US Senate negotiations to bring a fiscal crisis to an end showed signs of progress on Sunday, but there were no guarantees the federal government shutdown was about to end or that a historic debt default would be avoided.IMF chief Christine Lagarde warned of "massive disruption" to the global economy if the US debt ceiling, which will be reached on Thursday, was not lifted. That is when the US Treasury runs out of authority to borrow money."We would be at risk of tipping, yet again, into recession," Lagarde said in an interview broadcast on NBC's "Meet the Press" program.Friday's optimism that a deal might be forged over the weekend vanished on Saturday and the talks moved from the acrimony of the House of Representatives to the Senate.Senate Majority Leader Harry Reid and Republican leader Mitch McConnell held talks that Reid later called "substantive". Reid did not provide details, but his remarks gave some hope that Congress soon might pass legislation to fund the government - in shutdown mode since Oct. 1 - and raise its borrowing authority."I'm optimistic about the prospects for a positive conclusion to the issues before this country today," Reid said before closing the Senate for the day.Earlier on Sunday, McConnell issued a statement calling on Democrats to accept a bipartisan plan that would end the government shutdown and raise the borrowing authority.Both the Senate and House are scheduled to be in session on Monday, even though it is the Columbus Day federal holiday.However, whatever deal the Senate might reach will still have to return for approval by the House, where the Republican majority faces strong pressure from its vocal conservative flank not to make concessions to President Barack Obama and his Democratic Party.With time running out to reach a deal, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.1 percent on Monday while the safe-haven Japanese yen rose. The Tokyo stock exchange was shut for a public holiday.U.S. stock index futures fell 0.7 percent to indicate a weaker opening on Wall Street.U.S. stocks had risen strongly ahead of the weekend on hopes a deal to raise the $16.7 trillion federal borrowing limit was near. Failure to raise the debt ceiling would leave the world's biggest economy unable to pay its bills in the coming weeks.Banks and money market funds are already shunning some Treasuries normally used as collateral for short-term loans, a sign that a deadlock over the debt ceiling could disrupt a key source of day-to-day funding in the financial system.Congress Could Kick Into GearOn Saturday, House Speaker John Boehner informed his rank-and-file that negotiations with the White House had collapsed.What started as a Republican effort to fight Obama's signature healthcare reform law by depriving it of funds and blocking a budget agreement has morphed into a stalemate on other issues."I don't even understand, at this moment, what this is about," said Democratic Senator Claire McCaskill.Senator Dick Durbin, the second-ranking Democrat, boiled the fight down to a couple of seemingly easy matters to resolve: the size of the increase in Treasury's borrowing authority and how much the government would be allowed to spend in a temporary funding bill after money ran out with the Sept. 30 fiscal year-end.Nonetheless, Democrats and Republicans jockeyed to win added provisions to those two basic issues, slowing the talks.While McConnell urged Democrats to accept a bipartisan plan that had been developing for several days, some senators and their aides said details were still being worked out on the very measure the top Republican was touting.If those discussions progress, the normally slow-moving Congress could kick into high gear.In 2011, during the last major battle over the debt limit, a deal was announced the night of July 31 of that year. By Aug. 1, the House of Representatives had passed a bill; the next day the Senate went along and hours later, Obama had signed it into law.Even so, the 2011 fight went down to the wire and this year's battle seems to be shaping up no differently. If a deal is reached, lawmakers could be voting on it as late as Wednesday or Thursday.Foreign & Domestic CriticsChina's state news agency Xinhua called for an end to the "pernicious impasse" and said it was time for a "de-Americanized world". China is among the largest foreign holders of U.S. debt."The United States is the world's largest economy. We hope they can shoulder their responsibilities," said Hua Chunying, a foreign ministry spokeswoman, told a regular briefing on Monday.In Washington, U.S. veterans' and conservative Tea Party groups protested the government shutdown, taking down barricades around the World War Two memorial on the National Mall before marching to the gates of the White House.Police officers, some in riot gear, pushed back against the crowd when it got too close to the White House fence, creating a brief flashpoint of anger.The rally