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The government has decided to set up a task force which will look at the possibility of having currency swap agreements with key trading partners, a move which would help in bridging current account deficit. The 11-member task force would include representatives from the the commerce ministry, department of economic affairs and financial services, RBI, SBI, CII, Ficci and exporters body FIEO. "In view of the rising trade deficit and consequent CAD, a need has been felt to examine the role of Currency Swap Arrangement/ Agreements in order to suggest a possible mechanism to address the issue. It has been decided to constitute a Task Force," an official statement said. The issue came up for discussion during the meeting of Board of Trade which was chaired by Commerce and Industry Minister Anand Sharma. The Task Force examine various types of such arrangements and their implication for Indias trade and financial system besides studying the pros and cons of such pacts the country's commerce. It would also explore the possibility of Currency Swap Agreement between India and identified countries and make recommendations accordingly. "The Task Force may submit its recommendations to the Department of Commerce in four weeks," it said. Currency swap agreements involve exchange of one currency for another currency. A dollar swap arrangement would help India support the rupee. Swap agreements in US dollar is expected to provide confidence to the market and prevent excess volatility in financial and foreign exchange markets. Currency swap has emerged as an important derivative tool after the global financial crisis of 2008 to hedge the exchange rate risks. India has signed currency swap agreements with Japan ($15 billion) and Bhutan ($100 million). China has shown active interest in entering into such an agreement with India, but it is yet to be signed. (PTI)
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Oil minister Veerappa Moily said on Tuesday, 27 August that the Prime Minister has asked him to save $25 billion on oil imports in the current fiscal year, to help the country narrow its current account deficit (CAD).
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Indian gold futures jumped more than 2 per cent to hit a record high as a drop in the rupee to a record low made imports expensive. The most-traded gold for October delivery on the Multi Commodity Exchange (MCX) hit its peak at Rs 32,526 rupees per 10 grams, breaching its last record hit in November last year. (Reuters)
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The rupee weakened to 65 to the dollar in opening trade, not far from its record low of 65.56 reached last week, as the lower house of Parliament approved a plan worth nearly $20 billion to provide cheap grain to the poor.The Food Security Bill is a key part of the ruling Congress party's strategy to win re-election.The partially convertible rupee was trading at 65.21/25 per dollar at 0904 India time (0334 GMT), sharply below its close of 64.30/31 on Monday, 26 August.The benchmark 10-year bond yield dropped 4 basis points at open to 8.30 per cent as the central bank announced an open market purchase of bonds but soon edged higher, tracking weakness in the rupee.(Reuters)
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Retail prices of onion in the national capital remained high today at Rs 70 a kg due to lower supplies in the wholesale market. Traders said the wholesale prices of the kitchen staple are ruling firm at Rs 45-50 per kg as supplies from producing regions have been lower in the past couple of days. "Supply continues to be below normal, due to which prices are high," Onion Merchant Traders Association President Surendra Budhiraj said. At present, about 40-50 trucks are entering the market as against 60-70 trucks earlier, he added. Street vendors charge anything between Rs 55 and Rs 70 for one kg of onion in Delhi, depending on the locality and quality of the bulb, a key ingredient in most food items. In a bid to ease high onion prices -- a politically sensitive issue -- cooperative major Nafed has been asked to import onions to boost domestic supplies. The vegetable's prices recently touched Rs 80 a kg. Organised retailer Mother Dairy is selling onions at around Rs 50 per kg through its 400 Safal outlets in the NCR. Nafed is offering a price of Rs 40 per kg through its 5 outlets and mobile vans. At Lasalgaon in Nashik district of Maharashtra, a major producing region, prices have risen by Rs 3 per kg to Rs 43 per kg today, and supplies have come down to 3750 qunitals from 4,249 quintals last week, according to National Horticulture Research and Development Foundation (NHRDF) data. "Prices will remain high as farmers and traders are going to keep supplies under stress to maintain high level of onion prices," a senior official of NHRDF said.(PTI)
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The rupee weakened on Monday 26 August, tracking weaker offshore rates, as sustained foreign selling in equities continued to raise concerns about the gaping current account deficit. Finance Minister P. Chidambaram met foreign investors on Saturday, 26 Aug to seek suggestions on attracting dollar inflows, according to local media reports. The reports quoted Secretary for Department of Financial Services Rajeev Takru as saying the government could announce some measures in 8-10 days. India urgently needs to attract capital as foreign institutional investors (FIIs) have sold about $4.2 billion in bonds this year. Adding to concerns, overseas funds are also shedding some of their stock positions, having sold about $750 million in equities over the previous six sessions. Still, traders remained sceptical about whether India can attract foreign capital to help narrow a record high current account deficit despite the surge in debt yields, as growth is stuck at a decade low while an expected wind down in U.S. monetary stimulus is expected to hit emerging markets. "FII debt investors in India will come back only if there is currency stability but not because of a little higher interest rate," said Samir Lodha, managing director at QuartArt Market Solutions. The partially convertible rupee fell more than 1 per cent to 64.20/21 per dollar at 11 a.m. (0530 GMT) compared to 63.20/21 on Friday. The unit has moved in a range of 63.65 to 64.26 so far during the day. It fell to a record low of 65.56 last week, and has lost more than 14 per cent so far this year. Monday's fall tracked the one-month offshore non-deliverable forward rate, which was being quoted at 64.92 per dollar, compared to the onshore one-month forward rate of 64.75. Traders also said importer demand for dollars was pressuring the rupee although they expected that to wane through the session, allowing some recovery in the domestic currency. "Oil companies and importers who missed the late down move in the dollar on Friday are buying dollars today (26 Aug). However, we should see selling from current levels," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank. The outlook for the rupee will likely depend on global developments in the near-term, especially by movements in emerging markets, traders added. The Indonesian rupiah hit a fresh four-year low on Monday on sustained worries about another country with a large current account deficit. (Reuters)
