Wednesday, December 5, 2018

RBI keeps rates on hold, moves to spur lending

The Reserve Bank of India (RBI) kept interest rates unchanged on Wednesday, in a decision that was widely expected as inflation has eased significantly, while it took steps to persuade banks to lend more in order to support an economy that has lost some momentum.
FILE PHOTO - The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai October 29, 2013. REUTERS/Danish Siddiqui/File Photo
“The time is apposite to further strengthen domestic macro-economic fundamentals,” the central said in a statement following a monetary policy committee (MPC) meeting.
The decision to keep the repo rate unchanged at 6.50 percent was as predicted by 64 of 70 analysts in a Reuters poll. The central bank also retained its ‘calibrated tightening’ stance as expected.
All six members of the MPC voted to keep the rates on hold.
“Even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, especially of crude oil prices, several uncertainties still cloud the inflation outlook,” the bank said in its statement.
The central bank said starting in the January-March quarter of 2019 it would begin to lower banks’ mandatory bond holding ratios, by 25 basis points each quarter until it reaches 18 percent of deposits.
The so-called statutory liquidity ratio (SLR) currently stands at 19.50 percent and the move to lower the SLR should prod banks to lend more rather than park their cash in safe-haven government securities.
India’s 10-year benchmark bond yield was trading at 7.46 percent from 7.54 percent before the policy statement.

Have offered to repay 100% to banks, please take it, says Vijay Mallya

Fugitive Indian businessman Vijay Mallya, who is fighting extradition from the U.K., has refuted allegations he fled the South Asian nation after defaulting on loans and offered to pay lenders back the principal amounts he owes.
“Please take it,” Mallya said in two separate tweets. “Politicians and Media are constantly talking loudly about my being a defaulter who has run away with PSU Bank money. All this is false,” he wrote, referring to public-sector or state-controlled lenders in India, which are weighed down with billions of dollars of soured debt.
The 62-year-old Mallya has become something of a fixture in London courts as he fights numerous cases including one to block his extradition to India on fraud charges and another to prevent UBS Group AG from foreclosing on a mortgage on his London house, which overlooks the capital’s Regent’s Park. A decision on the extradition case is expected on Dec. 10, Press Trust of India reported.
The source of Mallya’s legal problems is about $1.3 billion in loans that he took out in India for the now defunct Airlines Ltd., which he founded in 2005 and shut down seven years later. Disputes over the loans led to civil lawsuits in India and the U.K. as well as criminal fraud charges.
Mallya in August cited poor jail conditions in India to stave off extradition. In his recent string of tweets he said, the effort to bring him back to India “will take its own legal course" and asked why lenders are refusing his payback offer. On the soured loan, he said, losses at his airline had mounted as crude prices climbed to $140 a barrel.

“Losses mounted and that’s where Banks money went,” he tweeted. “I have offered to repay 100 percent of the Principal amount to them. Please take it.”

