Macroeconomics Newsletter 17th-21st SectionB Group8
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Transcript of Macroeconomics Newsletter 17th-21st SectionB Group8
Submitted by: Group 8 Abhishek Jayant
M069/14
Adarsh K A M
M070/14
Ainnie Abbas
M072/14
Akanksha Gupta
M073/14
Bibhas Mishra
M087-14
Chinkal Nagpal
M092-14
November 17 -November 21
Newsletter
17th
Nov 2014
Moderate inflation a passing phase: Economists
A monsoon deficit is likely to affect the agriculture output, which could have an impact
on the food inflation
The sharp fall in inflation over the past few months has raised the
clamour for interest rate cuts. With the Consumer Price Index-
based inflation falling to 5.5 per cent in October from 6.5 per cent a
o th ago, is elo the e t al a k’s ta get of si pe e t January 2016, the pressure on the Reserve Bank of India (RBI) to
loosen monetary policy is mounting. While so far RBI resisted
pressure to reverse its stance, the decision to cut interest rates is
likely to be guided by whether the moderation in inflation is
transitory.
The recent slowing in retail inflation has been driven largely by food inflation, which fell from 7.7 per cent in
September to 5.6 per cent in October, due to lower prices of fruits, vegetables and sugar. According to CRISIL,
The seaso all adjusted o th o o th o e tu i food i flatio as uted at 0.0 pe e t. This suggests the recent decline was largely due to the strong base effect.
http://www.business-standard.com/article/economy-policy/moderate-inflation-is-a-passing-phase-
economists-114111501551_1.html
Banks cut lending on gold as prices fall
Banks have swung into action as gold prices continue to slide.
Reduced loan-to-value ratio (LTV), cautious lending, and a close
monitoring of the gold loan portfolio have prompted them to hedge
their loan books against the reduction in prices.
The yellow metal has lost 14.5 per cent in the past year and fallen to
Rs 26,660 for 10 gm from Rs 31,190 for 10 gm a year ago. In the past
six months, the speed of slide has increased, with gold losing 10 per
cent.
To safeguard themselves, lenders have reduced the LTV (the part that can be given as loan) on gold. For
instance, Federal Bank was earlier financing up to 70-75 per cent of LTV on gold ornaments, and has reduced
it to around 60 per cent for a one-year tenure.
http://www.business-standard.com/article/finance/banks-cut-lending-on-gold-as-prices-fall-
114111700031_1.html
Spotlight on Europe's economy
As large parts of Europe's economy grind almost to a halt,
attention will focus this week on the latest assessments of
business confidence in the euro zone and Germany, which
has just narrowly avoided a recession.
While the United States economy has accelerated and China
holds a slower but steady course, euro zone countries have
remained sluggish, with overall growth in output slowing to
a trickle.
"The euro zone is the best part of 20 per cent of the global
economy," James Knightley, an economist with ING, said.
"The longer the stagnation goes on the more Japan-like it becomes."
The euro zone's problems have raised expectations that the European Central Bank is preparing to loosen its
purse strings further to try to rekindle growth.
Against this backdrop, Germany's Centre for European Economic Research's (ZEW) monthly barometer of
sentiment, due on November 18, will provide more insight into business confidence levels. The Ukraine crisis is
a major drag on business and investor sentiment, especially as there have been new reports of Russian troops
pouring into eastern Ukraine.
http://www.business-standard.com/article/international/spotlight-on-europe-s-economy-
114111700023_1.html
Germany wants to help India in Ganga rejuvenation plan
The European nation has an impressive record in cleaning its rivers and has
expressed readiness to join hands with the issue here
Germany is the latest country to show interest in the Narendra Modi government's Ganga rejuvenation plan.
The European nation has an impressive record in cleaning its rivers and has expressed readiness to join hands
with the issue here.
A team from Germany recently visited India and met finance ministry officials. It showed interest in getting
exposure on public-private partnership (PPP) practices in India, including pilot schemes.