included speeches from Sarah Palin, a hero of the Tea Party movement and former Republican governor of Alaska, and Ted Cruz, a freshman Republican senator who has crusaded against Obama's healthcare law.Cruz played a key role a few weeks ago in stoking Tea Party fervor against Obamacare and encouraged conservative House members to hold out for major changes to the law even if it meant a partial government shutdown.They have not won any changes to the law. Since then, House Republican leaders' efforts to broker a way out of the standoff failed, leaving senators to try to find a deal."Here's what I'm worried about: a deal coming out of the Senate that a majority of Republicans can't vote for in the House," Republican Senator Lindsey Graham told ABC's "This Week".(Reuters)
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With India among the fastest growing sources of investment into the US, the two countries have agreed to further strengthen bilateral economic ties and work towards a greater understanding of investment related issues."Indian foreign direct investment (FDI) in the US increased from $227 million in 2002 to almost $5.2 billion in 2012, making India one of the fastest growing sources of investment into the US," Finance Minister P Chidambaram and his American counterpart Jack Lew said in a joint statement after their meeting here yesterday.During the fourth annual meeting of the India-US Economic and Financial Partnership held at the IMF headquarters here, the two leaders agreed that the economic and financial relationship between India and the US continues to deepen and strengthen."Despite a challenging global economy, US-India bilateral trade in goods and services grew from $59.9 billion to $92.5 billion between 2009 and 2012," the joint statement said."Total FDI inflows from the US into India, from April 2000 to July 2013, are $11.492 billion," it said.Chidambaram and Lew agreed to continue working towards a greater understanding on all investment related issues including taxation and IT enabled services, an equitable and principled resolution of ongoing tax disputes and strengthened bilateral ties in this regard, the joint statement said.The two leaders agreed to continue to cooperate on deepening capital markets and strengthening financial regulation."We committed our financial sector experts to holding the next meeting of the Financial Regulatory Dialogue, which brings together our respective financial sector regulators, to consult on the full range of domestic and international regulatory concerns, in India in 2014," the joint statement said.(Agencies)
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Congressional negotiations to end a US fiscal crisis gripping Washington and spooking financial markets hung by a thread on Saturday after bipartisan talks broke down in the House of Representatives and shifted to Senate leaders.Senate Majority Leader Harry Reid, a Democrat, held an initial session with Senate Republican leader Mitch McConnell. But uncertainty remained about their ability to reach an agreement quickly to end a partial government shutdown and increase the nation's borrowing authority.Thursday (17 October) is the deadline for raising the debt ceiling, necessary to avoid a possible government default. The Senate was set to meet on Sunday, but the US House of Representatives was not, so Congress will be cutting it close."Economists say it won't be long before financial markets react negatively to this continued uncertainty," Reid said on the Senate floor."The life savings of ordinary Americans are at risk."Earlier, faced with the looming prospect of a debt default, President Barack Obama appealed to Congress to pass the budget while pushing Republicans to agree to hike the borrowing limit to prevent an "economic shutdown". "Let's pass a budget, put people back to work, and end this Republican shutdown. Let's pay our bills, and prevent an economic shutdown," Obama said as the government shutdown entered its twelfth day. In his weekly address to the nation, Obama outlined details of his meetings with Republican lawmakers over the past few days to resolve the unprecedented crisis. "I know you're frustrated by what you see in your nation's capital right now. But because it's easy to get lost in or give up on the political back-and-forth, I want you to remember: this is not normal," he said. The battle between Obama and Republicans, who control the House of Representatives, over the flagship healthcare plan dubbed 'Obamacare' has forced the government to shutter offices and send home hundreds of thousands of workers. Alongside the shutdown, the US is heading for a default if it does not raise its debt limit by the 17 October deadline. Unresolved IssuesAmong the unresolved issues is the duration of the debt ceiling increase. House Republicans were pushing a boost that would last only six weeks, producing another potential showdown in the