The Bank of Canada joined the list of "unpredictable" central banks on Wednesday with a shock quarter point rate cut as the European Central Bank prepared a 600 billion euro ($695 billion) bond-buying program aimed at lifting Europe out of its economic doldrums. The Canadian move came in response to a sharp drop in oil prices that hit the commodity-dependent economy, expected togrow by just 1.5 percent in the first half of this year compared with the central bank's previous forecast of 2.4 percent. The surprise move follows Denmark's rate cut this week and a shock Jan. 15 decision by the Swiss National Bank to drop itscap on the Swiss currency against the euro and cut its rates further, likely in anticipation of the ECB's money printing plan, which appears set to weaken the euro. Rising deflationary risks also seem to be registering at the Bank of England where two policymakers on Wednesday ditched their long-standing calls for an end to record-low interest rates. Brazil's was the standout central bank, with its "Copom" monetary committee raising rates as expected for the second straight meeting by 50 basis points to 12.25 percent, its highest level since August 2011, in an attempt to contain inflation and restore some investor confidence. The U.S. Federal Reserve, which appears committed to a rate rise this year, meets next Tuesday and Wednesday, although it is not expected to act until June of this year, at the earliest. The global economy outside of the United States has turned distinctly gloomy, with Japan and Europe struggling to gain traction. A slump in oil prices to below $50 a barrel has added to deflationary concerns and to worries that the global economy is struggling with a widespread deficit in growth. "We think in light of recent developments, it is clear that QE is coming, and knowing (ECB President Mario) Draghi's knowledge of markets, it is unlikely he will disappoint - either by holding off on QE or announcing a smaller-sized program," Vasileios Gkionakis, head of global foreign exchange strategy at UniCredit Bank in London said in a report. Central bankers from Turkey to China have weighed in with rate cuts recently as the global economic outlook has dimmed. That has raised the stakes for the world's "big three" central banks of the Fed, Bank of Japan and the ECB and made policy decisions more tricky and potentially more risky. The Federal Reserve is the sole major central bank that maybe juggling with a near-term rate hike, especially as scepticism grows at the Bank of England and the ECB is heading the opposite way. "The ECB has a huge task this week to restore confidence and trust in financial markets," said Jaisal Pastakia, investment manager at Heartwood Investment Management. "The ECB's record has been commendable...but the stakes are getting higher." With the likely start date for the ECB bond buying program imminent and only one other opportunity at the beginning of March for governors to agree details, pressure will be high on them to finalize talks and announce the mechanics on Thursday. Central bankers need to decide how far the ECB goes in meeting demands from Germany's Bundesbank for the risk of the scheme to rest with national central banks in countries from Greece to Italy, rather than with the ECB. ECB President Mario Draghi will speak to the media at 1330 GMT on Thursday. The duration of the program is highly significant but also contested because Germany is troubled by the concept of bond-buying, particularly any government bond purchases, and wants to limit its scale. Slowing ChinaChina and the United States are the only major economies growing at a meaningful rate yet Beijing has also signalled concerns over growth with more than $8 billion of injections of short term loans into the banking system on Wednesday. The move followed data on Tuesday that showed the world's second-largest economy grew 7.4 percent last year, the weakest rate since China was hit by sanctions in 1990 after the Tiananmen Square crackdown. China cut rates on Nov. 24 for the first time in two years due to slower factory growth and a stalling property market, although People's Bank of China chief Zhou Xiaochuan on Wednesday sought to downplay economic risks. "Generally, if the average indicator of the Chinese economy is OK, the way for the central bank to have a specific policy targeted to the real estate market is difficult," he told the World Economic Forum in Davos, Switzerland. That leaves the Fed on its own with its plans to lift rates above zero for the first time in six years despite the potential for a huge undershoot in the bank's inflation target. "There is no need to rush to raise rates; at the same time we want to make sure that we appropriately act in a way that we don't get behind the curve," San Francisco Federal Reserve Bank President John Williams told reporters on Friday. The U.S. economy added 1.7 million jobs in 2014 alone and likely expanded by 2.6 percent in the year. (Reuters)
Read More
