Reserve Bank to cut Interest rates even more

Reserve Bank of India ( RBI) could cut interest rates by another 150 basis points by mid-2009 as authorities fight to prop up sagging growth, but the central Rates bank is unlikely to seek zero rates like the United States and Japan even as deflation rears its head.

The Reserve Bank of India cut interest rates on Friday for the fourth time since the global financial crisis blew up in September, taking the total reduction in its key lending rate or the repo rate to 350 points. It now stands at 5.50 percent.

Other central banks have slashed rates heavily too to fight off the deepest global financial crisis in decades. The US Federal Reserve and Japan have cut their rates close to zero, sparking debate on how far central banks will have to go to revive their economies.


posted under - RBI updates, Reserve Bank of India, Indian Interest Rates, Indian Economy, Economy under recession, Indian Economy updates
source- www.economictimes.com

Indian Economy - Most Optimistic Economy of World

India has regained top slot in optimism among privately held businesses for 2009. While optimism amongst privately held businesses (PHBs) around
the world slumped by 56% over the last 12 months, pushing the Grant Thornton International optimism/pessimism barometer to a record negative balance of -16% compared to +40%, this time last year.

Despite raging pessimism, the survey found that PHBs from 11 countries remained optimistic about the outlook for their economies, with India leading this group (+83%), and Botswana (+81%) with Brazil (+50%) also emerging on the top. Japan (-85%) and Spain (-65%) were the most pessimistic.

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It is the first time that pessimists have outweighed optimists about the outlook for their economy since the research began in the current form in 2003 but this year's International Business Report
, which surveyed senior executives from over 7,000 PHBs across 36 economies, also shows an overwhelming consensus that falling consumer demand is the biggest threat to PHB businesses.

There are also some startling differences in attitude towards the economic crisis between the mature and emerging economies. Of the four largest trading nations, PHBs in the United States and mainland China, who together contribute over 32% of global GDP1, scored their optimism at -34% in the United States and +30% in Mainland China.

Similarly, Japan and India (collectively contributing over 11% of global GDP) scored their optimism at -85% and +83% respectively.

"These polarised results suggest that despite the current slowdown, there are still pockets of hope in the global marketplace for PHBs," explained Vishesh Chandiok, National Managing Partner – Grant Thornton India.

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"Their macro view of the world economic stage explains the overall slump in optimism but there are still signs of optimism in some economies and also clear signs that PHBs, while preparing for the downturn, are also seeking to leverage on opportunities this could bring," Mr Chandiok added.

When asked to identify the most significant factors causing most concern for their business, PHBs in 33 out of the 36 economies cited a fall in consumer demand, while citing a shortage of business credit as a secondary concern.

posted under - Indian Economy Updates, Economy of India, India, Asian Economies, optimistic economy of world, indian business updates, economy, india economy
source - www.economictimes.com

RBI cuts rate further - will economy be boosted??

The Reserve Bank of India on Friday cut key policy rates. The repo and the reserve repo rate under the liquidity adjustment facility RBI has been cut by 100 basis points while cash reserve ratio (CRR) has been reduced by 50 bps.

Following this move, reverse repo stands at 4%, repo stands at 5.5% and CRR now stands at 5%. The cut in CRR will infuse Rs 20,000 crore in the system.

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The market had widely expected RBI to cut the key lending rates. The cut in repo and reserve repo is with immediate effect while CRR cut will be effective from fortnight beginning January 17. Since August RBI cut CRR by 450 basis.

Repo rate is the rate at which banks borrow from RBI while the reverse repo is the rate which RBI gives banks for parking their surplus funds. These two rates are seen as the floor and the cap for daily call money movement.

The decisions would among other things infuse Rs 20,000 crore into the banking system.

Both reductions are effective immediately. The repo rate has been cut aggressively since mid-October last year as the central bank tried to minimise the knock-on effects of the global financial crisis.