middle of the holiday season. Democrats want to push the next debt ceiling deadline at least well into the new year.Also at issue were government spending levels and Republican concerns about President Barack Obama's signature healthcare law, popularly known as Obamacare. Republican demands for defunding Obamacare led to the shutdown on October 1.Reid and other Senate Democratic leaders went to the White House to confer with Obama in the afternoon, but said nothing to reporters as they left after an hour and 15 minutes.At the meeting, Obama and Senate Democratic leaders agreed that talks should continue between Reid and McConnell, a senior party aide said."But Democrats' position remained the same: Democrats are willing to negotiate on anything Republicans want to discuss as soon as we reopen the government and pay our bills," the aide added.Lawmakers are also scrambling to put hundreds of thousands of federal employees back to work after their failure to fund the government resulted in the partial shutdown.Dick Durbin, the second-ranking Democrat in the Senate, said the goal was to reach a bipartisan deal in the Senate before financial markets reopen on Monday.But the road to a deal appeared difficult, as Reid dismissed Republican Senator Susan Collins' plan to extend the U.S. debt limit until January 31 and fund the government for six more months.That plan had given some moderate lawmakers hopes for a quick compromise, but Democrats said it was saddled with too many objectionable add-ons.Collins expressed disappointment, but said she remained hopeful "that a bipartisan solution to reopen the government and prevent a default is within our reach."The "preliminary" Reid-McConnell negotiations - at 9 a.m. on Saturday in Reid's office - were launched one day after Obama rejected a proposal by House Republicans for a short-term increase in the debt limit to November 22.Democrats warned that such a small increase in borrowing authority would simply lead to another round of bitter confrontations in Congress and could choke off consumer confidence just as the Christmas buying season was starting.The flurry of action in the Senate came as House Speaker John Boehner informed his fellow Republicans in a private meeting that the White House had rejected its proposals and there likely would be no more ideas delivered to Obama now that attention was shifting to Senate negotiations.'Good Meeting'Although McConnell initiated talks with Reid, the Republican has maintained a relatively low profile as he faces a tough re-election campaign back home in Kentucky."We had a good meeting" was all McConnell would say to questions shouted by reporters in a Senate hallway.While some senators were hopeful now that Reid and McConnell were negotiating, no clear path to a deal was evident."Senator Reid and Senator McConnell are talking to each other for the first time and that's good," Republican Senator Roy Blunt said.Even if senators craft a proposal to end the government shutdown and raise the debt ceiling, at least some Republican support will be needed to pass it in the House. That support is far from guaranteed, especially if the Senate deal does not include any new attacks on the healthcare law.As Senate leaders tried to craft a deal, many House members headed to their home districts, having been informed there would be no votes before Monday evening.With every passing day, according to opinion polls, Americans' patience has worn thin with Republican tactics that led to the government shutdown, enhancing prospects of a deal."Markets rose on hope for a deal, so markets are likely to fall as reality check alters sentiment," said David Kotok, co-founder and chief investment officer at Cumberland Advisors. Kotok said he believed there would be no deal before Thursday, adding, "This fight is a long way from over."Companies and trade associations have been stepping up their efforts on Capitol Hill as the debt ceiling deadline approaches."I was optimistic yesterday morning," David French, the chief lobbyist for the National Retail Federation, told Reuters on Saturday. "I'm a little less optimistic today and so are folks I've talked to" on Capitol Hill.Retailers are particularly concerned about going into a holiday season with debt ceiling jitters hanging over the economy.Beyond that, French said: "They're concerned about Washington. They're concerned about the level of dysfunction. Our members do not like lurching from crisis to crisis without hope of a resolution."Scott DeFife, top lobbyist for the National Restaurant Association, said his industry was "extraordinarily concerned with the debt limit."For his members, he said: "Consumer confidence is critical. Any financial issue like this can really put a damper on activity."(Agencies)