Gold rose more than 1 percent on Tuesday to a five-month high as uncertainty over the extent of a stimulus program the European Central Bank is expected to unveil on Thursday drove investors into assets seen as lower risk. Buying accelerated on a break of the previous day's high, dealers said, as stops were triggered, ultimately lifting the metal to a session high of $1,296.85 an ounce. Spot gold was up 1.3 percent at $1,292.54 at 2:58 p.m. EST (1958 GMT), while U.S. gold futures for February delivery settled up 1.4 percent an ounce at $1,296.20. "To come within sight of a milestone two or three times and then to make no effort to print it on the close suggests a little fatigue and also some vulnerability," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York. Jittery financial markets focused on Thursday's ECB meeting, at which the bank is widely expected to unveil a quantitative easing program, and a Greek election on Sunday, which polls suggest anti-bailout party Syriza will win. "Nervousness ahead of the Greek election and the ECB's next meeting suggests that any investors who are long gold are likely to hold onto those positions, at least until there is a little more clarity on the likely fate of the euro," Mitsui Precious Metals analyst David Jollie said. Gold posted its biggest weekly gains last week since mid-August as risk aversion was stoked by the Swiss National Bank's decision to scrap the franc's peg against the euro. That led to a rise in investment in gold exchange-traded products (ETPs), which issue securities backed by physical metal. The world's largest gold exchange-traded fund saw its biggest one-week inflow in 2-1/2 years last week. "Gold is maintaining its premium over platinum, which also indicates that some safe-haven plays are being initiated," Saxo Bank's head of commodities research Ole Hansen said. "The current focus has moved from deflation and the rising dollar to market risk and negative interest rates." In a glint of brightness, China reported its economy had not slowed as much as many had feared, helping to lift stock markets in Europe and buoy the dollar. Among other precious metals, silver was up 1.5 percent at $17.91 an ounce, platinum was up 1.6 percent at $1,278.24 an ounce and palladium was up 2.5 percent at $772.50 an ounce. (Reuters)
Read More
The Reserve Bank of India is considering allowing banks to buy infrastructure bonds, in a bid to jumpstart a market that has suffered from low trading volumes after launching last year, said a source with knowledge of the central bank's thinking. Allowing banks to buy infrastructure bonds would mark a reversal for the central bank, which last year allowed lenders to only issue the debt, while limiting purchases to investors such as pension funds, provident funds, and insurers. That limitation has backfired, according to bankers, severely crimping trading volumes in the market since lenders are the biggest buyers and traders in debt markets. Reviving investment in infrastructure is a key priority for Prime Minister Narendra Modi which has been looking to ease regulations and bottlenecks to spur the sluggish economy. "We are quite flexible on the suggestions of allowing banks to initially develop this market by buying a certain percentage of the (infrastructure) bonds," said a top policymaker. However, the policymaker cautioned the RBI could impose limits, including on how much of the debt lenders can purchase, or allowing them to hold the bonds for only a short period of time and then requiring them to sell it to long-term investors. That could soothe the RBI's concerns that risks are being excessively concentrated in debt markets, given banks are often the biggest issuers but also the biggest buyers -- meaning lenders end up purchasing each other's bonds. Infrastructure bonds were launched by the RBI last year in a bid to help the government fulfill its plan to provide affordable housing to all by 2022, a goal that needs about $2 trillion of investment. Banks issue the debt and use the proceeds to fund infrastructure projects. "Allowing banks to invest in infrastructure bonds would help improve primary and secondary market liquidity," said Shashikant Rathi, senior vice-president and head of investments, capital markets and asset liability management at Axis Bank. Since their launch in August, only around 150 billion Indian rupees ($2.42 billion) of infrastructure bonds have been issued, well below the 500 billion rupees worth of debt that traders had estimated could have been raised within the first year. Under Governor Raghuram Rajan, the RBI has been keen to develop debt markets to increase investor interest. The central bank successfully launched bond futures last year, after two previous attempts at launching bond futures in 2003 and 2009 failed because of what traders said were poor designs. (Reuters)
Read More