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Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the US and other major central banks.Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences."Macroprudential policies are necessary to restore monetary policy independence for the non?central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control."Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy."Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives."It's not clear we can control the financial cycle very well with monetary policy," Checki said.(Reuters)
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The Central Vigilance Commission (CVC) will seek response from CBI on the issue of missing files related to multi-crore coal blocks allocation scam being probed by the investigating agency.The Commission will ask the CBI to give details on the issue of missing files related to the coal scam and also on whether or not it was hampering or going to hamper its investigation, official sources said. They said the CVC may also seek details from Ministry of Coal on the matter.The CVC, which exercises superintendence over CBI to oversee corruption cases probe, had in May last year asked the the agency to look into matter of coal blocks allocated to private companies between 2006 and 2009. The CBI is looking into the allocation of coal mines post-1993 to ascertain any wrongdoing during the NDA regime.The CBI has registered three preliminary inquiry and 13 FIRs so far in the case.The move came up after Coal Minister Sriprakash Jaiswal on 17 August had said that some files related to coal block allocations were missing. Following Jaiswal's remarks, BJP has targeted the government and paralysed Parliament over the issue and demanded a statement by Prime Minister Manmohan Singh. The Coal Ministry had then hurriedly formed a committee to look into the matter.Bowing down to the demands of an agitated and dissatisfied opposition, the Coal Minister had on Friday (23 Aug) made a detailed statement in Rajya Sabha over the issue and said that "it would be wrong to classify any file or document as missing at this stage when an inter-ministerial committee is actively engaged in locating these papers".(PTI)
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Anadarko Petroleum Corp said it agreed to sell a 10 per cent stake in a gas field offshore Mozambique to OVL (ONGC Videsh Ltd) for $2.64 billion in cash, as the US oil company looks to focus more on its domestic assets. The deal for Mozambique's offshore Area 1 is expected to close around the end of this year, Anadarko said. ONGC faces diminishing supplies from its aging oil and gas fields in India and has been buying interests in overseas assets. ONGC Videsh, the Indian company's overseas arm, recently paid $2.48 billion for a 10 per cent stake in another Mozambique gas field from Videocon Group. Anadarko also said it will remain the operator of Area 1 with a working interest of 26.5 per cent in the block, which is located in Mozambique's deepwater Rovuma Basin. The Rovuma field has the potential to become one of the world's largest liquefied natural gas (LNG) producing hubs by 2018, and is strategically located to supply gas to India at competitive prices. Recent discoveries have turned the Rovuma offshore field into a major draw for global energy producers and boosted Mozambique's natural gas reserves to around 150 trillion cubic feet, or enough to supply the world's No. 1 LNG importer - Japan - for 35 years. Also Read: Interview with ONGC CMD Sudhir Vasudeva (Reuters)
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India's inflation could accelerate in the current fiscal year due to the rupee's sharp depreciation, the Reserve Bank of India (RBI) said in a report on Thursday 22 August. The Indian rupee touched record low of 65.52/dollar on Thursday and is down 16 per cent so far this year despite efforts by policymakers to prop it up. "The pass-through of the depreciation of the rupee exchange rate by about 11 per cent in the four months of 2013-14 is incomplete and will put upward pressure as it continues to feed through to domestic prices," the RBI said in its annual report for the 2012-13 fiscal year ending last March. Asia's third-largest economy has been pummelled by a selloff in emerging markets, with the rupee the worst performer in Asia this year after the US Federal Reserve indicated it will begin winding down its economic stimulus. Headline wholesale price index inflation climbed to 5.79 per cent in July driven primarily by higher food prices and costlier imports as the rupee's fall continued. Consumer price index inflation was 9.64 per cent in July, fuelled by high food prices. "Risks on the inflation front are still significant," the RBI said. The rupee's weakness could also increase subsidy payouts for fuel and fertiliser in 2013/14, the central bank said. However, the report said normal monsoon rains in India have taken a "major risk off the horizon" but said a close vigil was necessary after food prices showed an upsurge during April to July. "If high food inflation persists into the second half of 2013-14, the risks of generalised inflation could become large," it said. India's current account gap, which widened to a record high of 4.8 per cent of GDP in the fiscal year to March 2013, is likely to ease in the current fiscal year but may continue to be "much above" the sustainable level, the report said. "Global risks coupled with domestic structual impediments have dampened prospects of a recovery in 2013-14, and posed immediate challenges for compressing the current account deficit," it said. The central bank's report added that "utmost attention" is needed to contain risks to financial stability arising from deteriorating asset quality of banks.
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