectively allow sales on a commercial scale of illegal items. The issue of those thresholds had dominated complaints by the U.S. against China during the past four years.
China’s Ministry of Commerce said it “welcomed” the judges’ ruling on the threshold for criminal prosecution, while it “regretted” their decision to rule against the country on the two other issues relating to copyright protection and auctioning of counterfeit goods.
“China has always placed a high degree of importance to the protection of intellectual property,” spokesman Yao Jian said in a statement on the ministry’s Web site today. “We will continue to strengthen the work of copyright protection.”
Under WTO rules, both countries can appeal. If the decision is upheld, China must change those laws to conform to the judges’ ruling or the U.S. can ask for authority to retaliate against the Asian nation’s products.
Global Rules
China’s illegal copying of movies, music and software cost companies $3 billion in 2007 sales, according to an estimate by lobby groups representing Microsoft Corp.,Walt Disney Co., and Vivendi SA. The WTO complaint, brought in 2007, is the first by the U.S. against China for breaching intellectual property rights, and yesterday’s ruling is likely to help establish the global rules for patent and copyright protection.
Neil Turkewitz, executive vice president of the Recording Industry Association of America, said he hopes the decision “leads China and other WTO members to enhance their protection of intellectual property.”
Monday, January 26, 2009
Japan Stocks Gain on U.S. Economy Optimism; Shipping Lines Jump
Jan. 27 (Bloomberg) -- Japanese stocks advanced for the first time in three days as U.S. economic indicators eased concerns of a deepening recession in the world’s biggest economy.
Toyota Motor Corp., the No. 1 automaker globally, and Honda Motor Co. jumped more than 4 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Mitsubishi Corp., a trading company that gets more than half its profit from commodities, climbed 5.3 percent after metal prices soared. Kawasaki Kisen Kaisha Ltd. surged 8.4 percent after shipping fees for commodities gained for a fifth day.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” Mamoru Shimode, equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The Nikkei 225 Stock Average advanced 187.68, or 2.4 percent, to 7,869.82 as of 9:54 a.m. in Tokyo. The broader Topix index rose 17.68, or 2.3 percent, to 785.96, with more than five stocks climbing for each that slumped.
The Nikkei dived by a record 42 percent last year as Japan, the U.S. and Europe sank into simultaneous recessions, and the gauge has lost another 11 percent in 2009. The tumble made shares cheaper, driving up the average dividend yield on the gauge’s members to 2.79 percent as of yesterday, more than twice the returns on 10-year government bonds.
Toyota jumped 4.5 percent to 2,880 yen, breaking a four-day losing streak, while Honda, which gets about half its sales in North America, added 4.4 percent to 2,030 yen. A gauge of automakers contributed the most to the Topix’s gain.
Unexpected Gains
U.S sales of existing homes climbed 6.5 percent last month, the National Association of Realtors said yesterday, while economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data boosted commodities prices, lifting a gauge of six metals by 5.5 percent in London yesterday. In New York, copper futures for March delivery soared as much as 11 percent to the highest level since Dec. 2.
Mitsubishi, Japan’s biggest trading company by value, leapt 5.3 percent to 1,228 yen, and Mitsui & Co., the No. 2, added 4.7 percent to 928 yen. Sumitomo Metal Mining Co., the nation’s second-largest copper smelter, surged 5.9 percent to 878 yen.
Kawasaki Kisen, Japan’s No. 3 shipping line, advanced 8.4 percent to 373 yen, while Mitsui O.S.K. Lines Ltd., the second biggest, jumped 5.8 percent to 583 yen. Market leader Nippon Yusen K.K. added 5.2 percent to 487 yen. The Baltic Dry Index, a measure of shipping costs for commodities, rose 1.5 percent yesterday, bringing its five-day advance to 13 percent.
Nikkei futures expiring in March leapt 3.6 percent to 7,860 in Osaka and rose by the same degree to 7,865 in Singapore.