The Swiss National Bank shocked financial markets on Thursday by scrapping a three-year-old cap on the franc, sending the currency soaring against the euro and stocks plunging on fears for the export-reliant Swiss economy. Only days ago, SNB officials had described the 1.20 francs per euro cap, introduced in 2011 at the height of the euro zone crisis to fend off deflation and a recession, as a policy cornerstone. The U-turn sent the franc nearly 30 percent higher against the euro in chaotic early trading. Coming a week before the European Central Bank is expected to unveil a bond-buying programme to counter deflationary pressures, it fed speculation that this quantitative easing (QE) scheme will be so big that the SNB would have struggled to defend the cap. On social media, the move was dubbed "Francogeddon". With more than 40 percent of Swiss exports going to the euro zone, firms across Switzerland warned of a plunge in profits, with the luxury and tourism industries most exposed. "Today's SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country," said Nick Hayek, chief executive of Swiss watch firm Swatch. SNB Chairman Thomas Jordan denied at a news conference that the move amounted to a "panic reaction", saying the cap had been scrapped because it was unsustainable. "If you decide to exit such a policy, you have to take the markets by surprise," Jordan said. As it removed the upper limit on the currency, the SNB sought to discourage new flows into Swiss francs by pushing down its interest rate on some cash deposits held at the central bank by commercial banks and other financial institutions. After taking the rate into negative territory last month for the first time since the 1970s, it cut another 0.5 percentage points on Thursday to -0.75 percent. "The values we currently see (on currency markets) point to a massive overvaluation of the franc," Jordan said. "They should come back down to more sustainable levels. Markets tend to overreact when confronted with such a surprise." Damaging ConfidenceEarlier this month, Jordan described the cap as "absolutely central", while SNB vice-chairman Jean-Pierre Danthine said on Monday it would remain the cornerstone of SNB policy. "This damages confidence in the Swiss National Bank that has always been saying it can keep up the minimum exchange rate," said Alessandro Bee, economist at Swiss bank Sarasin. "I see big risks in this." In what now looks like a signal, Ernst Baltensperger, an influential academic and former SNB adviser who is close to Jordan, said last weekend the SNB should move away from the "temporary" cap. Leading newspaper Neue Zuercher Zeitung described the move as "unavoidable". Swiss shares tumbled over 10 percent, putting them on track for their biggest one-day fall in at least 25 years and wiping about 100 billion Swiss francs off the main index. Banks UBS and Credit Suisse were both down over 10 percent at 1315 GMT, while Richemont, which owns luxury watchmaker Cartier, and Swatch were the biggest losers, down roughly 15 percent. Christian Levrat, president of the left-wing Social Democrat party, called the move "a serious threat for tens of thousands of Swiss jobs". It disrupted services for at least two major Swiss banks. PostFinance, one of Switzerland's biggest banks for retail clients, temporarily stopped distributing euro bills. Investors have been sweeping up the Swiss currency as the ECB considers QE and as Europe's showdown with Russia over Ukraine adds to pressure on the euro. In addition to lowering its sight deposit rate, the SNB said it would expand its three-month Libor target range to between -1.25 percent and -0.25 percent, from -0.75 percent to 0.25 percent previously. New Game Plan?Swissquote analysts Ipek Ozkardeskaya said recent heavy interventions to defend the cap may have forced the SNB's hand. "An accidental break of the floor would have been more serious for SNB credibility," she said, adding the bank now needs a "new game plan" to steady the franc. The franc broke past parity after the SNB's announcement, hitting a high of 0.8500 francs per euro before trimming gains to trade at 1.0275 by 1900 GMT. Fitch's managing director of sovereign ratings, Ed Parker, said the move would not affect Switzerland's top-grade credit rating. "Clearly a change in monetary policy is an important event in terms of looking at what is going to happen to the Swiss economy but it is not a sovereign rating issue at the moment." (Reuters)
Read More
The Reserve Bank of India (RBI) surprised markets with a 25 basis point reduction in interest rates and signalled it could cut further, amid signs of cooling inflation and what it said was a government commitment to contain the fiscal deficit. Displaying the pragmatism and flexibility, RBI Governor Raghuram Rajan's surprise move gave a boost to the government's efforts to revive growth.By explicitly tying future rate cuts to "high quality fiscal consolidation", the former IMF chief economist has put the ball back in Prime Minister Narendra Modi's court while showing enough independence to preserve his credibility with markets.Within hours of rate cut announced by RBI, United Bank has reduced the benchmark lending rate by 0.25 per cent, while other banks including market leader SBI have indicated that they would follow suit (Read Also: Banks Pass On Rate Cut). EMIs for home, auto and other loans will come down with the reduction in base rate or the minimum lending rate which, in turn, will boost demand and propel growth in the manufacturing sector.The BSE Sensex and Nifty rose more than 2.5 per cent on Thursday (15 January), marking their biggest daily gain in eight months, after blue-chips led by interest rate-sensitive stocks surged on hopes