The Reserve Bank of India this week increased its key rate to a six-year high of 8.5 percent, joining other central banks across Asia in raising borrowing costs as soaring fuel and commodity prices stoke inflation. Some analysts are speculating that Governor Yaga Venugopal Reddy may lift the Indian benchmark by as much as 100 additional base points before the end of the year.
The RBI raised the repurchase rate by 0.5 percentage point on 24 June and lifted the cash reserve ratio to 8.75 percent from 8.25 percent, to prevent money in the banking system from fanning inflation. The move followed a quarter-point increase in the benchmark interest rate to 8 percent on June 11.
Money supply in India's banking system grew 21.4 percent from a year earlier to 41 trillion rupees ($953.5 billion) in the week ended June 6, more than the Reserve Bank's target of 16.5 to 17 percent for the fiscal year ending March.
Soaring food prices are also stoking inflation in India, where more than half the population of 1.1 billion survive on less than $2 a day. Food product costs, including bread, salt, cooking oil and tea, jumped 14 percent in the week to June 14 from a year earlier, according to today's report. Fuel price inflation rose 16.4 percent in the week ended June 14 from a year earlier. India on June 4 raised retail prices of fuels for the second time this year. Higher fuel prices led to higher transportation costs, making manufactured products and food items more expensive.
The index of manufactured products, which has a 64 percent weight in the inflation basket, rose 9.7 percent.
Foreign Exchange Reserves
India’s foreign exchange reserves rose $1.8 billion during the week ended June 20 despite sustained selling by foreign portfolio investors, indicating that the Reserve Bank of India (RBI) was a net buyer of forex assets in the market. The rise in reserves comes after a sharp decline of nearly $5 billion in the previous week. According to the latest data released by RBI, forex reserves, including gold and SDR (special drawing rights) rose $1,794 million during the week ended June 20 to touch $312.5 billion. While foreign currency assets rose $1,789 million, reserves with IMF rose $5 million. The value of gold and SDR — currency with the IMF — remained unchanged during the week.
Thus $1,794-million forex worth of assets were absorbed by the central bank during the week although these assets, even if expressed in dollar terms, include the impact of movements in the value of non-US currencies (such as euro, sterling, yen) held in the reserves. The central bank obviously intervenes to buy and sell assets denominated in a variety of currencies, and even though the currency break-down of India's reserves is not made public, the central bank does reveal the break-down of the SDR-dollar, sterling, euro yen and non-SDR currencies. This data suggests that, over the years, the share of non-SDR currencies - such as the Canadian dollar, yuan and the Australian dollar - in the reserves has been going up.
The Rupee
India's rupee fell by the most in three weeks last week, after crude oil rose to a record and demand consequently rose from importers.India's oil imports have averaged $7.7 billion a month this year, compared with $5.4 billion in 2007.
The rupee seems to be heading for its worst quarter in a decade as accelerating inflation has prompted global funds to sell more Indian equities than they have bought so far this year. The rupee is in fact now the second-worst performer among the 10 most-traded Asian currencies excluding the yen this quarter, and the rally in oil lead the rupee to retreat from the three-week high it touched on Thursday following the decision by the central bank to raise its benchmark interest rate by the most since 2000.
The rupee was down 0.5 percent to 42.88 against the dollar by the 5 p.m. close in Mumbai. That is the biggest fall since June 9.
Saturday, June 28, 2008
India wholsale Inflation 14 June, Foreign Exchange Reserves, Rupee
India's inflation accelerated again in the week ended 14 June, hitting the fastest pace in 13 years, and suggesting there may well be more interest rate increases to come from the central bank. Wholesale prices rose 11.42 percent in the week to June 14, following an 11.05 percent rate in the previous week, according to a government statement in New Delhi yesterday.
Wednesday, June 25, 2008
Reserve Bank of India Raises Rates Again
India's central bank raised interest rates for the second time in a month this morning and raised the amount lenders need to set aside as reserves in an attempt to slow spriraling inflation which is now running at a 13-year high. The repurchase rate was lifted to 8.5 percent from 8 percent, and the cash reserve ratio to 8.75 percent from 8.25 percent. The increase was the biggest since 2000 and followed a quarter-point rise on June 11.
Before today, Reddy had raised the repurchase rate eight times in the past two and a half years and increased the cash reserve ratio seven times since December 2006 in an ongoing attempt to slow money supply growth and cool inflation.
