A Rs 1.45 trillion tax cut may undermine rate reductions in India

While the central bank has cut rates four times this year, banks have been reluctant to fully pass on Asia’s most aggressive easing amid a surge in bad loans

India’s $20 billion tax-cut boost may have an unintended effect of keeping borrowing costs high. The premium of 10-year yields over the central bank’s policy rate widened to the most since April after the surprise stimulus announced Friday raised fears the government will miss its budget deficit targets. Traders say the spread offers lenders little incentive to pass on past interest rate cuts to customers.

“Why would a bank take credit risk when they can simply borrow from the Reserve Bank of India and invest in a government bond and just sit on it,” said Vijay Sharma, executive vice president for fixed-income at PNB Gilts Ltd. in New Delhi.

While the central bank has cut rates four times this year, banks have been reluctant to fully pass on Asia’s most aggressive easing amid a surge in bad loans. The widening spread reflects worries about the government adding to its record borrowing after the major booster.

“A high term premia, together with wider credit spreads, would mean that interest rates for end-borrowers will remain high despite steep rate cuts of 110 basis points announced this year,” Neelkanth Mishra, India strategist at Credit Suisse Group AG, told BloombergQuint….

England, Israel now planning bitcoin-like currency but can it replace cash?

This could help lure people back into using an official system that combines some of the benefits of both traditional and cryptocurrencies

market: Governments are extremely worried about cryptocurrencies such as bitcoin. These virtual currencies mean you can make payments without involving the banks that most economies and government financial models are built on. People can transfer large amounts of money without the authorities knowing, potentially making it easier to evade tax or launder money.

So several countries’ central banks, including the Bank of England and the Bank of Israel, are reportedly planning to launch their own digital currencies. This could help lure people back into using an official system that combines some of the benefits of both traditional and cryptocurrencies. But the risks involved may be too great for many typical cash users to bear.

One of the major drawbacks of existing cryptocurrencies is that their value tends to swing widely and it is often difficult to pinpoint how much they are really worth. National cryptocurrencies would be tied to the value of the country’s official currency, making them less volatile and easier to actually use as a way of spending.

National cryptocurrencies would also make payments much faster because transactions would be recorded instantly and wouldn’t have to be cleared by a bank (although some implementations require around eight minutes to be verified). The existing systems for electronic payments and transfers can often involve several banks and companies sending each other data and running security checks that add time and expense to transactions. Cryptocurrencies are able to bypass this clearing process altogether because they don’t actually involve transfers from one entity to another...

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