Economy Watch

Economy News

Indian Economy and Policy Watch as on 03-May-2008

Inflation would see dip over next 2-3 months: Scindia

US Inc. bullish on India as an investment destination

Number of closed sugar mills increases to 113: Govt

RBI optimistic about govt. curbing inflation

CII welcomes RBI`s move to keep policy rates unchanged

RBI seeks to maintain GDP growth with anti-inflation measures: CARE

Pass on the benefits cuts to consumers: PM

IPI gas pipeline project to be finalized within 45 days

GDP growth likely to ease to 7.8% this year: Report

Govt. to take measures to check price rise: FM

ADB faces flak for being oblivious to global food crisis

Indian industry to ally with Govt. for taming inflation

STRIPS to be introduced soon

RBI to keep an eye on credit rating agencies

Govt. to exempt FICCI, CII, Assocham from taxes

US Fed lowers interest rate by 25 bps

Interest rates unlikely to rise in short term- FM

FM asks PSBs to help farmers get out of money lenders trap

No trade-offs against WTO: Kamal Nath

Inflation

Inflation soared to its highest in 42 months, after the WPI rose following price hikes in manufactured goods and primary articles.

The wholesale price index (WPI) soared to 7.57% for the week ended Apr. 19, 2008 as against 7.33% in the previous week.

Rs v/s US $

The Indian rupee weakened on Monday Apr. 28, 2008, ending at 40.16/17 per dollar, weaker than Friday`s close of 40.125/135.

On Apr. 29, 2008, Tuesday, ended at 40.47/48 per dollar, its lowest close since March 18 as compared to Monday`s close of 40.16/17.

On Apr. 30, 2008, Wednesday, ended at 40.50/52 per dollar, its lowest close since March 18, weaker than Tuesday`s close of 40.47/48.

On May 2, 2008, rupee ended at 40.64/65 per dollar, weakest since March 17. It had finished at 40.50/52 on Wednesday and the market was closed on Thursday.

Economy & its sectors

Inflation would see dip over next 2-3 months: Scindia

Minister of State for Communications Jyotiraditya Scindia has said that the government was taking steps to rein in inflation and hoped it would see a dip over the next two to three months.

Jyotiraditya Scindia said the inflation was mainly due to sub-prime crisis in US and the increase in fuel and food prices in the international market. The Minister also noted that India is experiencing approximately 8% annual growth rate. He stressed that there is a need for India to sustain the high growth pattern over a longer period in order to maintain its economic momentum.

Scindia also called for further participation of US companies in inclusive and sustained growth of India by ensuring that every dollar invested was used for social reforms irrespective of rural-urban and income divide.

Addressing the Annual General Meeting of American Chamber of Commerce, Charge d`Affairs of US embassy Steven J White said that greater market and trade access between India and the US would help in accelerating the growth in the two countries. White said that increase of US investment in India by 33% during 2007 was a step in the right direction.

US Inc. bullish on India as an investment destination

Amid global uncertainties, the US Inc. is bullish on India as an investment destination compared to other emerging economies, but wants the country to improve its intellectual property rights regime and infrastructure, a survey said.

The survey conducted by Ernst and Young, which polled members and company executives of the US-India Business Council (USIBC), showed that a large number of respondents rated future economic growth in India as highly sustainable despite uncertainties in other global markets.

Further, a large section of respondents answered in the affirmative regarding their plans to invest in India in order to establish or expand their operations over the next five years.

While the survey pointed out that the Indian economy will continue to attract global investor interest, much needs to be done for it to become more investor-friendly, it suggested. Respondents highlighted the need to improve the ease of doing business in India along with the need to enhance its social, physical and urban infrastructure.

In order to drive investor confidence and lower the risk faced by business establishments, the survey emphasised the need to strengthen the country`s intellectual property regime as compared to other emerging Asian economies.

The ineffectiveness of patent laws, the continuing lack of data exclusivity, and a lack of expedient and effective enforcement mechanisms are causing the country to lose out when it comes to investment in R&D, the survey said. The US-India Business Council represents more than three million businesses and organisations.

