Interesting take on Indian Rupee Inflation

Rupee / US Dollar / Forex Currency News, Gold prices India, and The Sensex index on the Bombay Stock Exchange (BSE). Euro / Rupee and Yen / Rupee. Silver Quotes

Cam across this interesting paper written during my normal search of Rupee vs Dollar and Sensex information.
India is battling a double-digit inflation, like many other emerging economies, largely resulting from the surge in global commodity prices, chiefly oil, food, metals and fertilizers. Overall, the international commodity prices are yet to moderate to an extent that would help countries including India to arrest the steady uptrend in inflation, already in double digit, and stabilise domestic price levels. Moving in that direction, the Government has announced further measures to strengthen availability of essential articles of daily consumption. Supply management must have high priority along with demand control.

Progress in the anti-inflation strategy, however, would depend much on whether the recent downtrend in global oil prices and some softening in cereal prices would become durable. Oil prices dropped from an all-time high of 147 to around 120 dollars by mid-August though it is still double the 60 dollars in March 2007. Oil prices are influenced by geo-political tensions and the US dollar’s exchange rate.

Cereal prices also eased in the second quarter of 2008 and this should be of some relief. With maximum wheat and rice procurement and a good kharif crop to be harvested, India is better placed with its food economy.

How Long Double Digit?
Reflecting world prices and domestic demand pressures, the annual rate of inflation began surging and entered double-digit in the new fiscal year. At 12.63 per cent in the week ended August 9, the annual rate of increase in the wholesale price index for all commodities was the highest in a decade and a half, a matter of utmost concern to Government, which has been tackling inflation through an array of fiscal, administrative and monetary measures on a continuous basis. While inflation which hurts the poor the most has to be brought down as early as possible, Government’s efforts at the same time seek to ensure that there is no disruption in the growth momentum.

According to the Finance Ministry, the current rate of inflation has also to be looked at the “base year” effect as the wholesale price index is measured on an annual point-to-point basis. That is, if the rate of price rise was too low in the relevant week of the previous year, even a small increase in WPI of the corresponding week in the current year would show up in a larger rate of inflation point-to-point. While prices of some articles may have softened, there are also significant rises in some other commodities, on a year to year comparison.

The current expectations are for inflation to remain in double digit for some months to come but Government hopes that at least the rising trend could be halted by November, even if the annual rate does not revert to single digit before the end of the fiscal year, as predicted by economists. The Reserve Bank of India has been tightening lending rates in order to contain excessive liquidity and reduce aggregate demand.

Since monetary policy has a greater role in the present context to contain build-up of inflationary pressures and eventually to bring the rate of inflation down to single digit early in 2009, there could be further tightening of policy rates. This is to keep in check inflationary expectations, and additional demand pressures, emanating from salary increases to central government employees. Containment of inflation is imperative for macro-economic stability and sustainable growth but a dramatic improvement can come about only if domestic measures are complemented by a sustained fall in global oil and other key commodity prices, as pointed out by the Prime Minister’s Economic Advisory Council.

Supply-Side Measures
With a record procurement and build up of reserve stocks in excess of buffer stock norms, Government has decided to offload upto six million tonnes of wheat in the open ‘market at intervals. It would include additional allocation to states for the requirements of the ‘above poverty line’ population, retail sales and for meeting needs of bulk consumers like roller flour mills. It is one of the measures to enhance availability especially during the coming festival season when prices tend to rise in the open market.

The Government has extended the ban on export of rice, wheat and pulses till April next. Although India needs to import edible oils – a sensitive item in price rise – exports are banned. For consumer benefit, a scheme for the supply of edible oil with a subsidy of Rs.15 per kilogram has been introduced. Ten lakh tonnes of edible oil are being imported and would be distributed to states for public distribution. Also, an additional quantity of five lakh tonnes of non-levy sugar (ex-factory) is being released for the festival season. In addition, the Government proposes to supply four lakh tonnes of pulses, a commodity always in short supply, with a subsidy of ten rupees per kilogram.

Among manufactured products category, steel price rises have also contributed to the inflation flare-up. After raising prices in the first half of the year, in line with international trends and the rising costs of iron ore and other inputs, producers have agreed to restrain themselves and hold the price line for three months. Government had imposed export duty on steel to augment domestic supply and later withdrew it when steel manufacturers agreed on restraint. With global prices falling recently, they have been urged to reduce prices correspondingly.

Growth Outlook
Global economic slowdown and unprecedented levels of inflation are impacting on emerging economies including India, slowing their pace of growth. India had gone through a five-year phase of high growth averaging 8.5 per cent. The Economic Advisory Council has projected a 7.7 per cent growth in 2008-09 as against the 9 per cent last year with a possible return to above 8 per cent in the following year.

Growth in USA, European Union and Japan, among the major industrial economies, has considerably weakened this year in view of the continued financial market turmoils, tight credit markets, US housing slump and elevated energy and non-oil commodity prices. Stability in the global financial system is unlikely to be restored in 2008, according to US economists.
Relatively faster-growing Asian economies, notably China and India are well-placed to absorb external shocks though they cannot avoid some fall-out such as a possible decline in capital flows and in external demand for their products in 2008-09. Altogether, a major challenge for Government to bring down prices while keeping economic growth intact in a pre-election year.