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posted under - RBI updates, effect of recession on india, indian economy, economy of india, india economy updates, Reserve bank of india, Indian economy updates, indian rupee updates

US $ v/s rs daily updates - January 2009

Indian economy trends are very important for those who are into economic analysis in India, Indian National rupee popularly known as INR in international market is following a downward trend due to global financial turbulance. As volume of US dollars (USD) in international markets is on a decline so the value of US $ is growing up, well indian IT industrycan feel better to some extent and is the only industry which would be getting a plus from current market scenario.

The post would include (US$ v/$ rupee) daily trends the rate shown of Indian rupee would be as displayed at time of stock markets closure(mainly BSE and NSE) you can also see daily Stock market live rates and closing rates.

INR(Indian National rupee) v/s US$ November trends/updates are as follows:

format for display of rs v/s $ would be in following order:

(date | RS v/s $ rate Daily trends updates | Remarks with respect to US $)


28/1/2009 | 48.85 | Up^0.34 | Rupee (INR) grew stronger by 34 paise wrto US $

22/1/2009 | 48.56 | - | Rupee (INR) fell weaker by - paise wrto US $

21/1/2009 | 48.56 | Down(0.00) | Rupee (INR) fell weaker by - paise wrto US $

20/1/2009 | 48.56 | Up^0.21 | Rupee (INR) grew stronger by 21 paise wrto US $

19/1/2009 | 48.77 | Up^0.31 | Rupee (INR) grew stronger by 38 paise wrto US $

16/1/2009 | 49.08 | Down(0.38) | Rupee (INR) fell weaker by 38 paise wrto US $

15/1/2009 | 48.70 | Up^0.10 | Rupee (INR) grew stronger by 10 paise wrto US $

9/1/2009 | 48.61 | Up^0.07 | Rupee (INR) grew stronger by 7 paise wrto US $

7/1/2009 | 48.68 | Down(0.31) | Rupee (INR) fell weaker by 31 paise wrto US $

2/1/2009 | 48.73 | Down(0.23) | Rupee (INR) fell weaker by 23 paise wrto US $

1/1/2009 | 48.50 | Up^0.05 | Rupee (INR) grew stronger by 5 paise wrto US $

Indian Govt Fiscal Deficit Increases

The Economy of India's fiscal deficit for year 2008-09 has increased when compared to previous year, following statistics show the grim picture of economy which is in high deficit. It is to mention that i had already predicted the fiscal deficit to rise in one of my previous post.

The difference between total receipts and expenditure is Rs 1,76,510 crore up to November 2008 in the current financial year.

This year the government is spending more than originally budgeted on social sector, subsidies and infrastructure development.

Policy makers believe that the rising fiscal deficit is not a matter of concern. Suresh Tendulkar, Chairman ,Prime Minister's Economic Advisory Council said," Private investment activity is very low as of now.So there is no question of fiscal deficit crowding out private investment activity and fiscal deficit need not be looked at as a major concern."

Home minister P Chidambaram already indicated that the government may require one more year to eliminate revenue deficit and reduce fiscal deficit below 3% as required by the Fiscal Responsibility and Budgetary Management Act."This is not a year to worry about fiscal deficit," the minister said.

The revenue deficit continued to surpass estimates for the whole year by 256.2%. It stood at Rs 1,41,364 during April-November 2008 as against Rs 55,184 for the entire fiscal. It may be pointed that a substantial part of the government's spending takes place in the first half of the fiscal.

The center's revenue stood at Rs 3,14,974 crore during first eight months accounting for 52.2% of estimated figure for the entire year against 56.5% a year ago. Most of the revenue came from taxes at Rs 2,53,558 crore. Expenditure stood at Rs 4,94,124 crore, constituting 65.8% of what is pegged for the entire year , up from 60.5% in a year ago period. Much of the expenditure comes under the non-plan head at Rs 3,57,994 crore constituting 70.5% of estimated figure for the year. Plan expenditure stood at Rs 1,36,160 crore ,which represents 55.9% of Rs 2,43,386 crore budgeted for the year.