Number of closed sugar mills increases to 113: Govt

The government said that the total number of closed sugar mills in the country has increased to 113 this season from 105 last year. While in a majority of the states the number of closed sugar mills remained static or rather declined, in Uttar Pradesh it surged from 14 in 2006-07 to 23 in 2007-08 season.

Minister of State for Food and Public Distribution Akhilesh Prasad Singh said it was the responsibility of the entrepreneur concerned to take steps to restart the closed sugar mills. However, the Sugar Development Rules 1983 provides that a potentially viable sick sugar undertaking can take Sugar Development Fund loan for modernizing or rehabilitation of plant and machinery and sugarcane development, he added.

The Minister said the government is not required to provide alternative employment or financial support to workers rendered jobless due to closure of sugar mills, as the interest of workers employed in closed mills is protected under relevant laws.

Singh said the oil marketing firms have procured 272 million liters of ethanol in 2007-08 and are expected to procure about 595 million liters in 2008-09. It has been estimated that the total production of alcohol is about 3,500 million liters per annum out of which the production capacity of ethanol is about 1500 million liters per annum. During 2007-08 sugar seasons, for an estimated production of 26.2 million tons of sugar, the estimated production of alcohol/ ethanol would be 2800 million liters.

RBI optimistic about govt. curbing inflation

India`s central bank is optimistic that the government will succeed in curbing inflation via a slew of steps undertaken to contain price pressures in the economy, especially incipient high oil prices.

In its report on macroeconomic and monetary developments in 2007/08, RBI revealed its expectations that global food prices were likely to remain steady due to non-abating supply side pressures.

Inflation, as measured by wholesale prices, has surged above 7% on an annual basis to its highest levels in more than three years.

The RBI is expected to leave its key interest rates steady at its annual review on Tuesday. Earlier in April, the central bank announced its plans to raise the cash reserve ratio (CRR), to 8.0% to drain inflation-stoking excess cash from the banking system.Q4 advance tax numbers suggest surprise earnings

Corporate advance tax payments for the Q4 suggests, earnings have been surprising .

Ambuja Cement paid Rs 1.70 billion for Jan. - Mar. 2008 , as against Rs 1 billion in the previous year.

Advance tax payments of Bank of Baroda , Dena Bank , MRPL , increased more than 5 times, while for ICICI Bank , Indusind Bank , Larsen & Toubro , SBI , Reliance , advance tax payment rose to more than 1.5 times.

The advance tax numbers rose approximately 110% as compared to last year. With respect to the 9 Sensex stocks, which have close to 48-49% weightage in the Sensex, their advance tax numbers have gone up nearly 87-88%.

Moreover, surge in tax payments by the corporates have in turn been beneficial for the government .

Recently, the government had come out with `Farm debt wavier for farmers ` scheme for which one of the resources to raise fund for the scheme is through corporate tax payments to the government which is a form of revenue to the center.

CII welcomes RBI`s move to keep policy rates unchanged

CII welcomes RBI`s decision to keep the bank rate, repo rate and the reverse repo rate unchanged in its annual policy statement for the year 2008-09 announced today. CII is confident that CRR hike to suck out liquidity from the system will help RBI`s objective to bring down inflation to around 5.0 - 5.5% without increasing interest rates at this point in time. CII strongly feels that growth should not be sacrificed to control the current inflationary conditions. The move to keep policy rates unchanged will help investments stay on track in the economy, CII said.

CII welcomes RBI`s announcement on Introduction of repo in corporate bonds, as this move will go a long way in developing the corporate bond market. Lack of a foreign currency exchange leaves Indian industry in a disadvantageous position when there is significant volatility in currency markets. CII welcomes RBI`s announcement to introduce currency futures and said that this will help create a formal hedging mechanism for corporations to take positions on foreign currencies.

CII also welcomes RBI`s move to allow Indian companies to invest overseas in energy and natural resources as this will help India secure its future energy needs. RBI`s announcement on extending the timeframe for date of commencement of commercial production in case of infrastructure projects to 2 years from the date of financial closure of infrastructure projects funded by banks is a welcome move and will help infrastructure companies which are currently experiencing time overrun, said CII.