Tuesday, December 4, 2018

India, UAE sign currency swap deal

At the Joint Commission Meeting, India seeks to forge partnership in new areas

India and the UAE on Tuesday signed two agreements, including one on currency swap, as External Affairs Minister Sushma Swaraj held exhaustive discussions with her counterpart Abdullah bin Zayed Al Nahyan to step up cooperation in areas like trade, security and defence.
Ms. Swaraj, who arrived here on Monday on a two-day visit, was received by the Foreign Minister of the UAE ahead of the UAE-India Joint Commission Meeting.
“Advancing the Comprehensive Strategic Partnership...EAM @SushmaSwaraj & Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan co-chaired 12th India-UAE #JCM. Held exhaustive discussions on cooperation in energy, security, trade, investments, space, defence & consular, among others,” External Affairs Ministry spokesperson Raveesh Kumar tweeted.
This is the 12th session of the India-UAE Joint Commission Meeting for Economic and Technical Cooperation.
“Institutional mechanisms guiding the multifaceted cooperation...Two documents signed during the visit of EAM @SushmaSwaraj to #UAE : Agreement on Currency Swap and MoU for Development Cooperation in Africa,” Mr. Kumar tweeted.
Currency Swap is such a pact between two countries that allows trading in their own currency and payments to import and export trade at pre-determined exchange rate without bringing in a third benchmark currency like the US dollars.
The second agreement would enable both sides to undertake development projects in Africa.
“Reinforcing the strong bonds of friendship...The Ministers looked forward to continuing the trend to strengthen & seek partnership in new areas,” Mr. Kumar tweeted.
“Following the India-UAE Joint Commission Meeting, EAM @SushmaSwaraj and Foreign Minister of UAE Sheikh Abdullah bin Zayed Al Nahyan signed and adopted the Agreed Minutes of the #JCM,” Mr. Kumar tweeted.
With nearly $ 50 billion bilateral trade, the two countries are one of the largest trade partners for each other and have made robust investments bilaterally. The UAE is the sixth-largest source of Indian oil imports and hosts a 3.3 million-strong Indian community.
Along with the UAE Foreign Minister, Ms. Swaraj would also inaugurate a Gandhi-Zayed Digital Museum in Abu Dhabi to mark the celebrations of 150 years of Mahatma Gandhi’s birth and centenary celebrations of the birth of Sheikh Zayed, founder of the modern UAE.
The External Affairs Minister would also interact with the Indian community in Abu Dhabi.

Tech view: Nifty forms indecisive Doji, negates higher highs & lows

The Nifty50 took a breather on Tuesday and edged lower after a six-day winning streak. The index negated the formation of higher highs and higher lows that it had made in last five sessions and formed an indecisive Doji on the daily chart. 

This was also the third day when the index could not end higher from its opening level. 

On a 60-minute timeframe, the index has been forming lower highs, taking support in the 10,845-40 range, which indicates the possibility of some more weakness next session, said Nagaraj Shetti, Technical Research Analyst at HDFC Securities. 

For the day, the index fell 14.25 points, or 0.13 per cent, to close at 10,869. The index has to hold the crucial support in the 10,777-10,800 range to extend its move towards THE 10,929 level, said Chandan Taparia of Motilal Oswal Securities. 

On the downside, support is seen at 10,777 and then 10,650 levels. The momentum oscillators on lower time frame charts generated a sell signal, which is a cause for concern, said Mazhar Mohammad of Chartviewindia.in. 

“After RBI’s policy outcome, if the index fails to rally beyond 10,950, it can be a sign of near-term weakness for the market. A short-term breakdown will be confirmed on any close below the 10,747 level. There may not be a compelling low-risk trading opportunity even after the money policy. Traders are advised to remain extremely stock specific with a neutral bias, 

Nifty hovered between 100-DMA and 200-DMA levels for the fourth day in a row. 

"The key market internals remained below equilibrium. Considering the above developments, rallies towards 10,950-11,100 should be used to reduce speculative long positions,” said Arun Kumar, Market Strategist at Reliance Securities. 

RBI monetary policy meet: 4 key things you need to watch out for

The Reserve Bank of India is likely to keep interest rate on hold at 6.5 per cent in its fifth bi-monthly policy review of 2018-19 on Wednesday. 

The six-member monetary policy committee (MPC), headed by RBI Governor Urjit Patel, is meeting for three days starting December 3. 

The meeting assumes great significance, especially after the recent board meet of the central bank, where the members agreed to restructure small-scale loans and set up a panel to discuss the issue of transfer of surplus reserves to the government. 

According to analysts, the RBI may not turn dovish as yet even as inflation remains below target, but there could be confidence building commentary on the liquidity front. The RBI is also seen to reverse its policy stance to neutral from ‘calibrated tightening’ once again. Besides, it may look to fix credit freeze in the aftermath of IL&FS fiasco. 

However, they rule out a cut in cash reserve ratio (CRR). 

