The central bank held interest rates steady at 7.75 per cent on Tuesday after easing monetary policy just three weeks ago, leaving its next move probably until after the government presents its annual budget at the end of this month. Instead, the Reserve Bank of India cut the statutory liquidity ratio (SLR) - or the amount of bonds that lenders must set aside - by 50 basis points to 21.5 per cent of deposits from Feb. 7, prodding banks to increase lending. "Banks should use this headroom to increase their lending to productive sectors on competitive terms so as to support investment and growth," the RBI said in a statement. The RBI also announced a slew of initiatives to develop markets, including allowing foreign institutional investors to re-invest government bond coupons even when their investment limits are exhausted. Most economists in a poll had expected the Reserve Bank of India to keep its repo policy rate steady, and reduce rates later so long as the budget, due to be unveiled by Finance Minister Arun Jaitley on Feb. 28, does not disappoint in terms of reducing the fiscal deficit. The RBI said in its statement that it wanted more comfort that inflation would continue to ease and that it would await action from the government regarding the country's finances. "Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest stance," the central bank said. Radhika Rao, an economist at DBS, Singapore, said: "The tone of the accompanying statements was dovish, but cautious, highlighting two aspects a) fiscal slippage ... b) an acknowledgement of the shift in global dynamics and undercurrents of a renewed push to depreciate currencies." "This also reflects the RBI's disdain with quantitative easing programs (as ECB joined the bandwagon, just as the US Fed bowed out) and the associated risks to financial stability and asset markets." Comforted by falling world oil prices and inflation slowing, the RBI had surprised investors with 25 basis points cut in the repo rate on Jan. 15, even though investors were expecting the central bank to embark on an easing cycle at some point during the early months of the year. The RBI clearly saw little point in waiting any longer to reduce borrowing costs in an economy that was struggling to gather momentum. The decision was led by falling inflationary expectations and data on weak commodity prices and muted rural wage growth, Governor Raghuram Rajan said. "Having committed in public statements to initiate a change in the monetary policy stance as soon as incoming data permitted, the Reserve Bank cut the policy rate on January 15," he said. Markets are pricing in more interest rate cuts over the rest of the year given inflation is expected to remain subdued on the back of a plunge in global crude prices and bigger-than-expected falls in domestic vegetable and fruit prices. Deven Choksey, managing director, KR Choksey Securities, said: "I think the policy was more in line with the expectations. The 50 basis points cut in SLR is symbolic, but I think it is a positive move. This will provide additional liquidity for banks and will help banks to increase lending." "We do expect the RBI will reduce the rates sooner, which will fuel growth in core sectors like infrastructure and manufacturing." InflationConsumer prices rose 5 per cent in December, well within the RBI target of 6 per cent by January 2016. On inflation, the policy document took consolation in the declining trend and noted that even the upturn in December turned out to be muted relative to projections. "Heightened volatility in global financial markets, including through the exchange rate channel, also constitute a significant risk to the inflation assessment. Looking ahead, inflation is likely to be around the target level of 6 per cent by January next," it said. Despite fiscal deficit touching 99 per cent by November, the governor said he was confident that the government will not miss the budgeted 4.1 per cent target. Revision In GDP GrowthReferring to economic growth, the RBI said that though revision in the base year for GDP and calculation methods will mean some revision in GDP growth numbers for 2014-15 as well as in the forecasts, growth expectations should be tempered. "Domestic activity is likely to have remained subdued in Q3 of 2014-15, mainly reflecting the shortfall in the kharif harvest relative to a year ago but agricultural growth is likely to pick up in Q4 with the late improvement in the north-east monsoon and in rabi sowing. Nevertheless, growth expectations should be tempered as lead indicators such as tractor and motorcycle sales and slowing rural wage growth all point to subdued rural demand," the RBI document said. However, it noted that there is improvement in business confidence as visible from a pick-up in new investment intentions, especially in transportation, power and manufacturing. The RBI estimated the current account deficit (CAD) for 2014- 15 at 1.3 per cent of the GDP, significantly lower than the earlier projection. "The CAD has been comfortably financed by net capital inflows, mainly in the form of buoyant portfolio flows but also supported by foreign direct investment inflows and external commercial borrowings. Accordingly, there was accretion to India's foreign exchange reserves to the tune of $6.8 billion in Q3," the RBI said. (Agencies)