In September, the government of Australia had offered to support the Ganga rejuvenation effort. The two
prime ministers had announced an extension of their agreement on water cooperation. India is also receiving
financial and technical aid from Japan for cleaning the river Earlier, Modi had called for making Ganga
rejuvenation a mass movement. He wanted action plans to unite the strength of various sections of society
dedicated to "Ganga Seva." He said the first priority in this mission should be to stop fresh generation of
pollutants.
http://www.business-standard.com/article/economy-policy/germany-wants-to-help-india-in-ganga-
rejuvenation-plan-114111700028_1.html
18th Nov 2014
Kisan Vikas Patra to be relaunched today; money to double in 100 months
The government will relaunch the Kisan Vikas Patra scheme on Tuesday,
hoping to lure investors away from gold and fraudulent schemes by
offering attractive terms. There won't be any upper limit on investments,
the minimum denomination being Rs 1,000.
Investors will be able to double their money in 100 months but the
government has bundled in a number of features to enhance liquidity of
the instrument as the new regime looks to raise the level of financial
savings that fell to 7.1 per cent of GDP in FY13 from more than 12 per cent in FY10.
http://economictimes.indiatimes.com/articleshow/45179825.cms?utm_source=contentofinterest&
utm_medium=text&utm_campaign=cppst
India readies new steps to curb surge in gold imports – source
India is likely to announce new measures to curb gold imports as early as Tuesday, a senior finance ministry
source said, and they could include restrictions on a group of private trading firms that have been allowed to
bring in the precious metal.
Shipments to the world's second-largest gold buyer jumped fourfold in October from a year earlier to $4.18
billion, raising concern about India's fragile balance of payments.
Officials from the finance ministry and Reserve Bank of India (RBI) were considering whether to reimpose
import restrictions on "star trading houses" that were eased earlier this year.
http://in.reuters.com/article/2014/11/18/india-gold-imports-idINKCN0J20D720141118
Japan in recession as economy contracts 1.6%
Japan's economy unexpectedly slipped into recession in the third quarter,
setting the stage for Prime Minister Shinzo Abe to delay an unpopular
sales tax hike and call a snap election two years before he had to go to
the polls.
The recession comes nearly two years after Abe returned to power
promising to revive the economy with his "Abenomics" mix of massive
monetary stimulus, spending and reforms, and is unwelcome news for an
already shaky global economy.
Gross domestic product (GDP) shrank by an annualised 1.6 per cent in July-September, after plunging 7.3 per
cent in the second quarter following a rise in the national sales tax, which clobbered consumer spending.
The world's third-largest economy had been forecast to rebound by 2.1 per cent, but consumption and exports
remained weak, saddling companies with huge inventories to work off.
http://economictimes.indiatimes.com/articleshow/45172350.cms?utm_source=contentofinterest&
utm_medium=text&utm_campaign=cppst
19th Nov 2014
Japan LNG imports to fall 'a little' in 2015: Government official
Japan's 2014 liquefied natural gas (LNG) imports will drop off "a
little" in 2015 as nuclear power plants resume operations, a
government official said on Wednesday, the first decline since the
Fukushima crisis in 2011. LNG use by the world's largest importer of
the fuel has surged since the crisis led to the shutdown of all the
Japan's nuclear power generation, sending prices up sharply. The first
nuclear plants are expected to come back online next year, but a
Reuters survey of Japanese utilities showed they would cut more
expensive fuel oil and crude generation before gas-fired plants.