“As it has shifted to "calibrated tightening" only in October, the MPC is likely to signal a long hold. In any case, we think it is far more important to ease liquidity, with the money market deficit set to climb to Rs 1,44,000 crore in December even after the RBI's Rs 40,000 crore open market operations (OMO). RBI OMO should step up to Rs 50,000 crore a month in the March quarter pushing G-secs into excess demand,” 


Here’s what to expect from the policy meet, the decision of which will come out on Wednesday: 
Liquidity crisis a reality?Sunil Sinha, Principal Economist, India Ratings, believes that the RBI has already taken steps like OMO before the festive season to counter the liquidity crunch. The overnight rate has broadly remained within the interest rate corridor, which simply indicates that there is no pressure of liquidity in the banking system as such. The apex .. 

Credit freeze on the tableSinha said the central bank would rather look at improving the ‘credit freeze’ situation that has set in post the IL&FS debacle and the subsequent NBFC turmoil. 

“The banks aren’t lending enough. Though the present mood of risk aversion won’t escape the banks overnight, the RBI may infuse some confidence building statements for the banking system that may help improve the cautious sentiment,” he explained. 

ackling the CRR maths Despite OMO announcements of Rs 1,66,000 crore in FY19, including the recent Rs 40,000 crore component for December 2018, liquidity problems have not gone away. 

But RBI watchers say: Do not expect the central bank to cut CRR as yet. 

Devendra Kumar Pant, Chief Economist, India Ratings & Research, said, “There will be no cut in CRR. But the RBI could now reverse its stance from calibrated tightening to neutral. The RBI won’t drop any 
surprises and would maintain its status quo.” 

OMOs have been allowing more flexibility in managing liquidity, depending on the prevailing situation, he said further. 

No revision in inflation target?Inflation numbers in the second quarter of FY19 stood at 3.9 per cent, below RBI’s forecast of 4 per cent. 

Economists do not expect a revision on that front. Given the easing inflation, there is already a talk if there could be an interest rate cut. 

According to Nirmal Bang Institutional Equities, there is little room for a cut in interest rates, given the global interest rate cycle. 

The RBI had altered its stance from neutral to calibrated tightening in its last meeting, which rules out the case for an interest rate cut immediately, he reasoned. 


RBI to inject Rs 10,000 crore through open market operations on Thursday

The Reserve Bank of India (RBI) on Tuesday said it would inject Rs 10,000 crore into the system through purchase of government securities on December 6 to increase liquidity.
The purchase will be made through open market operations (OMOs).
“Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the Reserve Bank has decided to conduct purchase of ... government securities under open market operations for an aggregate amount of Rs 100 billion on December 6, 2018 (Thursday),” the central bank said.
The OMO operation will help ease the tight liquidity situation triggered by a series of defaults by group companies of IL&FS.
The eligible participants should submit their offers in electronic format on the RBI Core Banking Solution (E-Kuber) system on December 6.
The result of the auction will be announced on the same day and payment to successful participants will be made on the following day.
The RBI also announced the auction of a 12-day Government of India Cash Management Bill. The amount notified for the auction is Rs 30,000 crore.

Trump says if no China trade deal possible, 'I am a Tariff Man'

U.S. President Donald Trump on Tuesday held out the possibility of an extension of the 90-day trade truce with China but warned he would revert to tariffs if the two sides could not resolve their differences.

Trump said his team of trade advisers led by China trade hawk U.S. Trade Representative Robert Lighthizer would determine whether a “REAL deal” with China was possible.
“If it is, we will get it done,” Trump said in a Twitter post. “But if not remember, I am a Tariff Man.”
The threat of an escalating trade war between the world’s two largest economies has loomed large over financial markets and the global economy for much of the year and investors greeted the ceasefire agreed by Trump and Chinese President Xi Jinping over the weekend with relief.
Markets, however, pulled back after Monday’s rally on Tuesday as doubts crept in over what could realistically get accomplished in the tight negotiating window.
By midday, international stock markets sank deeper into the red with the Dow Jones Industrial Average .DJI down over 2.7 percent by 1840 GMT, the S&P 500 .SPX down 2.4 percent and the pan-European STOXX 600 index STOXX losing 0.76 percent. [MKTS/GLOB]