Indian economy growth predicted at 6 - 7% for next year

Kotak Securities have predicted indian economic growth between 6-7% for year 2009 the reason told is: "The global turmoil has had an impact on the Indian economy
due to the resultant liquidity crunch and fall in demand. This will have an impact on the growth of the corporate sector and this impact may continue in the foreseeable future," Kotak Securities' managing director S A Narayan said.

"We see BSE Sensex moving in the range of 9000 – 12000. Further uptrend can be expected only after further visibility emerges on the global economic growth and the extent of the impact on India," said Mr Narayan, adding, "select stocks in the pharmaceuticals, PSU banks, power, construction and capital goods sectors are expected to perform well.

Large players in infrastructure sector less dependent on raising fresh capital from market will outperform," he added. In a technical outlook report put out by Ambit Capital, the brokerage expects Nifty to start its upmove once consolidation gets completed in the first months of 2009. Ambit Capital has given short-term target of 3800 on the Nifty.

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"Over a medium-term horizon, Nifty looks positive. As per the Elliot Wave Counts, Nifty has completed the price-wise correction and going forward, one can expect time-wise correction. However, in that process also, we expect Nifty to inch upward," the technical outlook report said.

published under - economy of india, dwindling indian economy, India Economy, india economy updates, Indian Economy, india economy updates

Economy requires further monetary action - MS Ahluwalia

The deputy chairman of planning commission, Montek Singh Ahluwalia has indicated further changes in the monetary policy as part of
second stimulus package.

"With economy growing below potential and inflation on its way down, there is a scope for further monetary action," Montek Singh Ahluwalia told reporters at the planning commission.

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Mr Ahluwalia further added that further increasing expenditures may not be a thrust area for the government. "The world economy is expected to get worse next year. We have proposed a stimulus package for this year and next year. Barring this,
we are not proposing any new expenditure for this fiscal."

The second stimulus package is likely to come out in next few days. However, when asked about the date on which the package would be announced, Mr. Ahluwalia declined to specify any particular date but said that the government was continuously watching the situation and it would not hesitate to take any further steps.


source - www.economictimes.com

Scope for further rate cuts - MS Ahluwalia

With the inflation rate almost halving from the peak levels in August and economic growth slackening, Planning Commission Deputy
Chairman Montek Singh Ahluwalia on Monday said that there is further scope for the RBI to cut lending rates.

"It is clear at the moment that the economy is growing below its potential and inflation is definitely on its way down. And these factors would suggest that there is a scope (for easing monetary policy)," Ahluwalia told reporters here.

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RBI Governor D Subbarao today met Prime Minister Manmohan Singh at his residence, adding to the speculation that RBI might signal further cut in interest rates to boost economic growth which is impacted by the global crisis.

The apex bank had already injected Rs 3,00,000 crore into the system slashing the policy and reserve ratio rates to inject funds into the cash strapped economy.

Responding to the steps taken by the RBI, several banks including the largest lender SBI have cut lending and borrowing rates.

State-owned banks like the Punjab National Bank, Bank of Baroda and Dena Bank today reduced their benchmark lending rates by up to 75 basis points.

The Government, in its Mid-year review of the economy presented in Parliament recently said there was considerable scope for monetary policy easing over the next 6-12 months to offset the global increase in demand for money that is being transmitted to India.

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Ahluwalia said, "We should be watching the situation carefully and we should not hesitate to take further steps. These matters are being discussed...our prospects for inflation justify taking a stronger monetary position."

Inflation which had peaked to 12.91 per cent in August came down to 6.61 per cent in December.

posted under - India Economy, economy of india, indian economy updates, Indian policy updates, economy of india, rising indian economy, 24th indian economic summit, deflation in world economy, econoy of india, growing india economy.
-source - www.economictimes.com

Asian Economies to be affected more in 2009

Asia-Pacific economies are in for a tough 2009. The region's fundamentals were solid in the first half of 2008, giving weight to the idea of global decoupling. This belief has been proven wrong, and no economy now seems immune from the US-led downturn.