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Australia's central bank cut its cash rate to an all-time trough of 2.25 percent on Tuesday, breaking an 18-month hiatus on stimulus as it seeks to spur a sluggish economy while keeping downward pressure on the local dollar. The currency duly sank more than a full U.S. cent after the Reserve Bank of Australia (RBA) ended its first policy meeting of the year by announcing the quarter point cut. "Overall, the Bank's assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected," said RBA Governor Glenn Stevens in a brief statement. "This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target." Markets had been leaning toward a cut this week, though only 9 of 29 analysts in a Reuters poll had tipped a move. Interbank futures jumped on the news while pricing in a near 50-50 probability of a further move to 2.00 percent at the next policy meeting in March. Yields on 10-year government debt had already been trading below the cash rate and dropped further to a record low of 2.36 percent, while Australian stocks hit their highest since 2008. "It's very clear their assessment of the outlook for activity is weaker," said Su-Lin Ong, a senior economist at RBC Capital Markets, adding that the RBA was now likely to trim forecasts for growth and inflation in its quarterly statement on monetary policy due out on Feb. 6. "We have rates at 2 percent and the risk is that it heads lower," said Ong. "We are stuck in this sub-par period of growth for a long time." It was the RBA's first easing since August 2013 and marked a sharp turnaround from its previous meeting in December when it had signalled a period of stability for policy. The move was partly aimed at offsetting painful price declines for many of Australia's resource exports which are hurting both company profits and mining investment. The situation has been made all the tougher by a protracted slowdown in China, Australia's biggest export market. Speculation Around Abbott FutureThe move was given extra urgency by the recent rush to ease by other central banks meant the RBA had to follow suit if only to stop its currency from rising to uncompetitive levels. Indeed, Stevens cautioned that "a lower exchange rate is likely to be needed to achieve balanced growth in the economy." The local dollar obliged by falling over a cent to $0.7670. The outlook for domestic inflation had also moderated as petrol prices plunged and wage growth stayed stuck at decade lows. Core inflation is now expected to hold near the floor of the RBA's 2-3 percent target band for much of this year. An added wrinkle is political uncertainty as speculation swirls around the future of Prime Minister Tony Abbott. A bruising voter backlash in state elections and a slump in his personal approval ratings has sparked chatter of a party revolt against his leadership. Australia's benchmark S&P/ASX 200 share index surged to its highest level in almost seven years after the RBA cut. The index extended gains, adding 1.2 percent to an intra-day peak of 5,692.7 points, its highest since May 2008. (Reuters)
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India's foreign exchange reserves declined marginally by $97.9 million to $322.037 billion in the week to January 23, the Reserve Bank of India (RBI) said on Friday. In the previous reporting week, the reserves had jumped by a whopping $2.66 billion to $322.135 billion, a new record high. Foreign currency assets (FCAs), a major constituent of overall reserves, fell by $19.7 million to $297.510 billion in the reporting week, Reserve Bank data showed. FCAs, expressed in dollar terms, include the effect of appreciation and depreciation of non-US currencies such as the euro, pound and yen, held in reserves. The country's gold reserves remained unchanged at $19.377 billion. Special drawing rights decreased by $61.4 million to $4.047 billion, while India's reserve position with the IMF dipped by $16.8 million to $1.101 billion during the week, the data showed. (PTI)
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The RBI is making extra efforts to spur the country's corporates to more actively hedge their foreign exchange exposure, in order to fortify the country's defences against any risk of currency turmoil. The efforts reflect the Reserve Bank of India's fear of becoming hostage to global developments, especially as the U.S. Federal Reserve is widely expected to start raising interest rates this year, which could spark potential selling in emerging markets. "Corporates are not hedging enough," said a senior policy maker aware of the central bank's thinking. "Many things can go wrong when the U.S. starts raising rates. RBI and the government can only improve fundamentals, but corporates need to increase their hedge ratios to be better prepared for any turmoil in the exchange rate." As a result, the RBI is seeking to bring down the cost of currency protection by reducing its own dollar buying in forward markets, making it more affordable for companies to buy forward cover. The RBI's dollar buying had pushed up the cost of hedging for companies to 10-12 percent. The premium has now fallen to around 6 percent, according to Reuters data. The RBI has also told banks to regularly report quarterly data for corporate customers' positions, including estimates of unhedged foreign currency exposure. The rupee's buoyancy over the past year had become a disincentive to hedge. And the RBI wants to prevent complacency developing in a country that is enjoying easing inflation, a narrowing current account deficit, and the leadership of a government intent on introducing ambitious economic reforms. The rupee is Asia's best performing currency so far in 2015, with a nearly 2 percent gain against the dollar, helped by net foreign inflows of $5.25 billion into debt and stocks after $42.37 billion in purchases last year. 