Earlier this month regional authorities in Japan approved the restart of the idled Sendai nuclear plant, paving
the way for a revival of some of the 48 offline reactors.
http://economictimes.indiatimes.com/news/international/business/japan-lng-imports-to-fall-a-
little-in-2015-government-official/articleshow/45206694.cms
European Union insurance watchdog warns on "undue" investment incentives
The European Union's (EU) top insurance watchdog on Wednesday
warned against giving insurers strong enticements to invest in
particular asset classes, saying this would run counter to prudent
supervision. "We need to emphasise continually that undue
incentives to buy any asset class should not be part of a risk-based,
prudent regime," Gabriel Bernardino said in the text of a speech to a
financial conference. European politicians want insurers to put more
of their 8.5 trillion euros in assets under management into
investments that will boost the bloc's economy.
http://economictimes.indiatimes.com/news/international/business/european-union-insurance-
watchdog-warns-on-undue-investment-incentives/articleshow/45204472.cms
UK households less worried about finances as inflation fades
British households felt less worried about their finances in November as concerns about inflation eased to
their lowest level in more than five years and earnings continued to recover, a monthly survey showed on
Wednesday. The Markit Household Finance Index rose to 42.7, up from 41.8 in October but still comfortably
below the 50-mark, which separates pessimism from optimism. Income from employment grew for the fourth
month in a row, reflecting a slow pick-up in earnings seen in official data. The BoE said last week that it was in
no hurry to raise borrowing costs as inflation was likely to hit its 2 per cent target only in about three years'
time.
http://uk.reuters.com/article/2014/11/19/uk-britain-employment-markit-idUKKCN0J30R520141119
Government needs to infuse nearly $39 billion in state-run banks by March 2019: SS
Mundra, RBI
The Expenditure Management Commission (EMC), which has been asked to suggest ways to reduce subsidies,
will submit its interim report by early January, the panel's chief Bimal Jalan said today. The subsidy bill on food,
petroleum and fertilisers is estimated at Rs 2,51,397.25 crore for 2014-15, up 2.47 per cent over the previous
fiscal. It was Rs 2,45,451.50 crore in the revised estimates for 2013-14.
http://articles.economictimes.indiatimes.com/2014-11-19/news/56265466_1_state-run-
banks-indian-banks-important-banks
PFRDA seeks bankers help to promote pension in country
Pension fund regulator PFRDA today asked bankers to promote
pension through various schemes and advised them to meet
the target for selling Swavalamban Scheme within the
stipulated time. Only 12 % of the working population are
covered under formal pension system.The target of opening of
70 accounts per branch, amounting to a total target of 56 lakh
Swavalamban accounts for the 2014-15, he said.Speaking at a
conference of aggregators organised by PFRDA, he said, the
objective is to focus on progress of Swavalamban accounts
opened by public sector banks/regional rural banks/MFI's and
NBFCs working as aggregators to old age.
http://economictimes.indiatimes.com/news/economy/finance/pfrda-seeks-bankers-help-to-promote-pension-in-
country/articleshow/45194469.cms
US crude inventories rise unexpectedly on rising imports
US crude stockpiles rose last week, against the consensus expectation for a draw in inventories, as imports
rose, data from the Energy Information Administration showed on Wednesday. Crude inventories rose 2.6
million barrels in the week to Nov. 14 , compared with analysts' expectations for a decrease of 780,000 barrels,
as crude imports rose 761,000 barrels per day, according to the data. Crude stocks at Cushing, Oklahoma, the
delivery hub for the New York Mercantile Exchange USlight sweet crude contract , rose 718,000 barrels, the
EIA said. Crude futures seesawed after the data.
http://www.reuters.com/article/2014/11/19/energy-eia-oil-idUSL2N0T91HL20141119
20th Nov 2014
PE investments up 27% to $3 billion in July-September quarter: Report
Private equity investments in the country rose 27 per cent to $3.01
billion in the July-September period, the fifth consecutive quarter of
upswing, says a PwC report. Compared with the same period last
year, the value of deals rose by 97 per cent despite a 9 per cent
reduction in volume. In Q3 2013, the value of investments stood at
$1.53 billion from 113 deals. "Growth has been driven by
advancements in technology - increasing adoption of devices like
smartphones and tablets, and easy access to Internet has led to rise
in online consumer base," PwC India Technology leader Sandeep
Ladda said.
