India CPI Holds Near 8%, Output Slows Before RBI Decision

By Jeanette Rodrigues - Sep 12, 2014

Indian retail inflation held near 8 percent while growth in factory output slowed more than economists had estimated before the central bank reviews one of Asia’s highest interest rates.
Consumer prices rose 7.8 percent in August from a year earlier, compared with 7.96 percent in July, the Statistics Ministry said in New Delhi today. The median of 37 estimates in a Bloomberg survey had been for a 7.83 percent increase. Industrial production rose 0.5 percent in July, compared with 1.8 percent predicted in a separate survey and a revised 3.94 percent gain in June.
The $1.9 trillion economy will benefit if the Reserve Bank of India cools inflation, Governor Raghuram Rajan said last month after keeping interest rates unchanged for a third straight meeting. The RBI is battling Asia’s strongest price pressures, which are damping investment essential for Prime Minister Narendra Modi to meet tax revenue targets.
“Both data sets clearly signal that the RBI is headed for an extended pause,” said Rupa Rege-Nitsure, a Mumbai-based economist at Bank of Baroda. “The government has to address the problem of food inflation on a war footing, otherwise we will not see any material change here.”
Food and beverage prices rose 9.16 percent year-on-year, led by a 24 percent surge in fruits and 15 percent in vegetables. Fuel costs climbed 4.15 percent, today’s data showed.

RBI Targets

The central bank is within reach of its goal of capping the inflation rate at 8 percent by January 2015, while there are upside risks to the 6 percent target by January 2016, according to an Aug. 21 RBI report. Growth concerns are broadly balanced, it said. The monetary authority is scheduled to review borrowing costs on Sept. 30.
The rupee strengthened 0.5 percent to 60.66 per dollar in Mumbai before the data were released, the S&P BSE Sensex index of stocks gained 0.2 percent and the yield on the benchmark 10-year sovereign bond fell to 8.50 percent from 8.51 percent.
A dip in crude oil prices and a pick-up in monsoon rainfall, which has the potential to raise farm output, may help contain inflation only in the short-term, Upasna Bhardwaj, an economist at ING Vysya Bank Ltd. in Mumbai, said by phone before the data. The government needs to rein in subsidies instead of counting on taxes to meet its budget deficit target of 4.1 percent of gross domestic product, a seven-year low, she said.
The economy expanded 5.7 percent in the quarter through June 30 from a year earlier, the fastest pace since 2012. GDP will grow 5.6 percent in the fiscal year through March 2015 and 6.5 percent in the following 12 months, according to Goldman Sachs Group Inc.
Goldman has scrapped its rate-increase forecast, Mumbai-based economist Tushar Poddar wrote in a Sept. 9 report. “We now expect the policy repo rate to stay at 8 percent for a protracted period of time -– through 2014 and 2015.”
The U.S. bank had earlier expected a 50-basis-point increase in the benchmark repurchase rate this year followed by a reduction of the same magnitude in the second half of 2015.
To contact the reporter on this story: Jeanette Rodrigues in New Delhi at jrodrigues26@bloomberg.net
To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Sam Nagarajan, Dick Schumacher

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India’s Rupee Heads for Weekly Loss on U.S. Rate-Rise Prospects

By Shikhar Balwani - Sep 12, 2014

India’s rupee headed for the biggest weekly drop in six on concern an improving U.S. economy will spur the Federal Reserve to raise interest rates sooner than planned, reducing the allure of emerging-market assets.
Fed officials led by Chair Janet Yellen next meet Sept. 16-17. The dollar has rallied in the past four weeks as U.S. economic reports boosted speculation the central bank will act on borrowing costs sooner than estimated while continuing to pare its record bond purchases. India will release data on consumer prices and industrial production later today.
“Asian currencies, including the rupee, have been weighed down by the overall strength seen in the dollar,” Naveen Raghuvanshi, a Mumbai-based currency trader at DCB Bank Ltd., said by phone. “Investors in India will keenly watch the inflation and factory output numbers for cues.”
The rupee declined 0.9 percent this week, the most since the period ended Aug. 1, to 60.9800 per dollar as of 9:49 a.m. in Mumbai, prices from local banks compiled by Bloomberg show. The currency, which fell 0.1 percent today, touched 61.0350 on Sept. 10, the weakest level since Aug. 14.
India’s government bonds gained this week, with the yield on the benchmark 8.4 percent sovereign notes due July 2024 dropping two basis points, or 0.02 percentage point, to 8.51 percent, according to the central bank’s trading system. The rate was unchanged today.
One-month implied volatility in the rupee, a measure of expected exchange-rate swings used to price options, jumped 99 basis points from Sept. 5 to 7.04 percent, according to data compiled by Bloomberg. Three-month offshore non-deliverable forwards dropped 1.3 percent to 61.92 per dollar. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, were little changed this week at 8.47 percent, data compiled by Bloomberg show.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Robin Ganguly