Toyota Motor Corp., the No. 1 automaker globally, and Honda Motor Co. jumped more than 4 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Mitsubishi Corp., a trading company that gets more than half its profit from commodities, climbed 5.3 percent after metal prices soared. Kawasaki Kisen Kaisha Ltd. surged 8.4 percent after shipping fees for commodities gained for a fifth day.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” Mamoru Shimode, equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The Nikkei 225 Stock Average advanced 187.68, or 2.4 percent, to 7,869.82 as of 9:54 a.m. in Tokyo. The broader Topix index rose 17.68, or 2.3 percent, to 785.96, with more than five stocks climbing for each that slumped.
The Nikkei dived by a record 42 percent last year as Japan, the U.S. and Europe sank into simultaneous recessions, and the gauge has lost another 11 percent in 2009. The tumble made shares cheaper, driving up the average dividend yield on the gauge’s members to 2.79 percent as of yesterday, more than twice the returns on 10-year government bonds.
Toyota jumped 4.5 percent to 2,880 yen, breaking a four-day losing streak, while Honda, which gets about half its sales in North America, added 4.4 percent to 2,030 yen. A gauge of automakers contributed the most to the Topix’s gain.
Unexpected Gains
U.S sales of existing homes climbed 6.5 percent last month, the National Association of Realtors said yesterday, while economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data boosted commodities prices, lifting a gauge of six metals by 5.5 percent in London yesterday. In New York, copper futures for March delivery soared as much as 11 percent to the highest level since Dec. 2.
Mitsubishi, Japan’s biggest trading company by value, leapt 5.3 percent to 1,228 yen, and Mitsui & Co., the No. 2, added 4.7 percent to 928 yen. Sumitomo Metal Mining Co., the nation’s second-largest copper smelter, surged 5.9 percent to 878 yen.
Kawasaki Kisen, Japan’s No. 3 shipping line, advanced 8.4 percent to 373 yen, while Mitsui O.S.K. Lines Ltd., the second biggest, jumped 5.8 percent to 583 yen. Market leader Nippon Yusen K.K. added 5.2 percent to 487 yen. The Baltic Dry Index, a measure of shipping costs for commodities, rose 1.5 percent yesterday, bringing its five-day advance to 13 percent.
Nikkei futures expiring in March leapt 3.6 percent to 7,860 in Osaka and rose by the same degree to 7,865 in Singapore.
Asian Stocks Climb as U.S. Indicators Boost Exporters, Banks
Jan. 27 (Bloomberg) -- Asian stocks rallied from a seven- week low as U.S. economic indicators sparked optimism that demand for commodities and Japanese-made goods will recover.
BHP Billiton Ltd., the world’s biggest mining company, leapt 5.2 percent in Sydney after metal prices jumped in London. Panasonic Corp., the world’s biggest maker of consumer electronics, gained 1.8 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Commonwealth Bank of Australia, the nation’s biggest mortgage lender, led financial stocks higher after American Express Co.’s profit beat the most pessimistic forecasts and the UK’s Barclays Plc shunned government funding.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” said Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The MSCI Asia Pacific Index rose 1.9 percent at 9:49 a.m. in Tokyo. The index is still down 8.9 percent this year, after falling a record 43 percent in 2008, as the world’s biggest economies slipped into recession.
The Nikkei-225 Stock Average rose 2.6 percent to 7,877.86, the biggest gain since Dec. 15. Australia’s S&P/ASX 200 Index rose 2.3 percent to 3,419.70 in Sydney. In New York, the Standard & Poor’s 500 Index drifted between gains and losses before finishing up 0.6 percent.
Home Sales
Panasonic advanced 2.7 percent to 1,086 yen, its biggest gain since Jan. 7. U.S sales of existing homes climbed 6.5 percent last month, whereas economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data gave a boost to commodities prices, driving up a gauge of six metals by 5.5 percent in London yesterday. BHP Billiton rose 5.7 percent to A$29.02.
Asian banks gained after American Express, the biggest U.S. credit card company by purchases, reported profit from continuing operations declined 72 percent to $238 million. American Express rose as much as 7.2 percent.