'A Bit Of Volatility'Nonetheless, the RBI is keen to avoid a repeat of the turmoil seen in 2013, when fears about U.S. rate hikes led to the rupee's worst crisis in more than two decades. India closely shepherds the rupee - which is convertible on the trade account, but only partially convertible on the capital account - while letting the markets determine trends. The RBI has typically intervened to dampen excessive speculation, or to supply dollars on days when there is heavy demand from importers to meet payments. With a weather eye on the Fed's intentions, the RBI has bought dollars aggressively, and foreign exchange reserves climbed to a record $322.14 billion this month. But the lack of corporate hedging remains a weak point in India's currency market defences, according to central bankers. RBI Deputy Governor H.R. Khan said in October the hedge ratio for overseas loans and foreign convertible debt had halved to around 15 percent in July-August from the previous fiscal year. In recent weeks, the spot rupee-dollar rate has fluctuated more on days of heavy volumes, according to traders, as the RBI has abstained from draining or supplying as many dollars as it has done in the past. Some analysts interpreted that as a warning to companies to hedge more, and to foreign investors to refrain from playing off a stable spot rate to speculate in offshore forward markets. "RBI will allow a bit of volatility in the rupee as it wants neither the corporates nor FIIs (foreign institutional investors) to believe that it will continue to protect the rupee in a tight range," said Samir Lodha, managing director at QuantArt Market Solutions, an advisory firm for companies. Some corporate treasurers saw the RBI's efforts paying off. "The various measures being taken by the RBI has certainly helped and the hedge books of companies are at much higher levels than what they were last year," said Mradul Dubey, head of treasury, Electrosteel Castings and Srikalahasthi Pipes Ltd. (Reuters)
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To bolster its finances and attract FDI, the Indian government took a slew of measures to raise nearly Rs 1.25 lakh crore through spectrum sale and Coal India Ltd divestment while soothing investors' nerves by deciding not to get into "fruitless litigations" like Vodafone case. Besides, it cleared a proposal of HDFC Bank to raise Rs 10,000 crore from foreign investors and allowed drug maker Lupin to increase the cap of foreign institutional investor holding to 49 per cent in a move that would facilitate an inflow of Rs 6,099 crore. Eyeing a record high spectrum sale of Rs one lakh crore, the government on Wednesday fixed the base price for 3G auction at Rs 3,705 crore per mega hertz - which itself can fetch over Rs 17,000 crore from this band. Along with the spectrum in 2,100 MHz band, which is used to offer 3G services, the government will also offer the second generation or 2G mobile airwaves in three different bands in an auction scheduled for March 4. While the auction of these 2G and 3G airwaves could garner Rs 82,395 crore at the base or minimum price, sources said the government expects the total proceeds to exceed Rs one lakh crore. Wooing overseas investors, government today decided against challenging the Bombay High Court decision favouring Vodafone in the Rs 3,200 crore tax case and adopt a similar approach in transfer pricing litigations involving other MNCs like Shell. The government wants to convey a clear and positive message to investors globally that its decisions would be "fair, transparent and within the four corners of law". The decisions regarding government stance about Vodafone case, 3G spectrum base price, HDFC Bank fund-raising plan and Lupin proposal were taken by Committee on Economic Affairs and Union Cabinet headed by Prime Minister Narendra Modi. In the country's biggest share sale ever, the government will sell up to 10 per cent stake in Coal India Ltd to raise about Rs 24,000 crore on Friday (January 30). The government will sell 31.58 crore shares, or five per cent stake, in a public offer, with an option to sell another 5 per cent, Coal India said in a regulatory filing. The disinvestment will help the government meet half of the Rs 43,425 crore revenue target from stake sale in public sector. (PTI)