India's central bank also signaled it will keep raising borrowing costs if needed. The central bank said in a faxed statement that a "heightened vigil'' was now needed to anchor inflation expectations, which is really another way of saying that the RBI has been "wrong footed" by the sudden acceleration in inflation and underscores the fact that they now recognise that they blew their opportunity to raise rates more forcefully earlier in the day.
The rupee rose slightly from near a 14-month low after the announcement, rising 0.1 percent to 42.92 per dollar as of 9:41 a.m. in Mumbai.
Before today, Reddy had raised the repurchase rate eight times in the past two and a half years and increased the cash reserve ratio seven times since December 2006 in an ongoing attempt to slow money supply growth and cool inflation.
India's central bank also signaled it will keep raising borrowing costs if needed. The central bank said in a faxed statement that a "heightened vigil'' was now needed to anchor inflation expectations, which is really another way of saying that the RBI has been "wrong footed" by the sudden acceleration in inflation and underscores the fact that they now recognise that they blew their opportunity to raise rates more forcefully earlier in the day.
The rupee rose slightly from near a 14-month low after the announcement, rising 0.1 percent to 42.92 per dollar as of 9:41 a.m. in Mumbai.
Saturday, June 21, 2008
India Wholesale Price Inflation June 7 2008, Foreign Exchange Reserves
India's inflation accelerated to a 13-year high after record crude oil costs forced the government to raise retail fuel prices. Stocks and bonds fell on concern the central bank will have to raise interest rates again. Wholesale prices in India were up by 11.05 percent in the week to June 7, after an 8.75 percent increase in the previous week, according to an Indian government statement in New Delhi today.
Obviously this sudden surge is creating pressures all over the place to do something. Finance Secretary D. Subbarao told reporters yesterday that "The first line of defense is monetary policy action", meaning that the Reserve Bank of India is about to take further anti inflation steps. Reserve Bank of India Governor Yaga Venugopal Reddy met Prime Minister Manmohan Singh and Finance Minister Palaniappan Chidambaram later in the day to discuss inflation and some measured are clearly anticipated.
The fuels index, which accounts for roughly 14 percent of the inflation basket, rose 7.8 percent in the week from the previous seven days. Prices of diesel surged 21 percent, liquefied petroleum gas prices climbed 20 percent, and mineral oil prices gained 12.9 percent.
India raised retail gasoline and diesel prices earlier this month, joining China, Indonesia, Malaysia and Sri Lanka, as a near doubling of crude oil prices pushed up costs and threatened to substantially erode company profits. Petrol prices were raised by 11 percent to 50.56 rupees ($1.2) a liter in New Delhi on June 4. Diesel costs were increased by 9 percent and cooking gas by 17 percent. The last time energy prices were raised was back in February.
Crude oil prices hit an all-time high of $139.89 a barrel on June 16, raising concern India's import costs will surge. India relies on crude oil from overseas to meet three-quarters of its energy needs.
Indian Oil, India's biggest refiner, posted its first quarterly loss in more than two years in the first quarter of this year. The loss in the three months ended March 31 was 4.14 billion rupees compared with a profit of 16.1 billion rupees a year earlier. Profit at Bharat Petroleum Corp., India's second-largest refiner, fell 91 percent.
Bonds and stocks fell on concern faster inflation will prompt the Reserve Bank of India to raise borrowing costs, hurting economic growth. The Bombay Stock Exchange's Sensitive Index, or Sensex, fell 3.22 percent to 14,602 in Mumbai. The yield on the benchmark 10-year bond rose 17 basis points to 8.64 percent as of 2:31 p.m. in Mumbai.
In an attempt to contain inflation, India's central bank raised its repurchase rate to a six-year high of 8 percent from 7.75 percent on 11 June. This followed two increases in the cash reserve ratio required of banks in April. Governor Yaga Venugopal Reddy and his team will next meet on July 29 to review interest rates.
Foreign Currency Reserves
India's foreign exchange reserves fell by a rather large quantity - $4.96 billion - in the week ended June 13. This was the sharpest drop in over two-and-a-half years. The decline is largely the result of intervention from the Reserve Bank of India (RBI) who have been in the forex market selling dollars in an attempt to keep the rupee from breaching the 43-mark against the dollar.
The last time there was such a large fall in reserves was in December 2005, when there were huge redemption pressures on the central bank on account of the India Millennium Deposits (IMD) scheme of State Bank of India.
The RBI has been consistently intervening in the forex market over the past couple of weeks, with the rupee under pressure from oil companies which bought dollars to provide for soaring crude prices. RBI has now started selling dollars to oil companies directly, in exchange for oil bonds, which seems to have taken some of the pressure off the forex market.