Commonwealth Bank gained 2.7 percent to A$24.73. Mitsubishi UFJ Financial gained 3.5 percent to 474 yen after Bank of America Corp. sublet its Times Square trading floor in New York to the company’s investment banking unit.
Barclays jumped the most in at least two decades in London trading after saying it won’t need government funding because revenue increased last year
BHP Billiton Ltd., the world’s biggest mining company, leapt 5.2 percent in Sydney after metal prices jumped in London. Panasonic Corp., the world’s biggest maker of consumer electronics, gained 1.8 percent after U.S. home sales and the Conference Board’s index of leading indicators unexpectedly rose. Commonwealth Bank of Australia, the nation’s biggest mortgage lender, led financial stocks higher after American Express Co.’s profit beat the most pessimistic forecasts and the UK’s Barclays Plc shunned government funding.
“There is optimism in the market the global economy will recover from the latter half of this fiscal year,” said Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. “That optimism may help the stock market push through the current downturn.”
The MSCI Asia Pacific Index rose 1.9 percent at 9:49 a.m. in Tokyo. The index is still down 8.9 percent this year, after falling a record 43 percent in 2008, as the world’s biggest economies slipped into recession.
The Nikkei-225 Stock Average rose 2.6 percent to 7,877.86, the biggest gain since Dec. 15. Australia’s S&P/ASX 200 Index rose 2.3 percent to 3,419.70 in Sydney. In New York, the Standard & Poor’s 500 Index drifted between gains and losses before finishing up 0.6 percent.
Home Sales
Panasonic advanced 2.7 percent to 1,086 yen, its biggest gain since Jan. 7. U.S sales of existing homes climbed 6.5 percent last month, whereas economists had expected a decline. The Conference Board index, which points to the direction of the economy over the next three to six months, also went against economist projections, rising 0.3 percent versus an estimated 0.2 percent drop.
The U.S. economic data gave a boost to commodities prices, driving up a gauge of six metals by 5.5 percent in London yesterday. BHP Billiton rose 5.7 percent to A$29.02.
Asian banks gained after American Express, the biggest U.S. credit card company by purchases, reported profit from continuing operations declined 72 percent to $238 million. American Express rose as much as 7.2 percent.
Commonwealth Bank gained 2.7 percent to A$24.73. Mitsubishi UFJ Financial gained 3.5 percent to 474 yen after Bank of America Corp. sublet its Times Square trading floor in New York to the company’s investment banking unit.
Barclays jumped the most in at least two decades in London trading after saying it won’t need government funding because revenue increased last year
Indian Bond Yields Show Traders Pared Rate-Cut Bets, ICICI Says
Jan. 27 (Bloomberg) -- Indian bond yields, which have rebounded from a record low touched earlier this month, indicate traders have scaled back bets for an interest-rate cut, according to ICICI Securities Ltd.
The Reserve Bank of India may today opt for a pause in reductions as policy makers consider past measures as sufficient to bolster the economy, said Prasanna Ananthasubramaniam, an analyst at the Mumbai-based primary dealer that underwrites government debt sales. Ten-year yields touched an all-time low of 4.85 percent on Jan. 5 as the central bank cut its benchmark rate four times in less than three months. Yields have jumped almost one percentage point since.
“The rebound in yields suggests the bond market has priced in a no-rate cut scenario for today,” Prasanna said. “The aggressive monetary easing of recent months suggests the RBI frontloaded its rate cuts and may now wait for results before more action. Recent government comments support this view.”
Yields on 10-year government debt have risen to 5.72 percent and are headed for the first monthly increase since July, according to the central bank’s trading system. They climbed 48 basis points, or 0.48 percentage point, this month, after dropping 1.82 percentage points in December.
“I don’t see bonds rallying much further in the near term,” Prasanna said. “We may see the 10-year yield move mostly between 5.75 percent and 6 percent in the coming weeks.”