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India is talking with JP Morgan and others to gain entry to benchmark indexes for emerging market debt in hopes of attracting billions of dollars in investment and may ease some restrictions on foreign inflows in order to do so, sources said.Finance Minister P. Chidambaram and other officials plan to meet next week in the US with big fund managers that track such indexes including Pimco, Capital International and Standard Life, one of the sources with direct knowledge of the matter said.To qualify for entry into the widely-followed JP Morgan Government Bond Index - Emerging Markets, India needs to ease rules on registration, documentation, due diligence rules for the entry of foreign institutional investors (FIIs) in the Indian debt market, besides allowing them to invest more in the government debt, two sources said.The sources declined to be identified because of the sensitivity of the matter. A finance ministry spokesman declined to comment.With a wide current account gap and a weakened rupee, India wants to attract some of the billions of dollars managed passively by tracking global indexes. However, Indian restrictions limit foreign investment in onshore debt, which exclude it from indexes managed by JP Morgan and others.India has been taking steps to ease investment rules but is also skittish about fully removing limits given worries about the volatility of global flows. Its credit rating also stands just one notch above junk status, although a downgrade would not disqualify it from an emerging market index.Inclusion in popular government bond indexes could attract $20 billion-$40 billion in additional flows into India over a year, Standard Chartered Bank wrote in a report last month."This is kind of opening up the debt market completely, with all the good and bad that comes with it," said Dilip Parameswaran, head of Asia Credit Advisors, an independent fixed-income consultancy in Hong Kong."It won't solve its balance of payments problems immediately as both the government and the index providers need to finalise details and following which investors will have to readjust their portfolios," he said.Indian government bonds and the rupee gained after the Reuters report, with the benchmark 10-year bond yield falling 4 bps on the day to 8.42 percent.The rupee rose to close at 61.39/40 per dollar on Thursday, strengthening from around 61.95 before the report.Modifying RulesIn seeking index inclusion, India may modify rules to allow foreign institutions to invest more in government debt, now capped at $30 billion.While India doesn't want to do away with caps entirely, it is considering further loosening rules that allow higher limits once investors reach 80 percent of the cap, one of the sources said.Another source with a bank said Indian officials approached banks seeking feedback on what New Delhi can do to include its government bonds in indexes. While talks have shown progress, a final decision on timing and India's index weight is at least a couple of months away, the source said.One obstacle to index inclusion is India's withholding tax on foreign investment in government debt.Earlier this year India reduced withholding tax of as much as 20 percent on coupon payments to 5 percent. India argues that the effective rate is zero for the majority of investors covered under bilateral tax treaties with countries such as the United States and Singapore.India last month eased rules to allow foreign institutions to invest in government bonds on an "on tap" basis, or without first requiring the purchase of debt limits. It is also in the process of easing registration and due diligence rules for foreign investors to buy government debt, one of the sources said.India's preference is to get into the JPMorgan index, one of the sources said, but authorities are also in touch with other index operators such as Barclays and Citi, sources said.JP Morgan, Barclays and Citi declined to comment.One of the sources said India hopes to reach an agreement with JPMorgan by the end of November.Some $250 billion in global funds is invested tracking JP Morgan's Government Bond Index - Emerging Markets - Global Diversified, Standard Chartered Bank said.Foreign holdings in Asian bond markets have swelled to record highs in recent months, reaching as high as 35 percent of outstanding debt in Indonesia, but in India foreign holdings account for just 4 percent, according to BNP Paribas.(Reuters)
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HSBC cuts its USD/INR forecast for the end of the year to 62 from 65 previously, citing improvements in the current account deficit and measures to attract inflows. HSBC notes the rupee to benefit from any inclusion of local government bonds in the JP Morgan government bond index for emerging markets, and also cites the $1 billion rupee-linked bond issuance launched by World Bank's private sector arm International Finance Corp.The investment bank also lowers its end-2014 forecast for the pair to 66 from 70 earlier.Sharp gains, however, would be capped as HSBC suspects the RBI could utilise the rupee's strength as an opportunity to build up its forex reserves.HSBC continues to recommend holding USD/INR NDF 1 month versus 12 month flattener trade with a target of 300 points from around 410 points currently.(Reuters)