the central bank's surprise rate cut will stoke growth. The Sensex rose as much as 3.1 percent during the day before ending 2.66 percent higher. The broader Nifty ended up 2.62 percent after earlier rising as much as 3 percent.While the early move was unexpected, aggressive reductions in rates have been seen as likely over the course of the coming year to help India's economy out of a rut, with growth rates struggling to recover from their weakest levels since the 1980s.Tumbling oil prices and lower food costs have hardened speculation that more reductions in rates will follow, as recent data showed subdued consumer and wholesale price increases. Message To Modi: Now Fix The BudgetRajan's surprise quarter-point cut not only acknowledges that inflation is easing sharply, but also marks a concession to a government that has repeatedly, if politely, demanded monetary policy relief.By explicitly tying future rate cuts to "high quality fiscal consolidation", the former IMF chief economist has put the ball back in Prime Minister Narendra Modi's court while showing enough independence to preserve his credibility with markets.Modi's finance minister, Arun Jaitley, now needs to deliver cuts in subsidies, boost tax revenues and invest more in India's rotten infrastructure when he presents his first full-year budget to parliament next month. Acting ahead of a scheduled RBI policy meeting on Feb. 3 and the government's annual budget statement in late February, the RBI cut the repo rate - its key lending rate - to 7.75 percent from 8.0 percent, where it had been for the past year.As a result, the reverse repo rate, the rate at which the central bank drains excess liquidity from the banking system, also moved down by 25 basis points to 6.75 percent."This demonstrates RBI’s confidence in the evolving inflation outlook and it shows that they are putting faith in government's fiscal consolidation plan," said Radhika Rao, economist at DBS Bank Ltd.The Reserve Bank of India's unexpected 25 basis points rate cut does not change the country's sovereign credit profile, an analyst at Fitch Ratings told Reuters on Thursday.Instead, Thomas Rookmaaker, a director at Fitch in Hong Kong, said government fiscal consolidation and the creation of a "credible low inflation environment" were more important factors."The fiscal position is a long-standing key weakness in India's sovereign credit profile and, hence, fiscal consolidation that would bring down the high public debt burden would improve the sovereign credit profile," Rookmaaker wrote in an emailed reply to questions from Reuters."It will be interesting to see if the budget will include a clear and credible strategy to improve the fiscal position."Start Of A New Easing CycleInvestors saw RBI Governor Raghuram Rajan putting India on a new easing cycle, as the former International Monetary Fund chief economist ordered his first rate cut since being appointed in August 2013.Finance Minister Arun Jaitley, who earlier this week had said the time was right for lower rates, welcomed the cut and said it would help revive capital investments.The early rate reduction now puts the onus on the government to make credible efforts to contain the fiscal deficit while pursuing policies aimed at boosting investment and improving infrastructure to fire up the economy.In its statement, the RBI said "high quality" fiscal consolidation and reforms to power, land, minerals and infrastructure would be "critical" to more cuts.India's stock market was the second best performer in Asia last year in dollar terms, due to investors' hopes that Prime Minister Narendra Modi would push reforms needed to unlock India's growth potential following his landslide election last May.India has posted sub-5 per cent growth rates in its previous two financial years, levels far too slow for a country with its demographic challenges.Subsiding Inflation PressureData released on Monday showed retail inflation rose to 5 per cent in December -- below the 5.4 per cent annual rise predicted by a Reuters poll. The RBI expects retail inflation will hit 6 per cent in March and targets a level of below that from January next year.Some analysts believe Rajan may have come under pressure from the government to lower interest rates sooner than he would have ideally chosen."This is a surprise move in the middle of the war on inflation," said N.R. Bhanumurthy, a New Delhi-based economist at the National Institute of Public Finance and Policy."I am very surprised because it goes against the whole current governor’s philosophy that monetary policy should be predictable. It shows the governor is very pragmatic and can look at his own position and can change."Key for markets now will be how quickly the effect of Thursday's cut can boost consumption and investment.The rate cut pushed the benchmark 10-year bond yield to 7.65 per cent, down 12 basis points on the day and its lowest level since July 15, 2013, while stocks rallied, with the Nifty gaining some 2.5 per cent.In the overnight indexed swap market, the one-year rate dropped as much as 13 bps to 7.50 per cent, its lowest since July 15, 2013, which traders said priced in an additional 100 bps in rate cuts.