Meanwhile, credit and deposits continue to show a much lower rate of year on year growth. According to data released by RBI in its weekly statistical supplement on Friday, bank credit was up 25.9%.
Loans extended by banks during the fortnight ended June 6 touched Rs 23,80,418 crore, up Rs 16,001 crore, from the previous fortnight’s levels. While food credit dipped by Rs 5,105 crore, non-food credit moved up Rs 21,106 crore during the fortnight.
Aggregate deposits with commercial banks was running at Rs 32,56,979 crore as of June 6, up Rs 21,447 crore over the previous fortnight’s levels. While demand deposits rose Rs 2,026 crore, fixed term deposits with commercial banks rose Rs 19,421 crore. Investments in government and other approved securities by banks rose Rs 6,181 crore to Rs 10,07,069 crore as on June 6. The total stock of money in the system went up Rs 22,655 crore during the fortnight ended June 6, to touch Rs 40,99,957 crore.
At the current levels, the annual Y-o-Y growth in money supply is running at 21.4%, well above the central bank’s comfort levels of 17-17.5%.
The Rupee
The rupee halted a two-week slide this week as the RBI bought the currency to try to brake the fall and avoid further inflation being induced by imported energy. The rupee strengthened last Friday, rising 0.1 percent to 42.925 per dollar as of the 5 p.m. close in Mumbai, following release of the latest foreign-currency reserves data which showed the biggest drop in 2 1/2 years. However the rupee declined to its lowest level in 14 months during the previous week, threatening to push up the cost of imported commodities and oil, and is now Asia's worst-performing currency in 2008, having fallen 6.5 percent against the dollar during the last quarter.
In comparison Brazil's real has climbed 10.9 percent over the same period, while Russia's ruble has gained 4.4 percent and China's yuan 6.3 percent. The difference between India and other members of the soc called BRICs group is that Russia is a net exporter of oil, while Brazil is the world's biggest exporter of beef, coffee, orange juice and sugar. China posted a record $262 billion trade surplus in 2007 and has $1.68 trillion of currency reserves.
India imports about 75 percent of its oil, which has almost doubled in price in the past year. The rising cost added to the shortfall in the india's current account, a broad measure of trade and investment flows. The deficit widened to a record $13.4 billion in 2007, central bank data show.
In addition India's fiscal deficit is widening, and may well reach 9 percent of GDP in the coming fiscal year, up from 6 percent last year. Thus there is a real short term danger that was a win-win positive cycle, may turn into a lose-lose negative one, as the rupee falls further and inflation rises higher.
Obviously this sudden surge is creating pressures all over the place to do something. Finance Secretary D. Subbarao told reporters yesterday that "The first line of defense is monetary policy action", meaning that the Reserve Bank of India is about to take further anti inflation steps. Reserve Bank of India Governor Yaga Venugopal Reddy met Prime Minister Manmohan Singh and Finance Minister Palaniappan Chidambaram later in the day to discuss inflation and some measured are clearly anticipated.
The fuels index, which accounts for roughly 14 percent of the inflation basket, rose 7.8 percent in the week from the previous seven days. Prices of diesel surged 21 percent, liquefied petroleum gas prices climbed 20 percent, and mineral oil prices gained 12.9 percent.
India raised retail gasoline and diesel prices earlier this month, joining China, Indonesia, Malaysia and Sri Lanka, as a near doubling of crude oil prices pushed up costs and threatened to substantially erode company profits. Petrol prices were raised by 11 percent to 50.56 rupees ($1.2) a liter in New Delhi on June 4. Diesel costs were increased by 9 percent and cooking gas by 17 percent. The last time energy prices were raised was back in February.
Crude oil prices hit an all-time high of $139.89 a barrel on June 16, raising concern India's import costs will surge. India relies on crude oil from overseas to meet three-quarters of its energy needs.
Indian Oil, India's biggest refiner, posted its first quarterly loss in more than two years in the first quarter of this year. The loss in the three months ended March 31 was 4.14 billion rupees compared with a profit of 16.1 billion rupees a year earlier. Profit at Bharat Petroleum Corp., India's second-largest refiner, fell 91 percent.
Bonds and stocks fell on concern faster inflation will prompt the Reserve Bank of India to raise borrowing costs, hurting economic growth. The Bombay Stock Exchange's Sensitive Index, or Sensex, fell 3.22 percent to 14,602 in Mumbai. The yield on the benchmark 10-year bond rose 17 basis points to 8.64 percent as of 2:31 p.m. in Mumbai.