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The rupee edges up to 61.23/24 versus its close of 61.39/40 on Thursday, 10 October, tracking gains in regional currencies and the domestic share market. Almost all Asian currencies are trading higher compared with the dollar. Domestic shares up 1 per cent in early trade in line with other Asian share indices. Traders will watch the factory output and retail inflation data due post-market hours and the wholesale price inflation data due on 14 Oct for near-term cues. India is talking with JP Morgan and others to gain entry to benchmark indexes for emerging market debt in hopes of attracting billions of dollars in investment and may ease some restrictions on foreign inflows in order to do so, sources said. (Reuters)
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The International Finance Corporation (IFC) - a member of the World Bank Group - has announced the launch of a $1 billion offshore rupee bond programme to strengthen India's capital markets and attract greater foreign investment.Said to be the largest of its kind in the offshore rupee market, IFC under the programme will issue rupee-linked bonds and use the proceeds to finance private sector investment in the country."IFC's offshore bond programme will help bring depth and diversity to the offshore rupee market and pave the way for an alternative source of funding for Indian companies," said Jin-Yong Cai, IFC's CEO."This is a new initiative for the intermediation of international savings for development in India. It will also help deepen the capital markets in India and establish an Indian rupee benchmark in the global markets," said Arvind Mayaram, Secretary of Economic Affairs in the Union Finance Ministry.India accounted for $4.5 billion of IFC's committed investment portfolio as of June 30, 2013 more than any other country.In FY13, IFC invested $1.38 billion in India to achieve several strategic priorities such as promoting inclusive growth in India's low-income states, addressing climate change, and supporting global economic integration.Over the years, IFC has issued bonds in 13 local currencies, including the Brazilian real, the Chinese renminbi, the Nigeria naira, and the Russia ruble.IFC has provided over $10 billion in local-currency financing across 58 currencies using a variety of financing tools?more than any other international finance institution.(PTI)
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India likely saw little respite from high inflation levels in September as prices of food and imports continued to climb despite a relief rally in the battered rupee, a Reuters poll found.The poll of 24 analysts showed wholesale prices likely rose 6 per cent last month, slightly below a six-month high of 6.1 per cent in August. Consumer prices likely rose 9.60 per cent from August's 9.52 per cent. Both sets of figures will be released late on Monday, 14 October.If realised, the elevated price levels will add more pressure on the Reserve Bank of India - which has clearly signalled that it will target inflation - to raise interest rates even as the economy is growing at its weakest pace in a decade.Indeed, the consensus would make it the fourth consecutive month of wholesale prices above the RBI's perceived comfort level of 5 per cent.The biggest driver of inflation is still expected to be food inflation, which accelerated to a three-year high of 18.18 per cent in August because of supply disruptions due to heavy monsoon and poor storage facilities."We have seen food contribute significantly to inflation in the past couple of months...and it looks like prices are still at elevated levels for perishables, mostly vegetables," said Radhika Rao, an economist at DBS in Singapore.The cost of onions shot up by 245 per cent in the year to August, other vegetable prices have risen 77 per cent, while eggs, meat and fish were up nearly 19 per cent.Last month, RBI governor Raghuram Rajan surprised markets with a 25 basis points hike and clearly signalled that the central bank's focus would be bringing down inflation.As a result, economists polled by Reuters after that RBI meeting forecast a further 50 basis points of increases in the repo rate in six months, a u-turn from their earlier view of 50 bps of cuts."The new governor has clearly mentioned that he is focussing a lot on how inflation is panning out and this number will only affirm his belief that inflation is still a story to be addressed," Rao added.A weak rupee is another reason why analysts forecast inflation would remain stubbornly high, adding to the central bank's woes.Although the rupee gained 5 per cent last month, it is not expected to recover