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China's yuan broke into the top five as a world payment currency in November, overtaking the Canadian dollar and the Australian dollar, global transaction services organisation SWIFT said on Wednesday. After nearly a year firmly positioned at seventh spot, the yuan reached a record high share of 2.17 percent in global payments by value and is in sight of the Japanese yen, which has a share of 2.69 percent. The U.S. dollar, euro and British pound remain the top three world payment currencies. "It is a great testimony to the internationalisation of the RMB and confirms its transition from an 'emerging' to a 'business as usual' payment currency," Wim Raymaekers, Head of Banking Markets at SWIFT said in a statement. The rise of various offshore yuan clearing centres around the world, including eight new agreements signed with the People's Bank of China last year, was an important driver fuelling this growth. Global yuan payments increased by 20.3 percent in value in December compared to a year earlier, while the growth for payments across all currencies was 14.9 percent for the same period, SWIFT said. Over the last year, yuan payments grew in value by 102 percent compared to an overall yearly growth for all currencies of 4.4 percent. China is expected to make another push for the inclusion of the yuan in the International Monetary Fund's in-house currency basket in a review later this year - and this time round its G20 partners may be willing to listen. The main argument against its inclusion in the Special Drawing Rights, a basket of yen, dollars, pounds and euro used as the IMF's in-house unit of account, is that the yuan is far from freely "usable" or convertible. But that argument has been gradually weakening as yuan offshore trading surges. (Reuters)
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Gold climbed towards a five-month high on Monday as an electoral win by Greece's anti-austerity party sparked fears of renewed instability in Europe, triggering safe-haven demand for bullion. Greek leftist leader Alexis Tsipras, whose Syriza party swept to victory in a snap election on Sunday, was set to become prime minister of the first euro zone government openly opposed to bailout conditions imposed by the European Union and International Monetary Fund during the economic crisis. European leaders have said Greece must respect the terms of its 240 billion euro bailout deal, but Tsipras campaigned on a promise to renegotiate the country's huge debt, raising the possibility of a major conflict with euro zone partners. The euro hit an 11-year low on Monday after the election results, and U.S. stock futures also fell. "People are very uncertain about the markets and are wondering whether Greece will break out of the euro zone," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong, adding this was helping gold prices. Spot gold was steady at $1,294.40 an ounce by 0322 GMT, after rising as much as 0.4 percent earlier in the session. It held close to a five-month high of $1,306.20 reached last week. The yellow metal has had a good start to the year, gaining about 9 percent so far this month, largely due to safe-haven demand sparked by falling oil prices and European uncertainties. The improvement in sentiment has been seen in investor positioning. Speculators raised their bullish bets in gold futures and options for the fourth straight week in the week ending Jan. 20, while holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund, have also increased. New Gold ContractCME Group's Asian gold contract began trading in Hong Kong on Monday, a new entrant in the regional race to provide a price benchmark. The 1 kg physically settled contract was trading at a premium of $2-$3 an ounce over the global benchmark. The launch of the CME contract within six months of new contracts in Singapore and China underscores a desire in top consuming region Asia to have price benchmarks that reflect regional market dynamics, although liquidity has been a problem. "There have been lots of recent contracts in Asia, vying for liquidity. For CME, the delivery point is in Hong Kong, so that should make it an interesting one," said a precious metals trader in Hong Kong, which is the main conduit for gold into top consumer China. (Reuters)
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India's foreign exchange reserves rose $2.7 billion last week to reach a record high as the Reserve Bank of India continued to buy U.S. dollars in a bid to shore up its defences against any potential volatility in global currency markets. India's reserves reached $322.14 billion in the week ending on Jan. 16, according to data published by the Reserve Bank of India on Friday, surpassing a previous high of $320.785 billion in September 2011. Surging reserves come as foreign investors have continued to be hefty buyers of bonds and shares because of expectations for economic reforms from Prime Minister Narendra Modi's government and the central bank's success in reducing inflation. The RBI has been keen to build up its defences after the country suffered in 2013 the worst rupee turmoil since a balance of payment crisis a decade ago because of dwindling reserves and a high current account deficit. "It looks like FX reserves have gone up due to RBI buying dollars in the market," said A Prasanna, economist at ICICI Securities Primary Dealership Ltd. Analysts estimate currency reserves now provide more than nine months import cover, well above the around 6 months of cover in 2013. The European Central Bank's massive bond stimulus programme unveiled on Thursday could further spur more foreign flows into emerging markets such as India this year, although that could eventually be curtailed should the U.S. Federal Reserve raise interest rates, analysts said. Bank of America-Merrill Lynch on Friday estimated India could attract $25 billion in portfolio equity flows from the ECB action, despite Fed tightening. Besides building up reserves, RBI has also sharply improved the current account deficit and last week unexpectedly cut interest rates after a recent sharp fall in inflation. As a result, the rupee has been the best performer in Asia so far in 2015, rising by around 2.6 percent. (Reuters)