In an attempt to contain inflation, India's central bank raised its repurchase rate to a six-year high of 8 percent from 7.75 percent on 11 June. This followed two increases in the cash reserve ratio required of banks in April. Governor Yaga Venugopal Reddy and his team will next meet on July 29 to review interest rates.
Foreign Currency Reserves
India's foreign exchange reserves fell by a rather large quantity - $4.96 billion - in the week ended June 13. This was the sharpest drop in over two-and-a-half years. The decline is largely the result of intervention from the Reserve Bank of India (RBI) who have been in the forex market selling dollars in an attempt to keep the rupee from breaching the 43-mark against the dollar.
The last time there was such a large fall in reserves was in December 2005, when there were huge redemption pressures on the central bank on account of the India Millennium Deposits (IMD) scheme of State Bank of India.
The RBI has been consistently intervening in the forex market over the past couple of weeks, with the rupee under pressure from oil companies which bought dollars to provide for soaring crude prices. RBI has now started selling dollars to oil companies directly, in exchange for oil bonds, which seems to have taken some of the pressure off the forex market.
Meanwhile, credit and deposits continue to show a much lower rate of year on year growth. According to data released by RBI in its weekly statistical supplement on Friday, bank credit was up 25.9%.
Loans extended by banks during the fortnight ended June 6 touched Rs 23,80,418 crore, up Rs 16,001 crore, from the previous fortnight’s levels. While food credit dipped by Rs 5,105 crore, non-food credit moved up Rs 21,106 crore during the fortnight.
Aggregate deposits with commercial banks was running at Rs 32,56,979 crore as of June 6, up Rs 21,447 crore over the previous fortnight’s levels. While demand deposits rose Rs 2,026 crore, fixed term deposits with commercial banks rose Rs 19,421 crore. Investments in government and other approved securities by banks rose Rs 6,181 crore to Rs 10,07,069 crore as on June 6. The total stock of money in the system went up Rs 22,655 crore during the fortnight ended June 6, to touch Rs 40,99,957 crore.
At the current levels, the annual Y-o-Y growth in money supply is running at 21.4%, well above the central bank’s comfort levels of 17-17.5%.
The Rupee
The rupee halted a two-week slide this week as the RBI bought the currency to try to brake the fall and avoid further inflation being induced by imported energy. The rupee strengthened last Friday, rising 0.1 percent to 42.925 per dollar as of the 5 p.m. close in Mumbai, following release of the latest foreign-currency reserves data which showed the biggest drop in 2 1/2 years. However the rupee declined to its lowest level in 14 months during the previous week, threatening to push up the cost of imported commodities and oil, and is now Asia's worst-performing currency in 2008, having fallen 6.5 percent against the dollar during the last quarter.
In comparison Brazil's real has climbed 10.9 percent over the same period, while Russia's ruble has gained 4.4 percent and China's yuan 6.3 percent. The difference between India and other members of the soc called BRICs group is that Russia is a net exporter of oil, while Brazil is the world's biggest exporter of beef, coffee, orange juice and sugar. China posted a record $262 billion trade surplus in 2007 and has $1.68 trillion of currency reserves.
India imports about 75 percent of its oil, which has almost doubled in price in the past year. The rising cost added to the shortfall in the india's current account, a broad measure of trade and investment flows. The deficit widened to a record $13.4 billion in 2007, central bank data show.
In addition India's fiscal deficit is widening, and may well reach 9 percent of GDP in the coming fiscal year, up from 6 percent last year. Thus there is a real short term danger that was a win-win positive cycle, may turn into a lose-lose negative one, as the rupee falls further and inflation rises higher.
Friday, June 13, 2008
India Inflation 31 May 2008, Industrial Output, Fx Reserves Etc
India's inflation accelerated to a seven-year high at the end of May on the back of soaring commodity and energy prices, increasing speculation the central bank will increase interest rates again next month. Wholesale prices jumped 8.75 percent in the week to May 31, after gaining 8.24 percent in the previous week, the government said in a statement in New Delhi today.
The Reserve Bank of India raised the benchmark rate to 8 percent this week, joining in the process central banks in Brazil, China and Russia (among others) in increasing borrowing costs to combat inflation even as economic growth slows. India's central bank on June 4 raised its repurchase rate to a six-year high of 8 percent from 7.75 percent, following two increases in the cash reserve ratio in April.
India's inflation in the last week of May was the fastest since February 2001. Price gains in Pakistan also accelerated to 19.3 percent in May, the highest in 30 years, while inflation in Vietnam was running at 25.2 percent, the fastest since 1992, and in Indonesia consumer prices were up 10.4 percent from a year ago.