much more ground in the near term and remain weak, according to a separate Reuters poll, making the cost of crude oil imports more expensive.The rupee's recent gain came after a more than four months of decline, with the currency losing as much as 20 per cent at one stage and hitting a series of record lows.That depreciation sent fuel inflation to a 10-month high in August, as India is one of the largest importers of crude oil.Industrial output data on Friday, 11 October, is expected to give market watchers more clues on the health of Asia's third-largest economy.Indian manufacturers likely increased production in August, although at a slower pace than in July, as infrastructure output rose, but access to cash was tougher, a Reuters poll found.However, recent manufacturing purchasing managers' index (PMI) surveys have shown activity shrank in August and September.(Reuters)
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The rupee fell on 9 October' 2013, after the International Monetary Fund sharply cut its economic growth forecast for the country and as the dollar rallied following the naming of Janet Yellen as the next head of the US Federal Reserve. The weaker rupee came even after data showed India's trade deficit narrowed to a two-and-a-half-year low in September, which had momentarily lifted the currency during the session by raising hopes for a significant reduction in the country's gaping current account deficit. "The dollar's strength versus majors kept the rupee's gains under control but good trade data definitely helped pull it off the session lows," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank. "I expect the unit to move in a 61.20 to 62.50 range in the rest of the week," he added. The partially convertible rupee losed at 61.93/94 per dollar compared to 61.7925/8025 on Tuesday. The unit had dropped as low as 62.3050 ahead of the trade data. The dollar rose on Wednesday on market relief that President Barack Obama has tapped Federal Reserve Vice Chairwoman Janet Yellen to head the U.S. central bank, for now eliminating one source of uncertainty as the U.S. budget impasse continues. The index of the dollar against six major currencies was up 0.4 per cent. The rupee also weakened after the International Monetary Fund cut India's growth forecast for the current year to 3.8 per cent from 5.6 per cent in its July survey, among the lowest forecasts by analysts or multilateral bodies. In the offshore non-deliverable forwards, the one-month contract was at 62.48 while the three-month was at 63.44. In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 62.18 with a total traded volume of $2.13 billion.(Reuters)
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Indian manufacturers increased production in August, although at a slower pace than in July, as infrastructure output rose, but access to cash was tougher, a Reuters poll found. Production at factories, mines and utilities rose 2.0 per cent year-on-year in August, slower than July's 2.6 per cent increase, the poll of 28 economists predicted. "While the sharp surge in the capital goods production distorted July's performance, August numbers might benefit from seasonal lift in demand and strength in core industries' output," said Radhika Rao, economist at DBS. Infrastructure output at India's core industries, which accounts for over a third of factory production, grew 3.7 per cent annually in August. The pace of growth among those industries, which include coal, cement, electricity and crude oil, was faster than July's 3.1 per cent. But overall growth was restrained as the Reserve Bank of India's (RBI) steps in July to stabilise the battered Indian rupee effectively soaked up cash from the short-term lending market. Talk since May that the US Federal Reserve would dial back its asset purchases last month had led to an exodus of funds from emerging markets and the Indian rupee, burdened by a high current account deficit, was hurt the most. "The bigger picture or outlook is turning more positive but near term there will be some side effects, a partial collateral damage that comes about from the policy measures taken," said Vishnu Varathan, economist at Mizuho Corporate Bank. With the RBI now unwinding the tightening measures it had taken and an increase in overall demand from India's festive season which kicked off this month, industrial production is expected to pick up. But, not all economists were convinced any improvement in factory output will be sustainable, particularly as recent manufacturing purchasing managers' index (PMI) surveys have shown activity shrank in August and September. "PMI manufacturing readings also remain below the 50-neutral mark on the back of moderation in new domestic and export orders," said DBS' Rao. "A sustained pick-up in factory output is unlikely beyond the transient support from seasonal demand." (Reuters)
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