http://economictimes.indiatimes.com/articleshow/45215770.cms?utm_source=contentofinterest&utm_medi
um=text&utm_campaign=cppst
Hard to hit tax revenue target this fiscal year, credit weak: Arun Jaitley
Finance Minister Arun Jaitley said on Friday it would be hard to hit tax revenue targets in this fiscal year, with
weak credit demand underscoring his concern about the state of the economy. With domestic investment
weak, Jaitley told the Hindustan Times Leadership Summit that foreign investment was all the more important,
pointing to interest in the defence and railways sectors that the government has opened up.
http://economictimes.indiatimes.com/articleshow/45229587.cms?utm_source=contentofinterest&utm_medi
um=text&utm_campaign=cppst
Creaking euro zone, China sound warnings for global growth
Surveys sounded warning bells for the global economy on
Thursday as euro zone businesses grew less quickly than any
forecaster expected and China's factories lost momentum.
The downbeat data, alongside evidence of further price-
cutting, will add to calls for more policy action from the
European Central Bank, while the first drop in Chinese
manufacturing output for six months will heap similar pressure
on authorities in Beijing.
Euro zone prices rose 0.4 percent in October, well below the
ECB's target of just under 2 percent and stuck firmly in what it
terms the inflation danger zone.
To keep the region from slipping into deflation, the ECB has been pumping money into the banking system by
buying covered bonds and offering cheap long-term loans to banks.
China's annual growth slowed to 7.3 percent in the third quarter, leaving 2014 on track to be the slowest in 24
years.
The Markit/JMMA version of Japan's PMI was more mixed. While the headline index edged down to 52.1 in
November, from 52.4 in October, output expanded at its fastest clip in eight months.
Policymakers were taken by surprise earlier this week when data showed the economy fell into recession in
the third quarter, underlining the necessity of the Bank of Japan's super-loose policy and sending the yen to
fresh lows.
http://economictimes.indiatimes.com/articleshow/45218534.cms?utm_source=contentofinterest&utm_medi
um=text&utm_campaign=cppst
Rupee tumbles to nine-month low, tracking broad dollar strength
The rupee dropped to a nine-month low against the US currency in
intraday trade today; slipping below 62 levels.
The Indian currency ended the day at 61.94 as against yesterday's
closing level of 61.96 at Interbank Foreign Exchange market.
Strengthening dollar overseas and higher importers' demand
weighed heavily on the rupee movement, dealers said.
In the New York market, the US dollar was trading strong against its
major rivals and the Japanese yen slid to a seven ..
http://economictimes.indiatimes.com/articleshow/45213263.cms?utm_source=contentofinterest&utm_medi
um=text&utm_campaign=cppst
Government likely to introduce differential export duty for iron ore
Government is likely to introduce differential export duty on iron ore
under which producers of low-grade raw material will pay lower rates, a
move that will help struggling miners, especially in Goa.
The proposal, if implemented, would see government charging different
rates for exports of varied grades of iron ore rather than the present
uniform rate of 30 per cent, a highly placed source said.
http://economictimes.indiatimes.com/articleshow/45220819.cms?utm_source=contentofinterest&utm_medi
um=text&utm_campaign=cppst
Time for monetary easing; RBI rate cut won't reverse inflation downtrend: Arvind Virmani
Stating that cutting interest rates will not reverse inflation
downtrend, RBI Adviser Arvind Virmani on Thursday said,
"Benchmark rate needs to be cut." "The Consumer Price Inflation
(CPI) is firmly on a downtrend. It is time for monetary easing,"
Virmani said.
