Advent of New Year 2008 has started giving clear evidence of a soft landing under way for Indian economy and most of the overheating concerns appear behind us. Inflation numbers if not too benign, appear to be in comfortable range. Index of Industrial production for November grew just 5.3% as against 12%. Slower credit off take and reduced housing loans are showing the impact of repeated money tightening measures of central bank
Liquidity conditions turned comfortable as the RBI reversed the spree of unwinding bonds under the Market stabilization scheme (MSS). RBI nearly unwound Rs 18,000 crore bonds during November and December while sold nearly Rs 8,000 worth bonds in first week of January, indicating the return of easy liquidity conditions
Recent spurt in MSS indicates improvement in liquidity, which the central bank is mopping up. Though there is not a significant pick up in foreign direct investments as against the hyped anticipation for January, this time of the year, there tends to be sizeable provident fund inflow in the system
So far central bank has lapped up forex inflows worth $ 76 bn (nearly Rs 2,18,775 crore). Outstanding MSS amount to nearly Rs 1,77,838 crore against Rs 62,000 crore in April’07
Continuous release of deteriorating US economic data strengthens the expectation of US Fed rate cut. Fed futures discount nearly 1% rate cut by June’07. European and England central banks have held their rates unchanged and may see a cut in second half of the year
It has been extensively debated that emerging markets are decoupled and would sustain unabated growth. Its true that any rate cut is good news for emerging markets including India as the funds flow gets directed to them
However, the exuberance may be short lived as US goes into recession. The problem occurs not because of direct economy linkages but because of financial market linkages. As US economy goes in recession, magnitude of re-pricing would matter, as it will be unidirectional for a prolonged period
Developed markets are expected to under perform the emerging markets while triggering the correction in asset prices globally. Liquidity and risk aversion will continue to push precious metals to higher levels with intermediate corrections
Given sizeable funds targeted from Middle East (e.g. shariat fund), and expected rate cuts in US, India is expected to see huge inflows in coming weeks. This would add to the conundrum of RBI while balancing the interest and currency rates. Economic data would compel RBI to maintain a cautious stand with a softening bias leading to softening of yields
Liquidity conditions turned comfortable as the RBI reversed the spree of unwinding bonds under the Market stabilization scheme (MSS). RBI nearly unwound Rs 18,000 crore bonds during November and December while sold nearly Rs 8,000 worth bonds in first week of January, indicating the return of easy liquidity conditions
Recent spurt in MSS indicates improvement in liquidity, which the central bank is mopping up. Though there is not a significant pick up in foreign direct investments as against the hyped anticipation for January, this time of the year, there tends to be sizeable provident fund inflow in the system
So far central bank has lapped up forex inflows worth $ 76 bn (nearly Rs 2,18,775 crore). Outstanding MSS amount to nearly Rs 1,77,838 crore against Rs 62,000 crore in April’07
Continuous release of deteriorating US economic data strengthens the expectation of US Fed rate cut. Fed futures discount nearly 1% rate cut by June’07. European and England central banks have held their rates unchanged and may see a cut in second half of the year
It has been extensively debated that emerging markets are decoupled and would sustain unabated growth. Its true that any rate cut is good news for emerging markets including India as the funds flow gets directed to them
However, the exuberance may be short lived as US goes into recession. The problem occurs not because of direct economy linkages but because of financial market linkages. As US economy goes in recession, magnitude of re-pricing would matter, as it will be unidirectional for a prolonged period
Developed markets are expected to under perform the emerging markets while triggering the correction in asset prices globally. Liquidity and risk aversion will continue to push precious metals to higher levels with intermediate corrections
Given sizeable funds targeted from Middle East (e.g. shariat fund), and expected rate cuts in US, India is expected to see huge inflows in coming weeks. This would add to the conundrum of RBI while balancing the interest and currency rates. Economic data would compel RBI to maintain a cautious stand with a softening bias leading to softening of yields
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