Read More
The rupee soared by 46 paise to trade at a fresh one-month high of 61.72 against the dollar in early trade today at the Interbank Foreign Exchange after the RBI cut interest rates by 25 basis points to 7.75 per cent.Forex dealers said besides a higher opening in the domestic equity market and dollar's weakness against other Asian currencies also supported the rupee.The rupee had ended four paise lower at 62.18 on fresh dollar demand from banks and importers in yesterday's trade in view of fall in crude oil prices.The benchmark BSE Sensex climbed over 600 points and the NSE Nifty regained the 8,400-mark in opening trade on Thursday as rate-sensitive stocks led rally after the RBI in a surprise move cut repo rate by 0.25 per cent. The 30-share index, which shed 238.45 points in the previous two sessions, rebounded by 600.77 points, or 2.19 per cent, to trade at 27,947.59. All the sectoral indices, led by banking and realty were trading in the positive terrain with gains up to 3.01 per cent. On similar lines, the National Stock Exchange index Nifty regained the psychological 8,400-mark by surging 176.05 points, or 2.12 per cent to, 8,453.60. Brokers said sentiments buoyed largely on the back of the RBI's surprise move to cut repo rate by 25 basis points to 7.75 per cent, triggering all-round buying, particularly in interest-sensitive stocks. Besides, encouraging quarterly earnings by some blue-chip companies and a better trend at other Asian bourses boosted sentiments. Among other Asian markets, Hong Kong's Hang Seng index was up by 0.15 per cent, while Japan's Nikkei moved up by 1.46 per cent in early trade on Thursday. The US Dow Jones Industrial Average ended 1.06 per cent lower in Thursday's trade.(Agencies)
Read More
Oil prices slid in early Asian trade on Wednesday after touching their lowest in nearly six years the previous session, with analysts predicting further falls as oversupply plagues the market. Oil tumbled 5 percent to near six-year lows on Tuesday, with the Brent crude international benchmark briefly trading at par to U.S. prices for the first time in three months as some traders moved to take advantage of ample U.S. storage space. February Brent crude had dropped 40 cents since its last settlement to $46.19 a barrel by 0238 GMT. U.S. crude for February was trading at $45.60 a barrel, down 29 cents. Analysts said prices would stay under pressure as oversupply hurts both the American WTI contract and globally traded Brent, with some traders beginning to book ships for oil storage. "Our latest forecast calls for Brent oil to average $45 per barrel during 1Q15 (the first quarter of 2015)," Nomura bank said on Wednesday. Oil storage trends also imply further price falls, with U.S. stocks possibly approaching 80 percent of capacity by the upcoming spring season, according to U.S.-based PIRA Energy Group. "The last time the United States built inventories in December was in the middle of the financial crisis in 2008," the firm said. Outside the United States, some of the world's biggest oil traders have booked supertankers to store at least 25 million barrels at sea in recent days, seeking to take advantage of the crash in crude prices and make a profit down the line. "Once floating storage starts, there is very little support on the downside for Brent spreads," Energy Aspects said. U.S. crude prices have been cheaper than Brent almost without interruption as soaring North American shale oil production pulled down prices while the rest of the world market remained more tightly supplied. But with oil producer club OPEC deciding late last year to maintain its output despite slowing Asian and European economic growth and to defend its market share, including against surging U.S. competition, a glut has also appeared outside the United States, pulling down Brent prices close to U.S. levels. "The closing gap looks to be solidifying Saudi Arabia's strategy to curb shale production and protect market share," ANZ bank said. (Reuters)
Read More
Pitching for greater cashless banking transactions, Prime Minister Narendra Modi said this can be the best way to counter the problem of black money, even as he asked banks to look for ways to discourage people from investing huge amounts in gold. Modi also asked banks to become socially more responsible and provide support to "swachhta" entrepreneurs or those setting up cleanliness and waste management ventures. He said banks in India should compete for achieving maximum cashless transactions as this would be the "best solution" to the problem of black money. "Of many solutions to tame black money, cashless transaction is one of the very important solutions. This is a very big opportunity and we should promote this. People should inculcate the habit of cashless transaction," he said. Black money has been a major political issue in the recent past, including in the Lok Sabha