macroeconomics newsletter 17th-21st sectionb group8
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Submitted by: Group 8 Abhishek Jayant
Adarsh K A M
November 17 -November 21
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
oth ago, is elo the etal aks taget of si pe et 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
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 seasoall adjusted oth o oth oetu i food iflatio as uted at 0.0 pe et. This suggests the recent decline was largely due to the strong base effect.
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
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.
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
"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.
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
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.
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.
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 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.
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.
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 bl