In case of infrastructure projects to be financed by banks, the date of completion of the project should be clearly spelt out at the time of financial closure of the project and if the date of commencement of commercial production extends beyond a period of two years (as against the current norm of one year) after the date of completion of the project as originally envisaged, the account should be treated as sub-standard. The revised instructions are effective from Mar. 31, 2008.

RBI`s GDP growth expectations at 8.0 - 8.5% for 2008-09 augurs well with Industry expectations. With strong macro-economic fundamentals in place, CII confides in RBI`s GDP growth expectations for 2008-09.

RBI seeks to maintain GDP growth with anti-inflation measures: CARE

The Reserve Bank of India (RBI) unveiled its Annual Policy Statement for 2008-09 on the backdrop of moderation in the economic growth witnessed across all three prime sectors, (agriculture, industry and services) accompanied with deceleration in growth of infrastructure sectors (except coal), lower growth rates in major monetary aggregates and comfortable balance of payment positions backed by rising remittances. Excess liquidity prevailing in the system, sky-rocketing inflation and slowing down economic growth were the key areas of focus for the central bank.

RBI`s Monetary Policy Stance

In an attempt to attain the principal objective of price stability while promoting sustainable growth, RBI opted for active demand management for liquidity instead of tightening monetary policy as it might dampen the economic growth further. Hence it undertook measures to suck excess liquidity from the system while keeping key policy rates intact.

Cash Reserve Ratio (CRR) for banks had been hiked by 25 bps to 8.25 percent, effective from the fortnight beginning May 24. The second consecutive hike in the month of April came, even before the first hike of 50 bps fell in place. Thus, the latest hike in the ratio could be seen as an attempt to suck excess liquidity, which is set to climb further with Rs 230 billion worth inflows on account of bond redemption on May 4, along with frequent intervention by RBI in the currency market to prevent rupee rally against dollar.

The bank rate remained steady at 6%, similarly the reverse repo rate and repo rate left unchanged at 6% and 7.75%, respectively.

The bank will also continue to manage inflation-stoking liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the market stabilization scheme (MSS) and the liquidity adjustment facility (LAF) till the first quarter review of the policy scheduled on Jun. 29, 2008.

Other highlights

For the current financial year, the bank expects GDP growth rate to be in the range of 8-8.5%, lower than the government`s advance estimates of 8.7% for 2007-08.

As a part of its liquidity management agenda and keeping in the view of monetary overhang that exists in the system at present, money supply (M3) growth targets have been reduced to 16.5-17% for the current financial year from 17-17.5% in the previous financial year.

Further based on an overall assessment of the sources of funding and the overall credit requirements of the various productive sectors of the economy, it also reduced the targeted growth rate in nonfood credit to 20% for 2008-09, as against the previous year`s comfort zone of 24-25%.

On the other hand, it revised its inflation target in northward direction to 5.5% for 2008-09, from 5% in 2007-08, indicating towards inflationary pressure that might sustain in the economy for the current year.

Developmental and Regulatory Policies

On the event of the annual policy, RBI laid a roadmap to strengthen the Indian financial system in all possible dimensions with several proposals. These include, a proposal to introduce separate trading of registered interest and principal of securities (STRIPS) in government securities by the end of 2008-09 and a proposal to establish a clearing and settlement arrangement for over the counter (OTC) rupee derivatives

Currency futures will be introduced in consultation with the capital market regulator- SEBI. Oil refining companies to be allowed to hedge price risk in overseas markets on domestic purchase of crude oil and sale of petroleum products based on underlying contract which are linked to international prices on overseas exchanges/markets on the basis of their past performance up to 50% of the volume of actual imports during the previous year or 50% of the average volume of imports during the previous three financial yeas, whichever is higher.

In addition, Indian companies will be allowed to invest overseas in energy and natural resources sectors and asset classification norms for credit to infrastructure projects have also been relaxed. RBI intends to carry out supervisory review of banks` exposure to the commodity sector.