polls last year in which Modi led BJP and its allies to a landslide victory. Modi also said Indians have a good habit of savings, but these savings have diverted to gold over the time as a measure of security and banks have a challenge to look into ways to discourage huge amounts of money being kept in gold. The Prime Minister said people in India had a propensity towards saving, but this was targeted towards gold. "He thinks he should buy gold which can be needed at the times of crisis. I don't think out of 100 people, one person would feel the necessity of selling gold at the time of crisis...but it is a psychology," Modi said. He was speaking at a function in Mumbai on Friday to dedicate an "ICICI Digital Village" to the nation. ICICI Bank has adopted Akodara village in Gujarat to develop it into a 'digital village' by providing facilities like cashless banking, e-health, as also digitised schools and mandis. "The region, including India subcontinent and China, is one of the regions in the world where people have habit of savings. We have the tradition where people save for the next generations to come," Modi said. "There are parts in the world having credit card culture and people get credit cards in their hands and nothing else. But, here we have a different way of thinking. We have a tradition of saving," he said. Investing In GoldThe government has been trying to dissuade people from investing huge amounts in gold and put their savings into more productive financial market assets. India's gold imports surged to 151.58 tonnes in November, an increase of 38 per cent from 109.55 tonnes a month earlier, widening the country's trade deficit. India is the world's second largest consumer of gold after China. About 22,000 tonnes of gold is estimated to be held in Indian households. "This can lead to a very big change in the Indian economy. A very big section of our society keeps more than required gold as a measure of safety for future. Banks have a golden opportunity to become an alternative," he added. Modi said that rural development is one of the opportunities to improve the country's GDP, while digitisation of villages will help in rural development. "There are people from a village in Sabarkantha who have joined us. This village is unique because it also has a cattle hostel," he added. (Agencies)
Read More
The finance minister denied on Tuesday (30 December) that he was pressuring the central bank into cutting interest rates, after his comment that the high cost of capital was stifling investment sent markets into a tizzy.Arun Jaitley, in a speech in Delhi on Monday, said "costly capital" was one of the factors impacting manufacturers.Analysts said his remarks were the most public attempt yet by the government to press the Reserve Bank of India governor into easing rates.But Jaitley denied on Tuesday that his remarks were intended to pressure Raghuram Rajan, and had instead been meant to discuss the challenges facing the manufacturing sector."The fact is that there was not a single sentence reference (not even a word) in my entire speech to either the Reserve Bank or its Governor," Jaitley said in a Facebook posting."One of the many points that I made was that the cost of capital has to be cut down. Any one speaking on the subject of 'Make in India' into a manufacturing hub would necessarily suggest this."Traders said Jaitley's comments on Monday had reinforced expectations that the government is keen for the RBI to lower borrowing costs rates in order to help economic growth.The finance minister said on Monday that when "credit offtake is slow, the infrastructure creation becomes slower, manufacturers find it difficult to afford costly capital".Benchmark 10-year bond yields fell 4 basis points to 7.89 percent on Tuesday, not far from a near 1-1/2 year low of 7.82 percent in mid-December.Jaitley has previously also had to clarify comments after a speech in which he was widely seen as chiding the country's auditor for sensationalising its findings, creating a political row. However, the finance minister later accused media of not properly relfecting "the spirit" of his speech.Inflation has cooled markedly in recent months, but Rajan has indicated he would move cautiously on any rate cuts, seeking to avoid having to flip-flop on policy should price pressures pick up again.The central bank has also made rate cuts contingent on the government meeting its budget deficit and undertaking fiscal reforms to reduce borrowing.Still, if inflation remains tame, most economists polled by Reuters expect the RBI to lower rates at its next policy review in February or in April."The RBI is very clear that they need to see reforms from the government," said Jayesh Mehta, managing director and country treasurer at Bank of America-Merrill Lynch in Mumbai. "So now with every reform like the ordinance on land acquisition passed, there will be pressure on RBI to cut rates."Rajan has frequently lauded his good relationship with the finance minister in media interviews. The central bank is not independent from the finance ministry although it has long enjoyed autonomy in setting interest rates.(Reuters)