Rate Survey
Eleven of 22 economists surveyed by Bloomberg News expect the central bank to hold the overnight lending rate, or the repurchase rate, at 5.5 percent, with the rest expecting a reduction. A separate survey shows 14 of 21 economists expect no change in the reverse-repurchase rate at which the central bank drains funds from the banking system. The rate decision is due at noon in Mumbai.
Central bank Governor Duvvuri Subbarao lowered the overnight lending and borrowing rates to 5.5 percent and 4 percent respectively on Jan. 2, both record lows. The central bank has cut its lending rate, the repurchase rate, by 3.5 percentage points since Oct. 20. It also reduced the so-called cash reserve ratio, or the proportion of deposits banks must set aside as reserves, by 4 percentage points to 5 percent.
Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said on Jan. 21 measures taken recently by policy makers were enough to revive an economy expected to expand at the slowest pace in six years.
Stimulus Packages
India has unveiled two stimulus packages to counter the effect of the global economic slump on Asia’s third-biggest economy. Growth has slowed for two straight quarters, and the government is forecasting an expansion of 7 percent this fiscal year, the weakest since 2003.
Volatility in India’s bonds may remain near a record touched this month as the economy slows and the government increases debt sales, according to ICICI.
“The bond market is in a phase of high volatility as supply pressure and the weak economic outlook are posing a conundrum,” Prasanna said.
The 30-day historical volatility gauge of the Indian 10- year government bond yield surged to an all-time high of 61.3 percent on Jan. 23, more than doubling from a month earlier. The swing in yields between opening and closing levels on Jan. 7 was a half-percentage point.
India raised its borrowing target for the year ending March 31 to more than 2 trillion rupees ($40.9 billion), from 1.45 trillion rupees set in its budget for the period.
The Reserve Bank of India may today opt for a pause in reductions as policy makers consider past measures as sufficient to bolster the economy, said Prasanna Ananthasubramaniam, an analyst at the Mumbai-based primary dealer that underwrites government debt sales. Ten-year yields touched an all-time low of 4.85 percent on Jan. 5 as the central bank cut its benchmark rate four times in less than three months. Yields have jumped almost one percentage point since.
“The rebound in yields suggests the bond market has priced in a no-rate cut scenario for today,” Prasanna said. “The aggressive monetary easing of recent months suggests the RBI frontloaded its rate cuts and may now wait for results before more action. Recent government comments support this view.”
Yields on 10-year government debt have risen to 5.72 percent and are headed for the first monthly increase since July, according to the central bank’s trading system. They climbed 48 basis points, or 0.48 percentage point, this month, after dropping 1.82 percentage points in December.
“I don’t see bonds rallying much further in the near term,” Prasanna said. “We may see the 10-year yield move mostly between 5.75 percent and 6 percent in the coming weeks.”
Rate Survey
Eleven of 22 economists surveyed by Bloomberg News expect the central bank to hold the overnight lending rate, or the repurchase rate, at 5.5 percent, with the rest expecting a reduction. A separate survey shows 14 of 21 economists expect no change in the reverse-repurchase rate at which the central bank drains funds from the banking system. The rate decision is due at noon in Mumbai.
Central bank Governor Duvvuri Subbarao lowered the overnight lending and borrowing rates to 5.5 percent and 4 percent respectively on Jan. 2, both record lows. The central bank has cut its lending rate, the repurchase rate, by 3.5 percentage points since Oct. 20. It also reduced the so-called cash reserve ratio, or the proportion of deposits banks must set aside as reserves, by 4 percentage points to 5 percent.
Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, said on Jan. 21 measures taken recently by policy makers were enough to revive an economy expected to expand at the slowest pace in six years.
Stimulus Packages
India has unveiled two stimulus packages to counter the effect of the global economic slump on Asia’s third-biggest economy. Growth has slowed for two straight quarters, and the government is forecasting an expansion of 7 percent this fiscal year, the weakest since 2003.
Volatility in India’s bonds may remain near a record touched this month as the economy slows and the government increases debt sales, according to ICICI.
“The bond market is in a phase of high volatility as supply pressure and the weak economic outlook are posing a conundrum,” Prasanna said.