The limit of bank loans to individuals for housing having lower risk weight of 50% has been enhanced from Rs 2 million to Rs 3 million. As a result, the banking sector is less likely to revise the home loan rate up, despite tightening liquidity through two consecutive CRR hikes.

The central bank has struck the delicate balance between maintaining the GDP growth, while attempting to contain inflation and inflationary expectations.Net Int`l Investment Position declines by USD 11.51 bn to USD 68.72 bn as at end-Sep.`07

Pass on the benefits cuts to consumers: PM

The Prime Minister, Dr. Manmohan Singh, has called upon the trade and industry to take steps for absorbing the rise in input costs to maintain the price line.

Addressing the Annual General Body meeting of the Confederation of Indian Industries (CII) in New Delhi today, the Prime Minister said that the industry must also pass on the benefits of tax and duty cuts to consumers.

``The prospects for domestic growth remain good if we can ensure price stability that will help sustain the growth momentum,`` he added.

Referring to the sharp rise in world oil prices, the Prime Minister said that this has the effect of redistributing incomes away from oil importing developing countries to oil exporting countries.

IPI gas pipeline project to be finalized within 45 days

Raising hopes on the finalization of the much-delayed Iran-Pakistan-India gas pipeline, Iranian President Mahmoud Ahmadinejad has said that the discussions on implementation of the project will be completed within 45 days.

He said that the decision to conclude all agreements within the specified time was taken at a meeting between him and Prime Minister Manmohan Singh. Describing the project as a peace pipeline among the three countries, Ahmadinejad said the project had social, political and economic implications for Iran, Pakistan and India.

The USD 7.4 billion project that is to supply natural gas from the Persian Gulf to energy-hungry nations has been pending finalization for more than four years because of differences over cost issues.

On the proposal to extend the pipeline to China, Ahmadinejad said, it has to be evaluated on merits. He, however, did not give any assurance on the USD 22 billion Liquefied Natural Gas, LNG bilateral import deal New Delhi had signed with Tehran in 2005.

GDP growth likely to ease to 7.8% this year: Report

With strong government spending and investment activity, the global slowdown will only have a modest effect on the Indian economy, whose GDP growth is expected to ease to 7.8% this year, global credit rating agency Moody`s has said, in a report.

But the report also said that India`s GDP growth will rebound to 8% the following year, as the global economy rebuilds momentum. The report noted that slowing exports and tight monetary policy are the key downside risks to India`s economic expansion this year.

But the government`s current priority to improve infrastructure and reduce poverty will witness strong demand for workers, and household income will grow at a solid pace this year. However, strong inflation, coupled with high borrowing costs will weigh on household budgets and dampen consumer spending.

Govt. to take measures to check price rise: FM

The Finance Minister, P.Chidambaram has said that the Reserve Bank of India`s monetary policy and the fiscal measures announced by him in Parliament will help contain inflation.

Chidambaram said, the RBI decision to raise Cash Reserve Ratio by 25 basis points will help in sustaining high growth. He said, steps taken in the last three weeks on the food front has improved the situation. Government will take more administrative measures to check price rise, he added.

Earlier, he announced the reduction in customs duty on steel from 5-3%, on milk powder from 15-5% and butter oil from 40-30%. He said, export duty on basmati rice has been hiked and it will charged at Rs 8,000 a ton.

He asserted that food production in the country will touch record levels and there is no question of shortage. Chidambaram said that with the record production of food grains, public distribution system will be strengthened to address the concerns of the people living below poverty line.

Referring to subsidies, he said, the government will keep reviewing them, but maintained that subsidies on food, fertiliser and power for irrigation are necessary. He also said that government wants to continue the subsidies on fuel, despite hike in international crude price. On tax front, the Finance Minister said, the GDP tax ratio will touch a new high this year with a widened tax base.

ADB faces flak for being oblivious to global food crisis

The Asian Development Bank (ADB) has scheduled its annual meeting this weekend in Madrid, in view of the global food crisis that has led to stinging criticism of its international governors for its inability to foresee it.