Global Stock Market Crash of 2008 - AIG Failure will have worldwide impact

No rate cut by the federal reserve today, will directly impact the ability of Insurance Giant AIG to stay in Business. This will be the lynch-pin that likely breaks global equity and currency markets. The impact will be felt in Europe, as well as Asia. The Indian Rupee and Sensex index will not be spared by the failure of another US financial Institution.
The rupee posted its biggest fall in a decade on Tuesday, hit by risk aversion and banks arbitraging a weaker offshore rate, although suspected central bank intervention stopped the slide just short of 47 per dollar.

The partially convertible rupee ended at 46.89/90 per dollar, off a trough of 46.99 which was its lowest since July 24, 2006.

"The rupee may test 47.20-25 levels in the near term," he added. Dealers said the central bank was seen selling dollars to halt the rupee's sharp decline, but sales were offset by demand for the US currency. At its low on Tuesday, the rupee was down 6.5 percent in September and more than 16 percent in 2008. Dealers estimated the central bank had sold $1.5-$2 billion to put a floor under the rupee on Tuesday.

Indian shares pulled out from a nosedive to end almost level on Tuesday after they had opened down 3.5 percent. Capital outflows from the local shares so far in 2008 total a net $8.4 billion, including $1 billion in September, a sharp turnaround from a record net inflows of $17.4 billion in 2007.

Traders said broad strength in the dollar versus other currencies overseas was also hurting sentiment on the rupee. The dollar steadied near 4-month lows versus the yen on Tuesday, but held gains against high yielders as investors took refuge in safe-haven assets following the collapse of Lehman Brothers. Wait until the effects of a failed AIG hits the international market.
We expect Gold to regain its 10 year bull run. Indian Rupee will be hit hard in the coming financial debacle. Ultimately caused by the world wide real estate bubble and government agencies afraid to take the necessary action.

2008 Stock Market Crash - Rupee / US Dollar / Forex Currency News, Gold prices India, and The Sensex index on the Bombay Stock Exchange (BSE). Euro / Rupee and Yen / Rupee. Silver Quotes

News from India - Gold, Oil, Sensex , and The Rupee

India's gold demand was low on Thursday as buyers waited for prices to ease further from their recent highs or stabilize to be able to make purchases, dealers said.

"There is a little bit of buying from those in dire need," said Ajit Shinde of Magna Projects Pvt Ltd in Kolkata, a large wholesaler. "But it should pick up for the festivals."

Shinde said for the time being, his clients, mostly in Kolkata, were willing to wait for a fall to 8,900 rupees per 10 grams.

Dealers in banks said demand was low with people hoping for a fall to $700 an ounce in overseas markets.

Foreign spot gold was down from Tuesday's 16-month high of $714.20, as the dollar, with which gold usually has an inverse relation, recovered against other currencies. It also eased on investor caution ahead of a U.S. interest rates meet next week.

Rupee / US Dollar Forex , Gold in India, and The Sensex index A slightly stronger rupee helped lower Indian gold prices, but not enough to inspire many buyers, dealers in banks said.

The country's biggest lender State Bank of India today led banking stocks on an upward trajectory on the bourses amid expectations the US Fed may cut interest rates, which can encourage capital flows into Asia. As many as 14 of the 18 banking stocks rose, lifting the segment index by 102.17 points to settle at 8,081.94 points. The index hovered in a range of 8,123.91 and 8,000.92 points. Marketmen said hopes of a rate cut by the US Federal Reserve, which might boost capital flows into Asia, helped strengthen sentiments on the stock exchanges. They said reports of SBI planning to raise Rs 10,000 crore also bolstered trading in banking stocks, especially that of the state-run lender. The SBI scrip gained Rs 51.70 or 3.18 per cent to pegged at Rs 1,675.85. ICICI Bank, the country's second-biggest lender, fell by 0.1 per cent to Rs 883.85. Scrips of three other lenders Federal Bank, Indian Overseas Bank and Yes Bank also declined. The other good performer in the segment was Kotak Mahindra Bank, which climbed up by Rs 24.75, or 3.31 per cent, to close at Rs 772.50 on heavy buying by funds.
The government appears set to approve Reliance Industries'' pricing formula for the gas it plans to produce from July next year, with minor changes. The Empowered Group of Ministers (eGoM), which had its third meeting today morning was near unanimous on the need to honour the government's commitment allowing marketing and price freedom to investors investing in oil and gas hunt, official sources said. Sources said, the government was likely to tweak the Reliance formula so that the price of gas is calculated in dollar alone, a move that will bring down 4.33 dollar per million British thermal unit price proposed by Reliance to about 4.2-4.22 dollar per mBtu. While no Minister attending the meeting commented on the deliberation, Petroleum Minister Murli Deora only said, the decision would be announced by External Affairs Minister Pranab Mukherjee. Sources said, the eGoM left the final decision on Pranab Mukherjee who will go on a five-day foreign visit tomorrow afternoon. Fertilizer Minister Ram Vilash Paswan, sources said, wanted a guarantee of gas supplies to fertilizer and steel plants.