The Republican president appeared to address one of the concerns by indicating he would not be opposed to extending the 90-day truce.
“The negotiations with China have already started. Unless extended, they will end 90 days from the date of our wonderful and very warm dinner with President Xi in Argentina,” Trump tweeted.
Earlier on Tuesday, Treasure Secretary Steven Mnuchin also raised the prospect of the deadline extension.
“So, again this will be a real agreement again and not that we can accomplish everything in 90 days but we expect to make a lot of progress,” Mnuchin told Fox Business Network.
Trump and Xi said they would hold off on imposing additional tariffs for 90 days starting on Dec. 1 while they sought to resolve their trade disputes that have seen the flow of hundreds of billions of dollars worth of goods disrupted by tariffs.
Trump has said China is supposed to start buying agricultural products immediately and cut its 40 percent tariffs on U.S. car imports.

While Trump hailed the agreement with Xi “an incredible deal”, a lack of detail from the Chinese side has left investors and analysts wondering if Trump’s exuberance is warranted.
“It doesn’t seem like anything was actually agreed to at the dinner and White House officials are contorting themselves into pretzels to reconcile Trump’s tweets (which seem if not completely fabricated then grossly exaggerated) with reality,” JPMorgan Chase said in a trading note.
White House economic adviser Larry Kudlow said on Tuesday that a reduction in Chinese tariffs on U.S. cars and agricultural and energy commodities would be a “litmus test” for whether U.S.-China trade talks were on track.
Washington also expects China to promptly address structural issues including intellectual property theft and forced technology transfers, U.S. officials have said.
White House National Security Adviser John Bolton told the Wall Street Journal CEO Council meeting on Tuesday that Chinese theft of U.S. intellectual property was among the administration’s top concerns.
He said the United States should look into a rule that would bar imports of Chinese products that used stolen U.S. intellectual property.
U.S. Representative Steve King, an Iowa Republican, in February 2017 introduced a bill that would have allowed the U.S. government to punish Chinese intellectual property theft by imposing duties on the country’s imports.
.DJIDOW JONES INDEXES
-635.81(-2.46%)
.DJI
.SPX
The legislation, which had eight Republican co-sponsors but was not put to a vote, envisaged using revenue raised by the duties to compensate those harmed by China’s actions.
Trump has long accused China of unfair trade practices that hurt Americans and the U.S. economy.
“When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power,” he said on Tuesday.
His appointment of Lighthizer to lead the talks instead of Treasury Secretary Steven Mnuchin puts one of the administration’s toughest China critics in charge. Trump said on Tuesday that Lighthizer would work closely with Mnuchin, Kudlow and trade adviser Peter Navarro.

Fed's Williams expects further U.S. rate increases into next year

One of the most influential Federal Reserve policymakers said on Tuesday he expects further interest-rate hikes continuing next year since the U.S. economy is “in really good shape,” reinforcing the Fed’s upbeat tone in the face of growing doubts in financial markets.

Even as New York Fed President John Williams told reporters he expects the U.S. expansion to carry on and surpass its previous record around mid-2019, stock markets headed lower Tuesday morning while a potentially worrying trend of “inversion” continued to grip Treasury markets.

The Fed is expected to raise its policy rate another notch this month and, according to policymakers’ forecasts from September, aims to continue tightening monetary policy three more times next year. Futures markets, however, are betting a slowdown overseas and in sectors like U.S. housing will force the Fed to stop short.
Yet Williams, a permanent voter on policy and close ally of Fed Chair Jerome Powell, said lots of signs point to a “quite strong” and healthy labor market, and he predicted economic growth of around an above-potential 2.5 percent in 2019.
“Given this outlook I describe of strong growth, strong labor market and inflation near our goal - and taking into account all the various risks around the outlook - I do continue to expect that further gradual increases in interest rates will best foster a sustained economic expansion and a sustained achievement of our dual mandate,” Williams said at the New York Fed.

Rupee gains 39 paise to 68.50 against U.S. dollar ahead of Union Budget 2019

Forex traders said the Union Budget 2019 will give further cues going ahead in the currency market The Indian rupee on July 4 furth...