Growth is expected to decelerate sharply in the first half of 2009, as all engines run out of steam. Those economies already in recession will continue to see harsh conditions through much of the year, warns Moody's Economy.com.

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Recent key indicators show the region has been struck hard by the global financial crisis. Although the turmoil began in mid-2007, much of the region did not begin to feel the pinch until a year later; increasingly complex economic links meant a long lag before the full scope was seen.
"As the US and European economies remain in dire shape, the worst for the Asia-Pacific is still ahead. Based on a forecast that the US will begin to recover in late 2009, the Asia-Pacific slowdown may end shortly after, though a solid rebound is not expected until 2010," said Sherman Chan, economist at Moody's Economy.com.

The global downturn hurts the Asia-Pacific region most immediately via trade. The US and EU directly account for a significant proportion of the region's exports. Meanwhile, still-turbulent credit markets remain a key risk to trade finance; shipments are held back as banks refuse to honor letters of credit.

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The region's manufacturing outlook depends largely on external demand, which is expected to remain subdued for much of 2009. Industrial production across Asia has been on a downward trend since the start of 2008, and began to contract in the final quarter. Economies concentrating in tech production were among the hardest hit, as discretionary items were the first to experience a slump in demand.

Although recent fiscal stimulus measures have focused on infrastructure development, which will support the industrial sectors, benefits will not be realised instantly. Hence, industrial output may further contract in early 2009.

"With the outlook gloomy and a bottom yet to be seen, investment is expected to be subdued through 2009. Business confidence is weak. Access to credit is still a concern, while the outlook of corporate earnings remains downbeat. Firms will continue to hoard capital in coming months. Companies will be extremely cautious with expansion plans, and new startups will likely be put on hold. Foreign direct investment is expected to moderate in 2009, a result of risk aversion and a preference for liquidity. Risk aversion is likely to see portfolio capital outflows continue during the first half of 2009, keeping Asian stock markets depressed," Moody's Economy.com said it a report.

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As the global downturn was triggered by chaos in the financial markets, the financial sector has been most aggressive in reducing headcounts to deal with shrinking balance sheets and a gloomy business outlook. Moreover, it will be difficult, even with fiscal stimulus, to absorb this group of recently unemployed people because of the skills mismatch.

Massive infrastructure projects announced by several governments will support construction work, but offer little help to white-collar workers. In any case, government rescue policies will not take immediate effect, meaning no upside to the overall unemployment situation may be seen before mid-2009.

Nearly all Asia-Pacific governments have announced fiscal stimulus measures. By far the largest was China's 4 trillion yuan package, equivalent to about 16% of GDP. Most of the announced stimulus plans take similar form, with infrastructure development a clear favourite, as it offers long-term economic benefits. With infrastructure needs chronic in emerging economies, countries may now improve their capital stock while supporting economic activity.

All central banks across the region will continue to loosen monetary policy. With growth momentum easing, authorities have attempted to soothe the debt burdens of households and businesses, and also encourage lending.

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read full article
posted under - indian economy updates, asian economies updates, world economy updates, global economy updates, India Economy, economy of india

World Bank to lend $ 3 billion to India

The World Bank has agreed to help India with $3 billion of increased investment as the global financial crisis undermines private
financing for the country's much-needed infrastructure agenda, the bank announced on Thursday.

"Part of the additional financing include a line of credit to the India Infrastructure Finance Company Limited (IIFCL) to help finance private-public partnerships in infrastructure; funding for the Small Industries Development Bank of India (SIDBI) to provide credit to small and medium enterprises, and assistance to PowerGrid to expand its transmission network," the World Bank said in a written statement.

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The development institution has provisioned this additional amount as part of the total financing envelope of $14 billion proposed in the India Country Strategy over 2009-2011.