The United States, which with Japan is the ADB` largest shareholder, took the unprecedented recent step of voting against its long-term strategic plan, which is also on the agenda for the meeting.

The soaring price of basic foods like rice has led to a supply crunch that is worrying governments and leading to concerns of popular unrest. ADB president Haruhiko Kuroda warned recently that soaring food prices has been a setback to Asia`s fight against poverty, and countries might have to seek foreign aid for combating the food crisis.

The rises are attributed to higher energy and fertiliser costs, greater global demand, droughts, the loss of rice farmland to biofuel plantations and price speculation.

While the ADB boasts of some spectacular progress over the last 40 years in poverty reduction, most notably in China, the region is still home to some 600 million people living on less than a dollar a day, comprising two thirds of the global population.

Bruce Tolentino, director for economic reform and development with the Asia Foundation said, ``Agriculture has clearly been neglected by governments and international institutions alike for at least two decades and the world is now suffering the results of such neglect. But unfortunately it is a weakness common to many institutions, including the ADB, that the left hand doesn`t know what the right hand is doing and vice versa.``

Critics of ADB claim that its loan conditions pressurizes governments to deregulate and privatize agriculture, leading to problems such as the rice supply crunch. Further, it was alleged that ADB tended to weaken farmers` livelihood and had urged the privatization of the National Food Authority. ADB also wanted to replace the restrictions on rice imports with a system of tariffs, and cancelled a USD 175 million loan when Manila failed to act accordingly.

Indian industry to ally with Govt. for taming inflation

The Indian industry has decided to comply with the prime minister`s appeal asking the industry to assist the government in moderating inflationary expectations as its `societal obligation`.

The finance minister`s assertion that the government would take necessary administrative measures, if the industry did not take adequate steps to check prices was also taken seriously as the industry agreed to face the repercussions for acting irresponsibly.

ICICI Bank managing director and CEO K V Kamath retorted, ``The industry needs to look at inflation in a responsible manner and should be prepared to do whatever it can. The PM and the FM made clear that the government is against cartelisation, and so is CII. It`s time we start behaving responsibly, or be ready to face the consequences.``

Bharti Enterprises chairman and outgoing CII president Sunil Mittal said, ``The government move to reduce duties on several items should have a positive impact on inflation. As a statesman, the PM should expect the industry to assist. And if the government is willing to show the way, I think the industry will respond well and participate in bringing price stability. Reducing demand would not be the answer. Rather, we should rather celebrate demand and ensure an equal flow of supply.``

When asked about the PM`s call to pass on the benefits of tax and duty cuts to consumers, Godrej & Boyce Manufacturing Co. chairman and MD Jamshyd N Godrej said, ``In our sector, the rise in input prices have been much more than what was passed on to the consumers.``

Hero Honda Motors CEO Pawan Munjal agreed with him and added, ``The automobile industry has been tremendously hit by the rise in input costs. We have passed on as little burden as we can to the consumers. Every duty cut that was provided to the industry has benefitted the consumers too.``

At the same time, industrialists acknowledged the fact that some players have permitted prices to rise to reap short term profits.

STRIPS to be introduced soon

Separate trading of registered interest and principal securities (STRIPS) will soon be introduced, making it possible for bond traders to separate the interest payment from principal in bonds and sell each separately.

Investors with long-term perspective will buy the principal bond, while those looking for regular income will buy coupons.

As per the annual policy review of the Reserve Bank of India (RBI), STRIPS in government securities may be introduced by the end of 2008-09 and the NDS platform of the public debt office would be used to reconstitute these securities.

However, bond traders are dubious as such announcements have been made by the RBI in the past, but were never implemented. Also, there are several other measures that need to be taken care of before STRIPS could be introduced formally.

ICICI Securities head of G-sec trading, Piyush Wadhwa said the move will impart greater liquidity to all sections of the market.

RBI to keep an eye on credit rating agencies

The Reserve Bank of India (RBI) has stepped up its vigil on credit rating agencies, following the recent turmoil in global financial markets.