According to Virmani, there is 51% probability that CPI will be less
than 7% by March. He is also of the opinion that the chances of
meeting 4.1% fiscal deficit target have 'gone up'.
http://economictimes.indiatimes.com/articleshow/45213663.cms?utm_source=contentofinterest&utm_medi
um=text&utm_campaign=cppst
21st
Nov 2014
Forward Markets Commission tightens rules for warehousing service providers
ommodity market regulator Forward
Markets Commission, or FMC, has
strengthened the warehousing
accreditation norms to avert an occurrence of an
NSEL-like scam in the commodity futures market.
The new norms will take effect after March 31,
2015 and the existing warehouse service providers
(WSPs) in their current format will not be allowed
to operate in the exchange space beyond June 30,
2015.
The WSP should be a corporate body with a
professional management and have a minimum
net worth of Rs 25 crore, which may be relaxed to
Rs 10 crore for warehouses providing services for a
single commodity at a particular location. The WSP
shall furnish security deposit, to be monitored
daily visa-vis value of goods, in the prescribed
format by the exchange equal to 3 per cent of
value of goods less than or equal to Rs 250 crore, 4
per cent of value above Rs 250 crore and equal to
Rs 500 crore and 5 per cent of value above. 500
crore of goods stored in warehouse.
http://economictimes.indiatimes.com/articleshow
/45236647.cms?utm_source=contentofinterest&u
tm_medium=text&utm_campaign=cppst
Sensex, Nifty hit record, banks surge on Kotak-ING deal
The BSE Sensex and Nifty soared to record highs
on Friday as lenders surged after Kotak Mahindra
Ba k’s a uisitio of ING V s a spa ked hopes fo further consolidation in the sector, while
expectations of more reforms ahead of the winter
session of parliament also helped. The Bank Nifty
surged 2.4% to hit a record high of its own, helping
the benchmark indexes mark their fifth
consecutive weekly gains.
Markets are also waiting for the Reserve Bank of
I dia’s poli e ie o De e e a id hopes that easing consumer inflation will lead the central
bank to ease monetary policy earlier than
expected.
http://www.livemint.com/Money/LW7reK81E
hPQqGJrmOe4kN/Sensex-trades-flat-Infosys-
Tata-Power-fall.html?utm_source=copy
C
Low-cost cab service UberGO faces challenge on day of launch
Uber Technologies faced teething troubles on Day
1 of its low-cost cab service, which the company
claims is cheaper than taking an auto, with taxis
unavailable across New Delhi throughout the day.
UberGO uses hatchbacks such as Etios Liva and
Maruti Ritz to ferry customers who are charged Rs
40 as base fare plus Rs 11-12 per kilometer and Re
1 per minute. The base fare for the uberX is Rs 50,
Rs 2 per minute and Rs 15 per km, while a
customer has to pay a base fare of Rs 75, Rs 2 per
minute and a per kilometer rate of Rs 18 for using
UberBLACK.
http://economictimes.indiatimes.com/industry/au
to/industry/auto/news/aftermarket/low-cost-cab-
service-ubergo-faces-challenge-on-day-of-
launch/articleshow/45225817.cms?utm_source=R
SS&utm_medium=ETRSS
Govt approves funds for power sector push
Government on Thursday approved an outlay of
Rs.43,033 crore to fund an ambitious initiative to
supply electricity through separate feeders for
agricultural and rural domestic consumption,
aimed at providing round-the-clock power to
village households. In addition, the cabinet also
approved spending Rs.32,612 crore on an
integrated power development initiative, which
involves strengthening sub-transmission and
distribution systems, according to a government
statement.
http://www.livemint.com/Politics/TOj8vyFiYrpoqV
uzxxlU6H/Govt-approves-funds-for-power-sector-
push.html?utm_source=copy
RBI says overseas borrowed funds can be parked with banks in India
Reserve Bank of India (RBI) on Friday allowed
companies borrowing overseas to park the funds
as term deposits with local banks for a maximum
period of six months. Such deposits should be
exclusively in the name of the borrower and they
should be available for liquidation as and when
required, the regulator said.
