RBI may ‘kill excess demand’ in economy in six-eight months

 The RBI increased the limit for keeping specified securities in the HTM portfolio from 22 per cent to 23 per cent

With inflation remaining at elevated levels, central banks around the world, including the Reserve Bank of India (RBI), will kill excess demand in economy over the next six to eight months, sources in the know said. They also indicated that there could be a rate hike in June, when the inflation forecast for the current financial year would be raised. The RBI, the sources said, might announce more steps such as raising the limit on held-to-maturity (HTM) bonds to support government borrowings but might not come out with any further quantitative easing GSAP (Government Securities …….

Soaring food, energy prices reach Asia to bring global inflation in sync

 The turning point was Russia’s invasion of Ukraine, which triggered an upheaval in commodities markets.

The world is now facing a synchronized inflation outbreak as food and energy prices surge in Asia, a shift from just a few months ago when the region appeared to avoid the price fever gripping the U.S. and parts of Europe. Inflation readings across the region — China, India, Indonesia, Philippines, Thailand and South Korea — recently rose more than forecast, while New Zealand on Wednesday hiked rates by the most in 22 years over price worries. And accelerating manufacturing costs suggest the worst is yet to come.

Markets are starting to price in rising inflation expectations and more aggressive central bank action across much of Asia. That’s beginning to mirror trends seen in the U.S., where data Tuesday showed consumer prices last month rose by the most since late 1981, piling fresh pressure on the Federal Reserve to respond.

Regional government bond yields have risen through this year, led by South Korea, with the emerging Asia total return index down 2.6%, its worst performance since 2013. That signals an expectation that some central banks will raise interest rates to slow inflation and prop up their currencies as capital leaves the region...Read More

Why Buffett’s bet on Japan could turn on higher inflation, weakening dollar

Berkshire said late Sunday, on Buffett’s 90th birthday, it owned just over 5% of each of Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui & Co Ltd and Sumitomo Corp

NEW YORK (Reuters) – Berkshire Hathaway Inc’s $6.2 billion (4.6 billion pounds) foray into Japan’s five largest trading houses may signal billionaire Warren Buffett’s expectation that inflation and a falling U.S. dollar may make international equities more attractive when economies worldwide recover from the coronavirus pandemic. Berkshire said late Sunday, on Buffett’s 90th birthday, it owned just over 5% of each of Itochu Corp <8001.T>, Marubeni Corp <8002.T>, Mitsubishi Corp <8058.T>, Mitsui & Co Ltd <8031.T> and Sumitomo Corp <8053.T>, and said it could increase its stakes to 9.9%.

The trading houses, known as sogo shosha with their diversified business lines including commodity exploration, fit the legendary investor’s taste for classic value stocks, which have lost investor favor. Berkshire investors said they welcomed Warren Buffett‘s wager, at a time U.S. stock valuations are at their highest since the late 1990s tech bubble, lifted by giants such as Apple Inc and Amazon.com Inc , both of which Berkshire invests in.

“The inflation cocktail is being mixed and Buffett is migrating his investment to where you can create value through inflation,” said Bill Smead, chief investment officer at Smead Capital Management, which invests nearly 3% of its assets in Berkshire. “These are companies that will make more money if the price of oil [or] any input goes up.” Prices of gold, inflation-linked bonds and some commodities have surged since March on fears that global central banks’ more than $9 trillion of stimulus to combat the pandemic will spark higher inflation…

Govt may breach fiscal deficit target; need for stimulus rises: Report

The government has set a 3.3 per cent fiscal deficit target for the current fiscal.

The government might breach the fiscal deficit target this financial year amid drop in the revenue mobilisation and expected additional expenditure by the government, says a report. According to Dun & Bradstreet’s Economy Forecast, the need for fiscal stimulus has increased even as the government finances remain “strained”.

“We expect that the drop in the revenue mobilisation of the government and likelihood of additional expenditure by the government might breach the fiscal deficit target in FY20,” Dun & Bradstreet India Chief Economist Arun Singh said. The government has set a 3.3 per cent fiscal deficit target for the current fiscal.

Singh further added that given the resources constraints, increase in fiscal deficit might lead to crowding out of private investments. According to the report, corporate liabilities are already higher. The balance-sheets of corporates, government, banks and households remain constrained or weak and revenue collection will play an important role.

“Revenue collection will thus be important for the government to implement a fiscal stimulus. To do that, tax reforms are needed. GST should be simplified further, and direct tax collections should increase,” Singh said. As per the report, the index of industrial production is likely to remain subdued in the short to medium term amid slowdown in demand, lackluster investment and weak exports….

Explained: Why poorer nations can’t just print more money and become rich

When Zimbabwe was hit by hyperinflation, in 2008, prices rose as much as 231,000,000% in a single year

Economy News: Curious Kids is a series for children of all ages, where The Conversation asks experts to answer questions from kids. All questions are welcome: find out how to enter at the bottom of this article.

Why don’t poorer countries just print more money? – Clementine, age 12, London, UK

Thanks for the question, Clementine. When a whole country tries to get richer by printing more money, it rarely works. Because if everyone has more money, prices go up instead. And people find they need more and more money to buy the same amount of goods. (Click Here: Business Standard OR BS)

This happened recently in Zimbabwe, in Africa, and in Venezuela, in South America, when these countries printed more money to try to make their economies grow. As the printing presses sped up, prices rose faster, until these countries started to suffer from something called “hyperinflation”. That’s when prices rise by an amazing amount in a year.