The central bank has told local rating agencies to implement the revised IOSCO code of conduct fundamentals for credit rating agencies, which will enable them to manage conflicts of interest in rating structured products and improve the quality of the rating process.

The regulator has told rating agencies to differentiate ratings on structured credit products from ratings of bonds and to expand the information they provide. The regulator will also review the roles given to ratings in regulations and prudential frameworks.

The central bank has prohibited banks from `cherry picking` the assessments provided by different credit rating agencies. It wants banks to use the chosen credit rating agencies and their ratings consistently for each of claim, for both risk weighting and risk management purposes.

If a bank has decided to use the ratings of some of the chosen credit rating agencies for a given type of claim, it can use only the ratings of those credit rating agencies, despite the fact that some of these claims may be rated by other chosen credit rating agencies whose ratings the bank has decided not to use. External assessments for one entity within a corporate group cannot be used to risk weight other entities within the same group.

Govt. to exempt FICCI, CII, Assocham from taxes

The government has revealed that industry chambers like FICCI, CII and Assocham will continue to enjoy tax exemptions and will not be affected by changes in the taxation structure for charitable institutions.

Commenting on the development, FICCI Secretary General Amit Mitra said, ``We are very pleased at the Finance Minister`s clarification. But we look forward to commensurate notification, echoing what he has said.``

Following the changes announced in the Finance Budget for 2008-09 pertaining to the extension of the ambit of the provisions concerning charitable institutions, doubts were raised whether chambers would also come within the tax net.

The Finance Bill, 2008 sought to amend the definition of term `charitable purpose` to exclude any activity that is in the nature of trade, commerce and business.

However, the finance minister revealed that the government is to limit the tax benefits to entities engaged in relief to the poor, education and medical relief or any other genuine charitable purpose and will deny the exemptions to purely commercial and business entities falsely claiming to be charitable.

US Fed lowers interest rate by 25 bps

The Federal Open Market Committee (FOMC) on Wednesday lowered interest rates by a quarter percentage point or 25 bps to 2%.

``The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability,`` the Fed said.

Interest rates unlikely to rise in short term- FM

Finance Minister P. Chidambaram said that he does not expect interest rates to go up in the reasonable future following the Reserve Bank of India`s move to hike mandatory deposits of banks by 0.25%.

He also expected loans to housing sector to increase without impacting interest rates as the Reserve Bank made changes in the housing loan portfolio norms.

Chidambaram said that he has asked the banks to review their derivative portfolio and ensure that customers understand the products. He said that the banks were particularly happy that there has been some changes in policy regarding housing loans.

Now banks have greater freedom to lend up to Rs 5 million. Loans to individual housing sectors grew by 16.44% to touch Rs 1,484.89 billion as on March, against Rs 1,275.22 billion a year-ago.

FM asks PSBs to help farmers get out of money lenders trap

The Finance Minister P. Chidambaram has asked the Public Sector Banks (PSBs) to pull out farmers from the clutches of money lenders by converting their debts into bank loans. He said that the banks must concentrate on taking over money lenders loans to farmers and swap them for bank loans.

Chidambaram said that the figures showed that a small amount of Rs 1.05 billion has been so far swapped in this way and by the next year more accurate data will come. He said, loan growth by banks is likely to be slightly higher than Reserve Bank of India`s projection of 20% this fiscal.

He also asked the bankers to see that every branch in every village and semi-urban areas lend at concessional rates to the poor engaged in small occupations, like the barbers and the washermen.

Easing concerns of banks raising interest rates, Finance Minister said that he does not expect an increase in interest rates in near future. He said that advances to various sectors like agriculture, small and medium enterprises and education have shown considerable improvement.

He said, while agricultural loan has increased by 23.33%, the small and medium sector loans have shown an increase of over 36%. He further stated that 1.25 million individual educational loans amounting to about Rs 200 billion have been disbursed till 31, Mar. 2008.

No trade-offs against WTO: Kamal Nath

New Delhi has reiterated that the interests of poor farmers in the country will not be traded off against any gains in the WTO negotiations.