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Singapore Air India Venture Said to Miss October Start

By Anurag Kotoky - Sep 10, 2014

Singapore Airlines Ltd. (SIA)’s India venture is set to miss a target of starting operations in October because more regulatory approvals are needed, a government official with direct knowledge of the situation said.
Getting all certifications for Vistara, as the airline is called, would require a further two or three months, said the person, who asked not to be identified as the information isn’t public. Singapore Air owns 49 percent of the carrier with Indian conglomerate Tata Sons Ltd. owning the rest.
Vistara, which has a preliminary approval from the Indian government, needs to conduct the so-called proving flight before it gets the air-worthiness certificate and the final signoff from the government, the person said. Vistara is getting its first Airbus Group NV (AIR) A320 aircraft this month, and plans to expand fleet size to 20 in five years, the company said Aug. 11.
“Vistara is working very closely with the regulators to ensure all requisite requirements and processes are being complied with,” Rashmi Soni, a spokeswoman for Vistara, said in an e-mailed response to questions. She declined to comment on the start date.
Nicholas Ionides, a spokesman for Singapore Air, directed queries to Vistara. Sanjay Singh, a vice president for public affairs at Tata-SIA Airlines Ltd., directed queries to Vistara spokeswoman. Uday Moray, a spokesman at India’s civil aviation ministry did not respond to two calls to his mobile phone.
Singapore Air and Mumbai-based Tata are starting the full-service carrier to tap travel demand among India’s more than 1.2 billion people. India eased foreign investment rules in 2012, enabling foreign carriers to invest in local airlines after almost two decades.
To contact the reporter on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net
To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Subramaniam Sharma

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Goldman Scraps RBI Interest-Rate Increase View on Better Monsoon

By Anil Varma - Sep 10, 2014

Goldman Sachs Group Inc. has scrapped its forecast for the Reserve Bank of India to raise borrowing costs after a pickup in monsoon rains and a drop in oil prices tempered the inflation outlook.
The U.S. lender, which had expected a 50-basis-point increase in the benchmark repurchase rate this year followed by a reduction of the same magnitude in the second half of 2015, now sees the RBI staying on hold through the end of next year, it said in a report. Consumer-price (INFUTOTY) gains slowed to 7.8 percent in August, from as high as 11.16 percent in November, the median estimate in a Bloomberg survey shows before data due Sept. 12.
“Near-term risks to inflation have receded due to weaker oil prices and a significantly improved monsoon,” Tushar Poddar, an economist at Goldman in Mumbai, wrote in the report dated yesterday. “While our base case is now for the RBI to remain on hold, the probability of a rate hike is higher than that of a rate cut. The biggest change under the new government has been a more investor-friendly mindset.”
Measures taken by Prime Minister Narendra Modi, who took office after a landslide election win in May, will spur economic growth, lure capital inflows and support the rupee, Goldman said in the report. A shortfall in India’s annual rains, crucial for crops from sugar to rice and cotton, has narrowed to 11 percent from more than 40 percent in June, official data show, and Brent crude prices have retreated 14 percent from this year’s high of $115.71 per barrel in June.

Quickening Growth

Goldman predicts Asia’s third-largest economy will expand 5.6 percent in the fiscal year through March 2015. Gross domestic product increased 4.7 percent in the previous period, a pace that was near the decade-low 4.5 percent recorded the year before. The U.S. lender still sees the rupee weakening to 61 per dollar, 62 and 63 in three, six and 12 months. The currency fell 0.4 percent to 60.8225 as of 9:21 a.m. in Mumbai, according to prices from local banks.
RBI Governor Raghuram Rajan, who raised borrowing costs three times in the past year to combat inflation, has left them unchanged since January. The central bank will hold the benchmark rate at 8 percent through the end of 2014, according to 16 of 26 analysts surveyed by Bloomberg. Four see a reduction to 7.75 percent, while five estimate a 25-basis-point increase and one expects an advance to 8.5 percent.
Modi’s decisions to cut red tape and allow more foreign investment in industries including railways and defense have buoyed investor confidence, Goldman said in the report. The rupee has rebounded 13 percent from a record low of 68.845 per dollar reached in August 2013, the world’s best-performing emerging-market currency over that period, data compiled by Bloomberg show.
“We think the Indian rupee will continue to trade in a narrow range, with the RBI intervening to prevent any sharp appreciation,” Goldman’s Poddar wrote.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Andrew Janes, Simon Harvey

