Expert Zone

Straight from the Specialists

How the RBI’s recent measures affect you

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(Any opinions expressed here are those of the author and not of Reuters)

Banking is the backbone for growth in large economies such as India. Banks provide short-term finance to trade, industry and agriculture while also ensuring excess money is channelized into productive assets via deposits and financial intermediation.

Banks have to work under the stipulated policies of the central bank with respect to deposit mobilisation and lending for which they need to maintain minimum cash balances and government securities.

Banks may either run a surplus (deposits higher than lending) or a deficit (lending higher than deposits). Cash-rich banks lend to cash-deficient banks for a limited period through overnight call money, commercial deposits, etc. The central bank also offers liquidity through:

- Liquidity Adjustment Facility (LAF) at the repo rate (currently 7.25 percent) up to a limit for up to seven days against excess Statutory Liquidity Ratio (SLR) as collateral.

Time to get used to a weak rupee

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The fall of the rupee has become politically embarrassing. When the rupee crossed 60 to the dollar, the government and the Reserve Bank of India (RBI) thought it was time to act. The RBI tried to suppress speculation that had exaggerated the rupee’s fall and the government sought to increase foreign resources to fund the current account deficit (CAD).

The RBI complied half-heartedly. “We let our exchange rate be largely market determined, but intervene in the market to smooth excess volatility and/or to prevent disruptions to macroeconomic stability,” Governor Duvvuri Subbarao said in a speech in London.

India Markets Weekahead: Prudent to hold cash

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Indian markets ended steady on Friday after rising to its highest intraday level in nearly two months. The Nifty closed up 0.33 percent at 6029, marking its fourth weekly gain.

A weakening rupee led to intervention by the Reserve Bank of India (RBI), which tightened liquidity and lifted short-term interest rates on Monday. Though the central bank’s stance against currency speculation has made it all the more difficult for speculators, it also sent bond yields soaring and led to concerns that an increased cost to borrowers would curtail growth that is already limping at 5 percent. Bond portfolios recorded losses, wiping out gains over the last few months.

Why the rupee is linked to jobs in the U.S.

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

It appears odd that an increase in job offers in the United States should pull the rupee down in India. After all, any improvement in the U.S. economy should benefit the rest of the world. It means an increase in imports by the U.S. and exports by other countries. But there is more to it than that.

A blame game conundrum over Ranbaxy

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Ranbaxy Laboratories pleading guilty in a U.S. Department of Justice probe in May has led to fresh concerns about the company and its generic pharmaceutical peers. Japanese drugmaker Daiichi Sankyo Co, which owns Ranbaxy, has talked of possible legal action against the company’s former Indian owners.

In 2008, the U.S. Food and Drug Administration banned imports of products made at two of Ranbaxy’s factories in India over safety issues. That’s where the company’s battle to return to the world’s largest drugs market began.

India Markets Weekahead: Volatility to continue in results season

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

After a spirited rally the previous week, the Nifty moved in a band of 150 points between 5750 and 5900, ending with modest gains of 0.53 percent at 5868. It may seem small but the extreme volatility within this band caught traders on the wrong foot.

Time and again, markets prove that predicting them in the short run is hazardous. Investors welcomed the government’s bold decision to increase gas prices but reacted negatively to its ordinance on the food security bill. The already weak rupee cracked further to 60.35 against the dollar as the election gimmick could cost the state exchequer over $20 billion.

Chinese general warns India even as Antony visits Beijing

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

India’s Defence Minister A. K. Antony is in Beijing on an official visit and a provocative curtain-raiser was provided by a retired major general of the People’s Liberation Army (PLA) who cautioned India not to “provoke new problems and increase military deployments at the border area and stir up new trouble.”

Predictably, this statement by Major General Luo Yuan, who is associated with the PLA’s Academy of Military Sciences, hit the headlines in both countries. Luo is no stranger to such controversy and has in the past made shrill and hostile remarks to local media and in Chinese cyberspace about Japan, Vietnam and the Philippines. One assertion – since denied – was that China should bomb Tokyo if Japan stepped out of line in relation to the long-standing island dispute between the two East Asian neighbours.

Where the rupee is headed after 60

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(Rajiv Deep Bajaj is the Vice Chairman and Managing Director of Bajaj Capital Ltd. The views expressed in this column are his own and do not represent those of Reuters)

A sharp fall in the Indian rupee seems to have taken the markets by surprise. In just over 45 days, the rupee depreciated by 10.5 percent against the dollar to 60.7 (June 26) from 54.35 (May 9).

An Indian pivot in Afghanistan after troop drawdown

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Notwithstanding Afghan President Hamid Karzai’s disinclination to participate in talks, the Taliban retain the ability to calibrate violence levels in large parts of the country. But even if an understanding is reached with the Taliban, it does not hold the promise of lasting peace. Breakaway factions will find support and funding to continue bloodletting.

It is necessary to take stock of Kabul’s problems and find strong regional partners as anchors in unison with the depleted NATO/American establishment after the International Security Assistance Force (ISAF) drawdown. Kabul’s foremost problem is fielding well-trained forces. The ISAF has apparently reached the numbers it had set as its target but the forces fail to inspire confidence. Continued intensive training is required.

India Markets Weekahead: A spirited rally may be a distant dream

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The week began with the Reserve Bank of India (RBI) maintaining status quo on rates as expected at its mid-quarter monetary policy review. The trade deficit widened to $20.14 billion, a seven-month high and up 13.18 percent over the previous month. Gold seems to be the culprit again and government restrictions don’t seem to deter Indians from buying gold.

The markets held on to hopes that U.S. Federal Reserve chief Ben Bernanke could bring cheer but the indication of a roadmap for a QE3 pullback saw the dollar rally against most currencies. The rupee was among the worst performers, falling close to 60 against the dollar.

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