India had requested an additional $5.6 billion over the next two years. Having provisioned the $3 billion, the World Bank said it would need to examine the balance $2.6 billion and work with the Indian government over the coming weeks to clarify details.

The strategy, which is geared to help India propel infrastructure development, support the country's seven poorest states, and respond to the financial crisis, was discussed by the World Bank board last week in Washington DC.

"Other areas which could receive support from additional financing include the National Housing Bank and the recapitalisation of state banks, the details of which are yet to be discussed with the government of India," the statement said.

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The statement said that India was the largest borrower from the World Bank's International Development Association (IDA) and second largest borrower from its International Bank for Reconstruction and Development (IBRD) in fiscal 2008.

The World Bank's $15.1 billion-portfolio in the country covers 61 active investment projects.

In the current financial year, the World Bank's oard approved $2.7 billion in funding for nine new projects for India spanning a range of sectors including infrastructure, education, health and rural development. Of this, $1.3 billion came from IBRD and $1.4 billion came as interest-free credits from IDA.

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Economies | Countries hit by recession 2008

1. Denmark - Denmark becomes the first European economy to confirm it is in recession since the global credit crunch began. Its GDP shrinks 0.6 percent in the first quarter after an 0.2 percent contraction in the fourth quarter of 2007.

2. ESTONIA - The Baltic state slides into recession with a 0.9 percent fall in second-quarter GDP after a drop of 0.5 percent in the first quarter.

3. LATVIA - Latvia joins its northern neighbor Estonia in recession as GDP falls 0.2 percent in the second quarter from the first quarter, when it fell 0.3 percent. Property markets and construction have suffered in both Baltic states.

4. IRELAND - The "Celtic Tiger" becomes the first country in the euro zone to slide into recession, with a 0.5 percent fall in second quarter GDP, following a 0.3 percent decline in the first quarter. Its last recession in 1983 saw thousands of people leave Ireland to seek work overseas.

5. NEW ZEALAND - New Zealand falls into a recession for the first time in more than a decade, with a 0.2 percent fall in seasonally adjusted GDP for the second quarter. First-quarter GDP dropped 0.3 percent.

6. SINGAPORE - First Asian country to slip into a recession since the credit crisis began. Singapore's export-dependent economy shrinks annualized rate of 6.8 percent in the third quarter after a 6.0 percent contraction in the second quarter, its first recession since 2002.

7. GERMANY - Europe's largest economy contracted by 0.5 percent in the third quarter after GDP fell 0.4 percent in the second quarter, putting it in recession for the first time in five years.

8. HONG KONG - Hong Kong becomes the second Asian economy to tip into recession, it's exports hit by weakening global demand. Third-quarter GDP drops a seasonally adjusted 0.5 percent after a 1.4 percent fall in the previous quarter.

9. ITALY - Italy plunges into recession, its first since the start of 2005, after GDP contracts a steeper-than-expected 0.5 percent in the third quarter. Second quarter GDP dropped 0.3 percent.

10. EURO COUNTRIES - The 15-country euro zone officially slips under, pushed down by recessions in Germany and Italy for its first recession since its creation in 1999.

11. JAPAN - World's second largest economy also went into recession due to dwindling sales in USA

12. SWEDEN - The Nordic nation announces it is in recession after GDP shrinks 0.1 percent in both the second and third quarters.

14. RUSSIA - Russia has also declared that it's economy is already into recession

13. USA - United States of America is already into recession from december 2007 , what looked like just mortagage crises broadened and engulfed all the above economies into it and still is in growing phase and will continue for another year 2009 for sure.

RBI - Finances to deteriorate further

With the government coming out with financial incentives for the industry, the Reserve Bank has said central finances will further deteriorate during the second-half of the year on account of the impact of financial turmoil on the Indian economy.

"While expenditure is slated to increase in the coming months, growth of tax revenue is likely to decelerate with the expected moderation in real economic activities following the global financial meltdown," RBI said in its monthly bulletin.