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Rupee Volatility Declines for Fourth Week on Economic Optimism

By Kartik Goyal - Sep 5, 2014

A gauge of expected swings in India’s rupee fell for a fourth week on optimism the nation’s improving economy will draw capital from abroad.
Gross domestic product increased 5.7 percent from a year earlier in the April-June period, the most since the first quarter of 2012, official data showed Aug. 29. Global funds have pumped more than $10 billion into the nation’s bonds and stocks this quarter, exchange data show.
“Higher foreign inflows into debt and equities, spurred by faster economic growth is supporting the rupee,” said Anish Vyas, a Mumbai-based currency analyst at Angel Broking Ltd. Gains in the dollar amid expectations that U.S. interest rates are set to rise will cap the rupee’s appreciation, he said.
Three-month implied volatility in the rupee, a measure of expected fluctuations used to price options, dropped 39 basis points from a week ago to 6.79 percent, according to data compiled by Bloomberg. It rose two basis points, or 0.02 percentage point, today.
In the spot market, the Indian currency rose 0.1 percent this week to 60.4350 per dollar as of 10:15 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. It fell 0.1 percent today. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 developed-market peers, climbed today to the highest level since July 2013.
Three-month offshore non-deliverable forwards were little changed today at 61.34 per dollar and advanced 0.1 percent from Aug. 29. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma

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India Rupee Volatility Drops to One-Month Low on Risk Appetite

By Kartik Goyal - Sep 4, 2014

A gauge of expected swings in India’s rupee fell to a one-month low on signs growth in Asia’s third-biggest economy is picking up and as Russia agreed to a cease-fire with Ukraine.
Most Asian currencies gained on speculation the European Central Bank will announce quantitative easing measures at a meeting today, a move that may spur inflows to emerging markets, according to Andhra Bank Ltd. India’s $1.9 trillion economy expanded 5.7 percent in the April-June period, the most since the first quarter of 2012, official data showed Aug. 29.
“The theme of improving economic fundamentals attracting higher inflows remains intact for India and that is supporting the rupee,” said Vikas Babu, a foreign-exchange trader in Mumbai at state-run Andhra Bank. Developing-nation currencies are rising today on expectations ahead of the ECB, while there’s also an easing in geopolitical tensions, he said.
Three-month implied volatility in the rupee, a measure of expected exchange-rate swings used to price options, dropped five basis points to 6.80 percent as of 10:31 a.m. in Mumbai, according to data compiled by Bloomberg. That’s the lowest level since July 31. In the spot market, the currency was little changed at 60.4588 per dollar.
Three-month offshore non-deliverable forwards advanced 0.1 percent to 61.36 per dollar. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey, Anil Varma

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India Bonds Advance as Growing Cash Supply Seen Boosting Demand

By Shikhar Balwani - Sep 3, 2014

India’s 10-year government bonds gained for a third day on speculation an increasing cash supply will drive demand for sovereign debt.
The nation’s lenders parked a net 225.6 billion rupees ($3.7 billion) via daily liquidity auctions at the Reserve Bank of India on Sept. 1, the most since October 2011, data compiled by Bloomberg show. They added another 201.85 billion rupees yesterday, signaling increased availability of funds. The growing cash supply is probably because of government spending at the beginning of the month, Harish Agrawal, a fixed-income trader at FirstRand Ltd. in Mumbai, said yesterday.
“Liquidity is abundant and that’s helping the bond markets,” said Sagar Shah, deputy vice-president for treasury at RBL Bank in Mumbai. “Continuous buying by foreign funds is boosting confidence.”
The yield on the 8.4 percent notes due July 2024 fell two basis points, or 0.02 percentage point, to 8.50 percent as of 10:06 a.m. in Mumbai, prices from the RBI’s trading system show. The yield has fallen six basis points this week to the lowest level since Aug. 20.
Overseas investors bought a net $2.8 billion of rupee corporate and government securities last month, exchange data show. That was the fourth straight month of inflows and boosted foreign holdings of Indian debt to a record $42 billion.
Standard Chartered Plc favors local-currency sovereign notes as India’s new government accelerates economic reforms amid expectations that inflation will ease, Chief Investment Strategist Steve Brice in Singapore said last week. Money managers at Amundi Asset Management and Union Investment Privatfonds also said last week that they consider Indian bonds attractive.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, were unchanged from yesterday at 8.45 percent, data compiled by Bloomberg show.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Andrew Janes, Anil Varma

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