RBI stated that the amended policy would come
into immediate effect and all other aspects of the
external commercial borrowing (ECB) policy would
remain unchanged. On 3 September, the banking
regulator had eased certain ECB norms by allowing
non-resident lenders to extend rupee loans to
borrowers in India, after following certain norms
regarding currency swaps with local banks. Prior to
that, all eligible borrowers were allowed to raise
ECB funds in rupees only from their foreign equity
holders.
http://www.livemint.com/Money/xxhM4dUIqkgg9
52z8oS1rO/RBI-says-overseas-borrowed-funds-
can-be-parked-with-banks-
in.html?utm_source=copy
Articles
Why Quantitative Easing (QE) May Lead to Deflation
Financial experts have been debating since the start of the 2008 financial crisis whether inflation or deflation is the bigger
risk. That debate is beyond the scope of this essay. However, it might not be either/or. We might instead have
“Mi edFlatio … i flatio is so e asset classes a d deflation in others.
Quantitative easing (QE) was supposed to stimulate the economy and pull us out of deflation.
But the thi d ou d of ua titati e easi g QE ″ i the U.“. failed to raise inflation expectations.
A d QE has ’t o ked i Japa , eithe . The UK engaged in substantial QE. But inflation rates are falling there as well. And
China engaged in massive amounts of QE. But it’s also falling into deflation.
Indeed, despite massive QE by the U.S., Japan and China, there is now a worldwide risk of deflation.
Is QE deflationary? Yes, quite obviously so. Consider:
QE will only help get an economy off the zero lower bound if paired with a commitment to higher future inflation.
If a central bank is deploying QE over a long period of time, that means it has not paired QE with a commitment to
higher future inflation.
Prolonged QE is effectively a signal that the central bank is unwilling commit to higher inflation.
QE therefore reinforces expectations that economic activity will run below potential and demand shocks will not
be completely offset.
QE will be associated with a general disinflationary trend.
Economists also note that QE helps the i h … ut hurts the little guy. QE is one of the main causes
of inequality (and see this and this). And economists now admit that runaway inequality cripples the economy.
So QE indirectly hurts the economy by fuelling runaway inequality.
http://www.globalresearch.ca/why-quantitative-qe-may-lead-to-deflation/5414897
Why India is doing better than most emerging markets
INVESTORS have fallen out of love with emerging markets. Since the start of last year emerging-market stocks have trailed
their rich-world peers. Currencies are falling. Worst-hit is the Russian rouble, which has fallen by 30% against the dollar this
year. The currencies of other biggish emerging markets, such as Brazil, Turkey and South Africa, have also weakened. For
such economies growth is harder to come by. The IMF recently cut its forecasts for emerging markets by more than for rich
countries. But India is a notable exception to the general pessimism. Its stockmarket has touched new highs. The rupee is
stable. And the IMF nudged up its 2014 growth forecast for India to 5.8%. That figure is still quite low: growth rates of 8-9%
have been more typical. But in comparison with others it is almost a boom. Why is India doing better than most emerging
markets?
I pa t opti is a out I dia o es to its e ish go e e t. I Ma Na e d a Modi’s Ba ati a Ja ata Pa t BJP o a thumping victory in elections on a pro-growth platform. Since then the BJP has strengthened its position in some key
states. So far reform has been piecemeal. Procedures for government approvals have been streamlined. The powers of
labour inspectors have been curbed. Civil servants now work harder. That has been enough to sustain hopes of further and
bigger reforms. Yet much of the continued enthusiasm about India is down to luck. The currents that sway the global
economy presently—the dolla ’s st e gth; slo do i Chi a; agg essi e o e -printing in Japan; stagnation in the euro
zone and falling oil prices—are less harmful to India than to most emerging markets.
http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-
11?zid=306&ah=1b164dbd43b0cb27ba0d4c3b12a5e227