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"Finances in the first-half indicate deterioration in all key deficit indicators, both in the absolute term as well as per centage of GDP," it said, adding the "pressure" on deficit indicators would continue during the remaining part of 2008-09.

The government has come out with a fiscal stimulus package of over Rs 30,000 crore which will have an adverse bearing on central finances. This will be an addition to over Rs 1 lakh crore the government has sought during the first batch of supplementary demands for grants raising the government expenditures.

With the industrial production as well as exports recording a negative growth of 0.4 per cent and 12.1 per cent respectively in October, the government may come out with the second stimulus package increasing further pressure on finances.

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Referring to the performance of the first half, the RBI report said, "As per cent of the Budget estimates, both revenue deficits and fiscal deficits were higher mainly due to rise in revenue expenditure, both non-plan and plan."

RBI has already indicated that it would review the economic growth estimate at its quarterly monetary policy to be announced on January 27.

posted under - dwindling indian economy, economy of india, indian economy updates, indian finance updates, RBI updates, recession updates

with extracts from www.economictimes.com

Threat of Deflation rises for the world

Developing countries, including China and India, are showing signs of economic cooling on account of the cascading effect of the globaldownturn.

India's industrial growth unexpectedly turning negative in October, shrinking by 0.4 percent after expanding by 12.2 per cent in the same month a year earlier, hint at the worsening conditions for the economy.

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Given the deepening global recession, the threat of deflationary spiral is mounting which may fix the global economy in similar lines of the great depression in 1930s. Even as analysts and economists feel that the governments have managed to rescue the global economy from a deflationary spiral by extending deposit guarantees and recapitalizing banks who suffered losses, attempts to artificially reducing interest rates to support prices are extremely ephemeral measures.

"They may appeal as a quick fix, defending banks from further losses. Artificially supporting prices removes the stimulatory effect that lower prices have on new investment. Instead of a V-shaped bottom followed by a speedy recovery, you may end up with an L-shaped depression," said Bred Jonathan, consulting partner at Kreg and Bordan Economic Advisory.

We often hear economists or analysts refer to the threat of deflation. Deflation is a natural function of the market to correct excesses from a boom. The boom normally ends when the central bank stops new money creation, which was used to synthetically stimulate the economy.

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Source www.economictimes.com - read full article

published under - deflation in world economy, deflation threat, economy of india, global recession updates, indian economy updates, world economy updates

india's economy growth to be among strongest

India's economic growth would be one of the strongest in the world despite the the global meltdown, RBI Deputy Governor Usha Thorat said on Thursday. "Although the International Monetary Fund(IMF) had scaled down growth forecasts of nations, India's growth would be one of the strongest in the world," Thorat said at an interactive session organised by ICC here.

She said that the although incremental growth rate would be lower, the actual growth this fiscal which India would achieve would be nothing to scoff at.

"India had recorded a growth of three per cent for many years. It is only for the last few years the rate had touched nine per cent," she said.

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deflation in world economy, deflation threat, economy of india, global recession updates, indian economy updates, world economy updates

On foreign exchange volatility, she said that India's exchange rate policy had served well and ruled out going back to the fixed exchange rate regime.

She said that the cost of funds would come down, but it would take some time. "It all depends on the inflationary expectations of the bankers."


published under - Indian economy, economy of india, indian economy updates, Indian rupee updates, economy india

Indian Foreign trade policy to continue as same

The five-year foreign trade policy that lays ground rules along with incentives and disincentives for conducting imports and exports has been extended beyond March 2009 to enable the new government to give its policy direction to the country's external engagement.

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The Foreign Trade Policy (FTP), which was unveiled by the UPA government on September 2004, was to expire on March 31, 2009. India's foreign trade has seen a sharp growth in the last five years. Exports during 2007-08 grew by 22.9 per cent from 126 billion dollars in the previous fiscal, while Imports went up from 185.7 billion dollar in 2006-07 to 235.7 billion in the last fiscal.