The 30-day historical volatility gauge of the Indian 10- year government bond yield surged to an all-time high of 61.3 percent on Jan. 23, more than doubling from a month earlier. The swing in yields between opening and closing levels on Jan. 7 was a half-percentage point.
India raised its borrowing target for the year ending March 31 to more than 2 trillion rupees ($40.9 billion), from 1.45 trillion rupees set in its budget for the period.
Subbarao May Keep Indian Interest Rates on Hold at Record Low
Jan. 27 (Bloomberg) -- India's central bank Governor Duvvuri Subbarao may keep interest rates unchanged today after lowering them to a record this month.
The Reserve Bank of India will leave the reverse repurchase rate at 4 percent, according to 14 of 21 economists surveyed by Bloomberg News. The rest expect a reduction. A decision is due at 11:15 a.m. in Mumbai.
Subbarao, who alone decides monetary policy, unexpectedly cut rates on Jan. 2 to coincide with Prime Minister Manmohan Singh's second fiscal stimulus package since December. After reversing four years of monetary policy tightening in little over three months, the governor may focus today's scheduled meeting on his assessment of the economy.
``Rates haven't been reduced enough given the current economic scenario, but it's unlikely they will cut today,'' said Soumendra K. Dash, chief economist at Credit Analysis & Research Ltd., a ratings company in Mumbai. ``The bank will assess the impact of the steps taken so far before resuming.''
Since January, data has confirmed Subbarao's comments that the economy is slowing along with investment.
Exports, 14 percent of gross domestic product, sank 9.9 percent in November from a year earlier. Industrial production grew at half the pace between April and October than for the same period a year earlier.
Foreign Investment
Foreign investors, who were instrumental in driving the Indian economy's record 9.3 percent expansion in the three years to March 2008, are fleeing. Last year they pulled out $13.1 billion from Indian stocks after buying $17.2 billion of equities in 2007. India's Sensitive Index, or Sensex, has dropped 10 percent so far this year, extending last year's 52 percent slide.
``Share prices have tanked and confidence has evaporated,'' said Tehmina Khan, a London-based economist at Capital Economics Ltd. ``What's more, domestic lenders too have grown increasingly cautious.''
The argument that India's inflation rate requires policy caution is also losing credence. Wholesale prices for the week ended Jan. 3 rose 5.6 percent, less than half the pace in August.
Subbarao may today lower his forecast for India's growth for the year to March 31 from 7.5 percent, the weakest in four years, and predict slower inflation.
Along with the one percentage point cut to the reverse repurchase rate on Jan. 2, Subbarao lowered the repurchase rate by the same margin to 5.5 percent and cut the amount of cash that lenders need to set aside as reserves by 50 basis points to 5 percent.
Domestic Demand
``Policy rate cuts and liquidity measures cannot prevent a sharp slowdown in the growth of domestic demand,'' said Chetan Ahya, a Singapore-based economist at Morgan Stanley.
Commercial lenders have been slow to follow the central bank's lead in cutting rates because they are still paying high interest on deposits following the RBI's efforts to control inflation by raising interest rates to a seven-year high in July.
Lending rates for the best corporate customers at ICICI Bank Ltd., the nation's second biggest, stand at 16.75 percent, reflecting only one 0.5 percentage point cut. The central bank's repurchase rate, at which it lends to commercial banks, has dropped by 3.5 percentage points since October to 5.5 percent.
Singh's Surgery
Singh, who underwent heart bypass surgery on Jan. 24, has been coordinating with Subbarao since October to ensure investment doesn't suffer from the global credit crunch. Investment typically accounts for about one third of growth in the $1.2 trillion economy.
The government has undertaken a $4 billion plan to invest in roads and ports, and on Jan. 2 raised the overseas investment limit in the local corporate bond market to $15 billion from $6 billion.
Singh is also under pressure to prop up the economy and prevent companies from scaling back production and firing workers before general elections scheduled for April and May this year.
Tata Motors Ltd., India's biggest truckmaker, stopped production at a commercial-vehicle factory for six days this month. Hyundai Motor Co.'s Indian unit is cutting output and firing temporary staff. Indian exporters said this month they expect to cut about 10 million jobs by March.