The Union Minister of Commerce and Industry Kamal Nath told the Parliamentary Consultative Committee that safeguarding the interests of farmers remains paramount for India, in the Agriculture negotiations.

Kamal Nath also informed the committee that negotiations have reached a critical stage and a Ministerial level meeting is likely to be held towards the end of May.

On non-agricultural market access (NAMA), the Union Minister said that protecting sensitive tariff lines from the impact of tariff reductions or bindings is crucial for safeguarding livelihood and employment concerns in the developing world.

Commenting on service matters, he said, negotiations are underway and India is very keen to take it forward as services contribute to more than 55% of the country`s GDP and a substantial portion of our trade.

External sector

Forex reserves drop by USD 663 mn

Forex reserves dropped USD 663 million to touch USD 312,871 million as on Apr. 25, 2008, mainly due to the decline in foreign currency and assets collections, on a weekly basis.

As per the weekly statistical supplement of the Reserve Bank of India (RBI) released on May 02, 2008, foreign currency and assets fell USD 660 million to USD 302,328 million.

During the same period, the reserve position in the International Monetary Fund (IMF) dropped by USD 3 million to USD 486 million, while gold reserves stood flat at USD 10,039 million.

Foreign currency assets expressed in USD include the effect of appreciation or depreciation on non-US currencies (such as Euro, Sterling and Yen) held in reserves.

Money & Banking

Rupee ends weakest since March 17

The Indian rupee weakened on Monday Apr. 28, 2008,, paced by dollar buying by oil firms, ahead of the central bank`s policy review for cues on the currency`s course. The partially convertible rupee ended at 40.16/17 per dollar, weaker than Friday`s close of 40.125/135.

On Apr. 29, 2008, Tuesday, the rupee dropped to a six-week low, due to defence payment and dollar purchases by oil refiners.It ended at 40.47/48 per dollar, its lowest close since March 18 as compared to Monday`s close of 40.16/17.

On Apr. 30, 2008, Wednesday, the rupee fell to a fresh 6-week low on Wednesday, due to dollar buying by oil refiners and anticipations regarding the U.S. Federal Reserve`s interest rate decision, that was to feature later in the day.The partially convertible rupee ended at 40.50/52 per dollar, its lowest close since March 18, weaker than Tuesday`s close of 40.47/48.

The Indian rupee fell to a 1½ month low on Friday, but then trimmed losses as banks liquidated some of their long dollar positions and exporters cashed in their holdings.

The partially convertible rupee ended at 40.64/65 per dollar, off an intraday low of 40.78, which was the weakest since March 17. It had finished at 40.50/52 on Wednesday and the market was closed on Thursday.

Gilt yields shed 31 bps during the week

Indian federal gilt yields fell on Monday, the 10-year high gilt dropping to one-week lows, ahead of expectations that the central bank would raise interest rates at a policy review on Tuesday.

In the beginning of the day, the 8.24% 2018 bond was at 8.13%, down from 8.15% on Friday, at its lowest level since April 21. The 7.99% 2017 bond was at 8.14%, below Friday’s close of 8.19%.

The gilt yields receded sharply on Tuesday, fuelled by the central bank`s policy review which left interest rates unchanged, but raised banks` reserve requirement to tame inflation. The yield on the 10-year gilt ended at 7.94%, its lowest since the security was issued on April 21, and lower than Monday`s close of 8.14%.

The yields continued to decline for the third consecutive day this week, on Wednesday, led by expectation that interest rates may have peaked and anticipations regarding the US Federal Reserve`s rate decision, later in the day.The 10-year federal gilt yield ended at 7.92%, off an early trough of 7.90%, its lowest since the security was issued on April 21 and lower than Tuesday`s close of 7.94%.

Indian federal gilt yields fell to their lowest in more than a month on Friday, as the inflation reached its 3½ year peaks despite central bank`s steady lending rate. The 10-year gilt yield ended at 7.84%, which was its lowest since March 27, and below the previous close of 7.92%. The yield has fallen 31 basis points this week.