Central banks in Indonesia, the Philippines, Vietnam and Pakistan have all increased borrowing costs over the last two months to tackle inflation. China, where retail sales grew in May at close to the fastest pace in nine years and inflation has risen above 8%, raised its cash reserve requirements for banks this week for the fifth time since the start of the year - up to 17.5 percent with effect from June 25.
According to data from the RBI current account bank deposits barely moved in May, rising by a mere Rs 748 crore, while longer term deposit accounts went up sharply by Rs 60,759 crore. Much of the deposit growth is being attributed to poor stock market performance and the prospect of higher interest rates which may well be prompting investors to move their money into bank deposits. On the other hand bank lending is significantly down year on year, rising by only Rs 43,000 crore in May.
Industrial Output
India's industrial production, which accounts for a quarter of the $912 billion economy, increased 7 percent in the month of April, slower than the 11.3 percent gain in the same month a year ago, the government said yesterday. The economy is likely to grow by around 8.5 percent this year, the slowest pace in four years.
Foreign Exchange Reserves
India's foreign exchange reserves rose to $315.660 billion as on June 6, from $314.614 billion a week earlier, the central bank said in its weekly statistical supplement on Friday. This means foreign exchange reserves were up $1.05 billion during the week. Almost the entire growth was on account of the rise in foreign currency assets which rose $1,045 million during the week.
Reserves hit a record high of $316.171 in late May and have since slid back slightly.
The Rupee
The rupee, which is the second-worst performer this year among Asia's 11 most-active currencies, declined for a second consecutive week as losses in local stocks spurred fund outflows. The rupee dropped 0.6 percent on the week closing at 42.94 per dollar Friday in Mumbai.
This was the rupee's worst week in a month, and follows the move by overseas funds to sell more local equities than they bought on seven of the eight trading days in June. India's benchmark stock index fell for a fourth week, the longest losing streak since February, on concern that rising inflation will mean slower growth and will also erode the value of the return on investment.
The Reserve Bank of India raised the benchmark rate to 8 percent this week, joining in the process central banks in Brazil, China and Russia (among others) in increasing borrowing costs to combat inflation even as economic growth slows. India's central bank on June 4 raised its repurchase rate to a six-year high of 8 percent from 7.75 percent, following two increases in the cash reserve ratio in April.
India's inflation in the last week of May was the fastest since February 2001. Price gains in Pakistan also accelerated to 19.3 percent in May, the highest in 30 years, while inflation in Vietnam was running at 25.2 percent, the fastest since 1992, and in Indonesia consumer prices were up 10.4 percent from a year ago.
Central banks in Indonesia, the Philippines, Vietnam and Pakistan have all increased borrowing costs over the last two months to tackle inflation. China, where retail sales grew in May at close to the fastest pace in nine years and inflation has risen above 8%, raised its cash reserve requirements for banks this week for the fifth time since the start of the year - up to 17.5 percent with effect from June 25.
According to data from the RBI current account bank deposits barely moved in May, rising by a mere Rs 748 crore, while longer term deposit accounts went up sharply by Rs 60,759 crore. Much of the deposit growth is being attributed to poor stock market performance and the prospect of higher interest rates which may well be prompting investors to move their money into bank deposits. On the other hand bank lending is significantly down year on year, rising by only Rs 43,000 crore in May.
Industrial Output
India's industrial production, which accounts for a quarter of the $912 billion economy, increased 7 percent in the month of April, slower than the 11.3 percent gain in the same month a year ago, the government said yesterday. The economy is likely to grow by around 8.5 percent this year, the slowest pace in four years.
Foreign Exchange Reserves
India's foreign exchange reserves rose to $315.660 billion as on June 6, from $314.614 billion a week earlier, the central bank said in its weekly statistical supplement on Friday. This means foreign exchange reserves were up $1.05 billion during the week. Almost the entire growth was on account of the rise in foreign currency assets which rose $1,045 million during the week.
Reserves hit a record high of $316.171 in late May and have since slid back slightly.
The Rupee
The rupee, which is the second-worst performer this year among Asia's 11 most-active currencies, declined for a second consecutive week as losses in local stocks spurred fund outflows. The rupee dropped 0.6 percent on the week closing at 42.94 per dollar Friday in Mumbai.
This was the rupee's worst week in a month, and follows the move by overseas funds to sell more local equities than they bought on seven of the eight trading days in June. India's benchmark stock index fell for a fourth week, the longest losing streak since February, on concern that rising inflation will mean slower growth and will also erode the value of the return on investment.
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