``Ensuring job security is the main challenge before the government ahead of the elections,'' said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. ``The mother of all monetary easing is still alive and kicking, it's just that they might take a pause today.'
The Reserve Bank of India will leave the reverse repurchase rate at 4 percent, according to 14 of 21 economists surveyed by Bloomberg News. The rest expect a reduction. A decision is due at 11:15 a.m. in Mumbai.
Subbarao, who alone decides monetary policy, unexpectedly cut rates on Jan. 2 to coincide with Prime Minister Manmohan Singh's second fiscal stimulus package since December. After reversing four years of monetary policy tightening in little over three months, the governor may focus today's scheduled meeting on his assessment of the economy.
``Rates haven't been reduced enough given the current economic scenario, but it's unlikely they will cut today,'' said Soumendra K. Dash, chief economist at Credit Analysis & Research Ltd., a ratings company in Mumbai. ``The bank will assess the impact of the steps taken so far before resuming.''
Since January, data has confirmed Subbarao's comments that the economy is slowing along with investment.
Exports, 14 percent of gross domestic product, sank 9.9 percent in November from a year earlier. Industrial production grew at half the pace between April and October than for the same period a year earlier.
Foreign Investment
Foreign investors, who were instrumental in driving the Indian economy's record 9.3 percent expansion in the three years to March 2008, are fleeing. Last year they pulled out $13.1 billion from Indian stocks after buying $17.2 billion of equities in 2007. India's Sensitive Index, or Sensex, has dropped 10 percent so far this year, extending last year's 52 percent slide.
``Share prices have tanked and confidence has evaporated,'' said Tehmina Khan, a London-based economist at Capital Economics Ltd. ``What's more, domestic lenders too have grown increasingly cautious.''
The argument that India's inflation rate requires policy caution is also losing credence. Wholesale prices for the week ended Jan. 3 rose 5.6 percent, less than half the pace in August.
Subbarao may today lower his forecast for India's growth for the year to March 31 from 7.5 percent, the weakest in four years, and predict slower inflation.
Along with the one percentage point cut to the reverse repurchase rate on Jan. 2, Subbarao lowered the repurchase rate by the same margin to 5.5 percent and cut the amount of cash that lenders need to set aside as reserves by 50 basis points to 5 percent.
Domestic Demand
``Policy rate cuts and liquidity measures cannot prevent a sharp slowdown in the growth of domestic demand,'' said Chetan Ahya, a Singapore-based economist at Morgan Stanley.
Commercial lenders have been slow to follow the central bank's lead in cutting rates because they are still paying high interest on deposits following the RBI's efforts to control inflation by raising interest rates to a seven-year high in July.
Lending rates for the best corporate customers at ICICI Bank Ltd., the nation's second biggest, stand at 16.75 percent, reflecting only one 0.5 percentage point cut. The central bank's repurchase rate, at which it lends to commercial banks, has dropped by 3.5 percentage points since October to 5.5 percent.
Singh's Surgery
Singh, who underwent heart bypass surgery on Jan. 24, has been coordinating with Subbarao since October to ensure investment doesn't suffer from the global credit crunch. Investment typically accounts for about one third of growth in the $1.2 trillion economy.
The government has undertaken a $4 billion plan to invest in roads and ports, and on Jan. 2 raised the overseas investment limit in the local corporate bond market to $15 billion from $6 billion.
Singh is also under pressure to prop up the economy and prevent companies from scaling back production and firing workers before general elections scheduled for April and May this year.
Tata Motors Ltd., India's biggest truckmaker, stopped production at a commercial-vehicle factory for six days this month. Hyundai Motor Co.'s Indian unit is cutting output and firing temporary staff. Indian exporters said this month they expect to cut about 10 million jobs by March.
``Ensuring job security is the main challenge before the government ahead of the elections,'' said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. ``The mother of all monetary easing is still alive and kicking, it's just that they might take a pause today.'
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