Call rates move in a range

Overnight call rates rose after declining significantly and ranged between 5.50-7.50% on April 26. Weighted average rate (WAR) climbed to 6.57% on April 26 as compared to 5.60% on the previous working day. The total turnover of the call market stood at Rs 13.77billion on April 26, higher than Rs 2.58 billion on April 25.

Overnight rates climbed for the second consecutive day and declined ranging between 4.80-6.25% on April 28. Weighted average rate (WAR) declined marginally to 6.09% on April 28 as compared to 6.57% on the previous working day. The total turnover of the call market stood at Rs 17,203 billion on April 28, higher than Rs 13.77 billion on April 26.

Overnight rates ranged between 4.75-6.40% on April 29. Weighted average rate (WAR) rose marginally to 6.20% on April 29 as compared to 6.09% on the previous working day. The total turnover of the call market stood at Rs 172.19 billion on April 29, slightly higher than Rs 172.03 billion on April 28.

Overnight call rates ranged between 5.00-6.30% on April 30. Weighted average rate (WAR) stood steady at 6.19% on April 30 as compared to 6.20% on the previous working day. The total turnover of the call market stood at Rs 182.12 billion on April 30, slightly higher than Rs 172.19 billion on April 29.

Stock Markets

Weekly Wrap up: Sensex adds 474 points in the week

The 30-share index, Sensex, added 474.14 points, or 2.76% to 17,600.12 in the week ended May 02, whereas the broad based NSE Nifty advanced 116.5 points, or 2.27% to 5,228.20 in the same period. BSE mid-caps and small-caps climbed 2.56% and 1.07% respectively over the week.

On Monday, Markets opened on a buoyant note with a positive gap of 125.58 points to scale a high of 17,251.56. However, profit booking ahead of Reserve Bank of India`s (RBI) annual monetary policy meet forced the index to give away gains to touch a low of 16,978.89. The Sensex traded in the narrow range as traders adopted cautious approach. The market was anticipating more tightness as inflation rose to 7.33% for the week ended April 12.

The 30-share BSE Sensex finally closed down 110.02 points, or 0.64%, at 17,015.96; while the broad-based NSE Nifty closed at 5,089.65, down 22.05 points, or 0.43%.

On Tuesday, Market opened on an apprehensive note and touched a low of 17,011.60 ahead of the crucial RBI meeting. However, the markets rallied led by realty, IT and Metal stocks after the RBI announced that key rates have been unchanged.

The RBI left the bank rate, reverse repo rate and repo rate unchanged and increased the CRR rate by 25 bps to 8.25%. The BSE`s benchmark index touched an intra-day high of 17,424.94.

The 30-share BSE Sensex finally closed up 362.50 points, or 2.13%, at 17,378.46; while the broad-based NSE Nifty closed at 5,195.50, up 105.85 points, or 2.08%.

On Wednesday, after opening on a positive note, Sensex, later slipped into negative territory due to lack of buying from investors ahead of US Federal Reserve meeting and a holiday on Thursday. DLF, Grasim Industries and HDFC led the fall in the market.

The 30-share BSE Sensex closed down 91.15 points, or 0.52%, at 17,287.31; while the broad-based NSE Nifty settle at 5,165.90, down 29.60 points, or 0.57%.

On Thursday, the BSE Sensex was closed on account of Maharashtra Day.

On Friday, The 30-share benchmark index Sensex, opened on a buoyant note with a positive gap of 272.84 points following encouraging global cues and heavy buying from overseas investors. The index maintained its momentum in the noon trades on the back of sustained buying interest in pivotal stocks. Finally, the Sensex gained further strength and closed on a strong note after touching an intraday high of 17,621.24.

The 30-share BSE Sensex ended the day with a hefty gain of 312.81 points, or 1.81% at 17,600.12; while the broad-based NSE Nifty settled at 5,228.20, up 62.3 points, or 1.21%.

Economy News

Inflation soared to its highest in 42 months, after the WPI rose following price hikes in manufactured goods and primary articles. The wholesale price index soared to 7.57% for the week ended Apr. 19, 2008 as against 7.33% in the previous week.