Read More
Moving at rapid pace, the government on Wednesday (24 December) approved key insurance and coal sector reforms which were stuck in Parliament logjam and also opened medical devices sector to foreign investment. Displaying his resolve to revamp Asia's third-largest economy despite political opposition in parliament, the Union Cabinet headed by Prime Minister Narendra Modi approved promulgation of the Ordinance on Insurance Bill, re-promulgation of the Coal Ordinance and allowing 100 per cent FDI in medical devices in the pharmaceutical sector a day after the conclusion of the Winter session of Parliament, Shares of companies with insurance businesses such Max India and Reliance Capital rallied on the news. Shashwat Sharma, a partner at consultant KPMG, said the move will draw up to $4 billion of new investments into the sector. "It will bring in a lot of confidence and people waiting for it would start thinking through it," he said.But not every foreign investor is expected to immediately start committing fresh funds as the executive order has to be approved by parliament within six weeks of the opening of the next session – scheduled for the start of February - to become a formal law.Briefing reporters, Finance Minister Arun Jaitley expressed hope that hiking of the foreign investment cap in the insurance sector to 49 per cent, which has been pending since 2008, will result in capital inflow of $6-8 billion."The Ordinance demonstrates the firm commitment and determination of this government to reforms. It also announces to the rest of the world including investors that this country can no longer wait even if one of the houses of Parliament waits indefinitely to take up its agenda," Jaitley said.The Insurance Laws Amendment Bill, 2008 could not be taken up for discussion despite being approved by the Select Committee of the Upper House because of the uproar over the conversion and other issues.The Coal Mines (Special Provisions) Bill, 2014 has already been approved by the Lok Sabha during the session but could make no progress in the upper House.The re-promulgation of ordinance on coal will facilitate e-auction of coal blocks for private companies for captive use and allot mines directly to state and central PSUs.Liberalising of the FDI policy for the medical device segment in the pharmaceutical sector is expected to help attract more investments and boost the domestic manufacturing.Jaitley said the insurance amendment Bill has been pending in Parliament for a "very long time" although it was approved by the Standing Committee as well as the Select Committee of the Rajya Sabha."Even though the Select committee by majority has recommended the Bill for adoption, the same was not permitted to be taken up for discussions because of disturbances in the Rajya Sabha."The government therefore decided to recommend to the President the promulgation of the insurance amendment laws.The Ordinance is exactly and verbatim of the recommendations of Select Committee," the Minister said.There are 52 insurance companies, of which 24 are in the life insurance business and 28 in general insurance segment.The total capital deployed in the private life insurance sector is close to Rs 35,000 crore. With FDI at 26 per cent, foreign equity is close to Rs 8,700 crore.Talking about re-issuance of coal ordinance, the Finance Minister said the Lok Sabha has cleared the bill, but the Rajya Sabha could not take it up for discussion."Along with the methodology for coal block auction for power sector and other sectors, the guidelines too have been cleared by the Cabinet. With the re-promulgation, the unfinished process of allocation of coal blocks will resume again," he said.The move came against the backdrop of the Supreme Court in September quashing allocation of 204 coal blocks to various companies since 1993.The re-promulgation of the Ordinance will enable the Coal Ministry to go ahead with its decision to give a total 101 mines, including 65 through auction, in the first phase.On FDI policy liberalisation in the pharma sector where 100 per cent foreign investment is permitted, Jaitley said within the same category, a distinct new sub category has been carved out with regard to medical devices."In this age of super specialisation, if medicines and pharma are one aspect, in which India has attained a certain amount of core competence, we still have not achieved that in medical devices, particularly, which are to be installed in human body for the purpose of treatment," he added.Medical devices include instrument, apparatus, appliance, implant, material or other article.(Agencies)
Read More
