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from Breakingviews:
India’s bickering lawmakers test investors’ faith
By Andy Mukherjee
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
The $12 billion foreign investors have poured into Indian equities this year is not a gift: it’s a bet that Finance Minister Palaniappan Chidambaram will keep his promise to lift the country’s GDP growth from its 10-year low. But the government can’t deliver without lawmakers doing their part. The problem is that India’s national parliament, never a bastion of efficiency, has simply stopped working.
The parliamentary session that began on Feb. 21 was repeatedly disrupted after opposition parties demanded the resignation of Prime Minister Manmohan Singh. He is facing allegations of impropriety over the government’s allocation of coal mining blocks and telecommunication spectrum. More legislative time was lost in angry exchanges, walkouts and adjournments after a court criticised the government for trying to influence the findings of an investigation into the coal scandal.
By the time proceedings were adjourned on May 8, parliament had yet to approve the government’s Oct. 4 decision to raise the foreign investment ceiling in the insurance industry, or its plan to allow overseas investment in India’s pension business. Altogether, 116 government bills are suspended in a legislative vacuum, according to PRS Legislative Research. These include legislation that seeks to streamline acquisition of villagers’ land for private industry, an issue that has hobbled large investments including a steel mill project by South Korea’s POSCO. Also stuck is a bill that would amend the constitution and pave the way for a nationwide goods-and-services tax, already several years late.
from Expert Zone:
Decoding Subbarao’s signals
(Any opinions expressed here are those of the author and not of Thomson Reuters)
When Reserve Bank of India (RBI) governor Duvvuri Subbarao announced last week that the central bank was cutting its policy interest rate for the third time this year, he also made a statement that may well have been directed as much to watchers of the Indian economy as to its managers. His message to the government, originally coded in technocratic diplomacy: It's time for you to do your share in reviving growth.
Financial markets had widely anticipated the RBI would cut its repo rate by 25 basis points (bps). However, they also expected its policy guidance to adopt a less hawkish tone than in the two prior cuts. After all, inflation had continued to ease and the economy still needs all the support it can get to come back on the growth path. Instead, Subbarao was categorical in saying that the "growth-inflation dynamic yields little space for further monetary easing."
from MacroScope:
Not again, please! Brazil and India more vulnerable now to another crisis
After bad economic news from Germany, China and the United States over the past few weeks, here are two more. Brazil and India, two of the world's largest emerging economies, are increasingly vulnerable to another crisis or to the eventual end of the ultra-loose monetary policies in developed economies after five years of a severe global slowdown.
Weak demand for Brazil's exports and the voracious appetite of local consumers for imported goods widened the country's current account deficit to 2.93 percent of GDP in the 12 months through March, the widest gap in nearly eleven years. In dollar terms, that amounts to $67 billion.
from Deepti Govind:
Not again, please! Brazil and India more vulnerable now to another crisis
After bad economic news from Germany, China and the United States over the past few weeks, here are two more. Brazil and India, two of the world's largest emerging economies, are increasingly vulnerable to another crisis or to the eventual end of the ultra-loose monetary policies in developed economies after five years of a severe global slowdown.
Weak demand for Brazil's exports and the voracious appetite of local consumers for imported goods widened the country's current account deficit to 2.93 percent of GDP in the 12 months through March, the widest gap in nearly eleven years. In dollar terms, that amounts to $67 billion.
from Breakingviews:
Review: Stockman polemic gloomily convincing
By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
David Stockman is a polemicist. “The Great Deformation: The Corruption of Capitalism in America”, the new book by the former adviser to President Ronald Reagan and private equity magnate, is a tirade, arguing over more than 700 pages that crony capitalism and central planning have increasingly corrupted U.S. policy since the Franklin Roosevelt administration.
from Global Investing:
A (costly) balancing act in Hungary
A bond trader in London is still marvelling at the market's willingness to snap up a Eurobond from Hungary, calling it a country with "a policy mix so unorthodox even Aunty Christine won't lend to them". But Hungary's probable glee at bypassing the IMF and "Aunty Christine" with $3.25 billion in two bonds that were almost four times oversubscribed, is probably short-sighted.
Hungary needs to raise the equivalent of $23.4 billion this year to repay maturing debt. The bond placement will enable Hungary to easily meet the hard currency component of this, and it has been enormously successful in luring buyers to domestic debt markets. Such has been the demand for Hungarian bonds in recent months that foreigners' holdings of forint-denominated government debt are at a record high of over 45 percent.
from Global Investing:
No Czech intervention but watch the crown
The Czech central bank surprised many this week after its policy meeting. Widely expected to announce the timing and extent of FX market interventions, Governor Miroslav Singer not only failed to do so, he effectively signalled that intervention was no longer on the cards -- at least in the short term In his words, looser monetary conditions were now “less urgent”.
What changed Singer's mind? After all, data just hours earlier showed Czech industrial production plunging 12 percent year-on-year in December. The economy has not grown since mid-2011 and is likely to have contracted by more than 1 percent last year. Singer in fact predicts a second full year of recession. But some slightly upbeat-looking forward indicators could be cause for cheer. According to William Jackson at Capital Economics:
from Breakingviews:
BOJ must now make its bold inflation goal credible
By Andy Mukherjee
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
After more than a decade of feigning helplessness against falling prices, the Bank of Japan has finally signed up for combat duty.
from Blogs Dashboard:
Would you recognize Fed ‘easing’ if you saw it?
By almost all accounts, the Federal Reserve is expected to "stay the course" on its massive bond-buying program after next week's policy-setting meeting. That would mean a continuation of the $85 billion/month in total purchases of longer-term securities, probably consisting of $40 billion in mortgage bonds and another $45 billion in Treasuries. Laurence Meyer of Macroeconomic Advisers is one of countless forecasters predicting this, calling it the "status quo."
Problem is, the U.S. central bank's current policy is not simply to buy $85 billion in bonds -- and if it does announce such a program on Wednesday, it should probably be interpreted as policy easing, not a continuation of current policy.
from Global Investing:
EM interest rates in 2013 – rise or fall
This year has been all about interest rate cuts. As Western central banks took their policy-easing efforts to ever new levels, emerging markets had little recourse but to cut rates as well. Interest rates in many countries from Brazil to the Czech Republic are at record lows.
Some countries such as Poland and Hungary are expected to continue lowering rates. Rate cuts may also come in India if a reluctant central bank finds its hand forced by the slumping economy. But in many markets, interest rate swaps are now pricing rate rises in 2013.