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India is likely to sell a 5 per cent stake in both Power Finance Corporation Ltd (PFC) and Dredging Corporation of India Ltd as it races to narrow its fiscal gap to a targetted seven-year low by March, when the financial year ends. "Five per cent of the shares of PFC could be sold next week," a senior finance ministry official said on Friday, declining to be named as he was not authorised to speak to the media. The PFC share sale could fetch 18.35 billion rupees ($298 million) at current market prices. Prime Minister Narendra Modi aims to trim the fiscal deficit to 4.1 per cent of gross domestic product this fiscal year and to that end it wants to raise $10 billion in asset sales . However, finance ministry sources say it is only likely to get $4 billion to $5 billion from sales and so far it has raised a little more than $300 million. "Current prices are attractive to own PFC, but the government could have waited for a higher price," said G. Chokkalingam, founder of Equinomics, a research and fund advisory firm based in Mumbai. The state owns 72.8 per cent of the financing company, whose shares were up 0.35 per cent at 279.75 rupees at 0855 GMT. The share price has fallen by more than 6 per cent this year while the benchmark Sensex index has added 6 percent. Apart from PFC and Dredging Corp, the government has invited bids from merchant bankers this week for 10 per cent stakes in miner NMDC, Indian Oil Corp and National Aluminium Co. It has also called for bids for a 5 per cent share sale in engineering equipment maker BHEL. If all these sales materialise, India could raise more than 200 billion rupees ($3.25 billion), based on current market valuation. Next in line could be state-run manganese miner MOIL Ltd with a 10 per cent stake sale, the finance ministry official said. Disinvestment ProgrammeThe government will go ahead with its disinvestment programme and "a lot of activity" is expected on that front, Finance Minister Arun Jaitley said in Davos on the sidelines of the WEF summit. He also said that the government's tax revenue collections have been good, although refunds for past periods are making an impact. On whether the government would look at privatisation as well, Jaitley said it can be done in case of companies that need to be privatised and the government cannot keep funding their losses with the taxpayers' money. "As far as divestment is concerned, we are committed to our divestment programme and a lot of activity is expected," he said. "I wont talk about the companies, as media speculations is hurting the programme as it also leads to market speculations. The media's role in divestment programme has been highly speculative and these speculations lead to market speculations," Jaitley said. On privatisation, he said, "Those would be the companies that are not doing well and therefore today the government can not keep taxing people in order to fund losses year after year." (Agencies)
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Oil prices rose on Friday after the death of Saudi Arabia's king added more uncertainty to an oil market that has more than halved over the last six months. King Abdullah bin Abdulaziz died early on Friday and his brother Salman became king of the world's top oil exporter. Salman named his half-brother Muqrin as heir and nephew Mohammed bin Nayef, 55, as Deputy Crown Prince, moving to forestall any succession crisis at a moment when Saudi Arabia faces unprecedented turmoil on its borders. Saudi state television said King Salman intended to keep oil minister Ali al-Naimi in place, suggesting the country's oil policy would remain unchanged. Harry Tchilinguirian, senior oil strategist at BNP Paribas, said he expected no change in Saudi oil policy. "King Salman was already involved in policy making prior to the passing of the king," he said. "So from that perspective, if he helped set the agenda, he will maintain that agenda." Brent crude futures were trading at $49.42 a barrel by 1215 GMT, up 90 cents. U.S. WTI crude futures were at $46.60, up 29 cents. After seeing strong volatility and price falls earlier in January, oil markets have moved little this week, with Brent prices range-bound between $47.78 and $50.45 a barrel. The new Saudi king is expected to continue an OPEC policy of keeping oil output steady to protect the cartel's market share from rival producers. Abdullah's death comes amid some of the biggest shifts in oil markets in decades. Oil prices have fallen by almost 60 percent since peaking last June as soaring supplies of shale oil from North America have clashed with cooling demand. Booming U.S. production has turned the United States from the world's biggest oil importer into one of the top producers, pumping out over 9 million barrels per day. Data from the Energy Information Administration on Thursday showed the biggest build in U.S. crude inventory in at least 14 years, driving Brent and WTI prices apart. To combat soaring output and falling prices, many oil exporters, such as Venezuela, wanted the 12-member Organization of the Petroleum Exporting Countries (OPEC) to cut output in order to support prices and revenues. Yet, led by Saudi Arabia, OPEC announced last November it would keep output steady at 30 million barrels per day.
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