When Zimbabwe was hit by hyperinflation, in 2008, prices rose as much as 231,000,000% in a single year. Imagine, a sweet which cost one Zimbabwe dollar before the inflation would have cost 231m Zimbabwean dollars a year later….Read Full Story

Wholesale inflation eases to 2.6% in September as food items soften

The rate had soared to a four-month high of 3.24 per cent in August 2017

 

The annual rate of Wholesale Price Index (WPI)-based inflation eased to 2.60 per cent in September as prices of food articles, led by vegetables, softened. This was after wholesale inflation had soared to a four-month high of 3.24 per cent in August 2017.

Compared with the same month last year, however, the rate of inflation saw an increase from 1.36 per cent in September 2016.

The government data released on Monday showed that inflation in food articles tapered to 2.04 per cent during the month, against 5.75 per cent in August on an yearly basis. Inflation in vegetable prices cooled to 15.48 per cent in September, against a high of 44.91 per cent the previous month.

Onion prices, however, continued to rule high, with 79.78 per cent increase in September. In the egg, meat and fish segment, the rate of price rise was 5.47 per cent. Inflation in manufactured products witnessed a slight increase to 2.72 per cent, against 2.45 per cent in August...READ MORE

RBI monetary policy: Repo rate kept unchanged at 6%

Statutory liquidity ratio reduced by 50 basis points to 19.5%

The Reserve Bank of India’s (RBI’s) six-member Monetary Policy Committee (MPC), headed by Governor Urjit Patel, on Wednesday kept the repo rate – the key policy rate at which the RBI lends money to banks – unchanged at six per cent, in a decision that was broadly in line with expectations.

The RBI reduced the gross value added (GVA) growth target for the current financial year to 6.7 per cent from 7.3 per cent earlier.(economy news)

 In its fourth bimonthly review of the monetary policy, the RBI, however, lowered the statutory liquidity ratio – the reserve requirement that commercial banks need to maintain in the form of gold or government-approved securities before providing credit to customers – by 50 basis points to 19.5 per cent, with effect from October 14 fortnight. The MPC voted 5-1 in favour of the status quo on both repo rate and reverse repo rate -- the latter was kept unchanged at 5.75 per cent.In the one year since the setting up of the MPC in October 2016, it has lowered the repo rate twice – by 25 basis points each in October 2016 and August 2017.

Most analysts had been expecting the central bank to maintain the status quo this time, but effect a rate cut later in the financial year. Some have even been saying that the rate-cut cycle, which started on January 15, 2015 with a rate reduction to 7.75 per cent from 8 per cent, might have reached its end.

Rising food cost may push August retail inflation to 5-month high: Reuters poll

 But rising price to complicate RBI's policy path as economic growth cooled to a three-year low in Q2

 

India's retail inflation is expected to have picked up to a five-month high in August, largely driven by higher food costs, a Reuters poll showed, easing pressure on the Reserve Bank of India (RBI) to cut interest rates again after poor growth data.

Consumer prices were forecast up at 3.20 per cent in August from a year ago, jumping from July's 2.36 per cent, according to the poll taken September 5-8 of nearly 40 economists.

Forecasts for the data, scheduled to be released on September 12 at 1200 GMT, ranged from 2.50 per cent to 3.55 per cent.(economy news)

If the consensus is met, it would be the highest since April, but below the RBI's medium-term target of 4.0 per cent for the tenth consecutive month.

Tushar Arora, economist at HDFC Bank, said food prices continue to rise in August, mainly driven up by "unfavorable weather conditions and supply chain constraints."

Food and beverage inflation, which accounts for nearly 50 per cent of the consumer price index basket was expected to have rebounded in August after prices fell in the three previous months .

Monsoon rains this year have caused damages to crops of some perishable food items and hindered movement of goods.

The resulting hit from a shortage of production and supply of vegetables such as tomatoes and onions - which are basic ingredients in Indian kitchens - suggests inflation will be elevated in coming months....READ MORE

Rupee set to shed gains, weaken to 65 if dollar revives: Reuters poll

Chinese yuan is forecast to weaken to 6.90 per dollar a year

In 12 month's time the Chinese yuan will have erased most of its gains made this year, provided the US Federal Reserve sticks to its tightening path, boosting the greenback, a Reuters poll showed.

Having strengthened more than 3 per cent since the start of 2017, the yuan is forecast to weaken to 6.90 per US dollar in a year, according to the poll of over 60 foreign exchange analysts taken July 27-Aug 2.

It was trading around 6.72 on Wednesday.

While the US dollar should benefit when the Fed starts shrinking its balance sheet, which it has said it expected to do "relatively soon", it could falter again if the central bank fails to follow through with a rate hike later this year. 

At the start of the year, traders had expected faster rate hikes from the Fed and some form of stimulus from the new Trump administration would drive the dollar up strongly against emerging currencies.(economy policy)

But, the greenback has instead taken a beating on fading hopes that President Trump will be able to push through deep tax cuts and massive infrastructure spending.

That has brightened the outlook for Asian currencies.

Strong Chinese economic data over recent months has cooled worries over the yuan's weakening, leaving further scope for the People's Bank of China (PBOC) to tighten the country's domestic liquidity conditions.

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