A Quick Glance at the Budget - Proposed tax changes in 2009/10 budget

India's finance minister on Monday proposed increasing the minimum alternate tax on firms, but scrapped a tax on commodity transactions.
Following are some of the proposed tax changes:

DIRECT TAXES

* No changes in corporate taxes
* Raises Minimum Alternate Tax (MAT) to 15 percent from 10 percent. The MAT was earlier introduced to make sure companies do not totally avoid taxation by claiming various deductions that cancelled out their tax liability altogether.
* Extends tax credit carry-over period under MAT to 10 years from seven years.
* Scraps Commodity Transaction Tax
* Scraps Fringe Benefit Tax
* Extends sunset clause on tax holidays for export profits by one year to 2010/11
* Tax holiday for natural gas production
* Increases personal income tax exemption to senior citizens by 15,000 rupees, by 10,000 rupees for others
* Elimiates 10 percent surcharge on personal income tax

INDIRECT TAXES

* Maintains overall structure of customs, excise duties and service tax
* Increases customs duty on gold bars to 200 rupees per 10 grams from 100 rupees per 10 grams
* Increases customs duty on other forms of gold, excluding jewellery, to 500 rupees per 10 grams from 250 rupees per 10 grams
* Restores 8 percent excise duty on manmade fibre and yarn
* Raises excise duty on several items to 8 percent from 4 percent, broadly exempting food items and medicines
* Exempts bio-diesel blended petrol, diesel from excise duty
* Cuts customs duty on bio-diesel to 2.5 percent fron 7.5 percent

NON-TAX REVENUES, REFORMS

* Intends to move to a system of direct subsidy transfer to farmers
* To set up panel to advise on a viable and sustainable fuel price policy
* To retain 51 percent government holding in state-run firms
* To encourage people's participation in stake sales in state-run firms
* State-run banks, insurance firms to remain with government, will be funded to grow
* Expects 497.50 billion rupees ($10.26 billion) from dividends, profits of state-run firms in 2009/10
* Targets 11.2 billion rupees from stake sales in 2009/10
* Expects 3G wireless spectrum auction to net 350 billion rupees in 2009/10

FeDeReR Breaks Hearts of 2 Americans- Pete & Roddick

This post was published to faris at 11:55:21 PM 7/5/2009


On and on they held serve as the fifth set of the Wimbledon men’s final endured beyond all precedent. On and on, with shadows encroaching on the grass, Andy Roddick kept pace with Roger Federer on Centre Court as Federer attempted to close in on a record 15th Grand Slam singles title.
But as cruel as the concept began to seem as both players continued to invest in the outcome, Wimbledon’s latest epic had to finish. And as poignant as it should seem to those who know how long Roddick has been chasing sunlight in Federer’s shadow, Federer was the one who again ended up holding the trophy.
Roddick, in the midst of a resurgent season, had hoped to postpone Federer’s record-making, but despite playing what looked very much like the match of his life, Roddick could succeed only in turning Sunday’s final into Wimbledon’s latest classic as Federer won by the remarkable score of 5-7, 7-6 (6), 7-6 (5), 3-6, 16-14.
Roddick held his serve 37 times in a row before being broken in the last game. When Roddick’s last shot, a forehand, missed its target, Federer roared and walked to the net all alone in the record books after breaking his tie with Pete Sampras, who is now second on the career men’s list with 14 major singles titles.
“Sorry, Pete; I tried to hold him off,” Roddick said to Sampras, his American compatriot, who was sitting in the front row of the royal box after flying in from Los Angeles on Sunday morning.

Federer, who claimed a first French Open title last month, has now won Wimbledon six times, the US Open five times, the Australian Open three times and Roland Garros once.
Sampras was the last man to set a new mark in Grand Slams when he beat Pat Rafter in an emotional final at Wimbledon in 2000, and the American chose to return to the All England Club to witness Federer's achievement
The 37-year-old arrived to applause during the changeover after the third game and, with his wife, took his seat alongside Manuel Santana, Rod Laver, Bjorn Borg and Ilie Nastase.
With so many tennis greats on hand, Roddick appeared to be very much the support act as Federer attempted to make history, but the American has been a rejuvenated force this year and played one of his best ever matches in beating British hope Andy Murray in the semi-finals.
He went into the final having won just two of his previous 18 matches against Federer, but with the confidence of having arguably the world's best serve and a new variety to his game brought out by coach Larry Stefanki.
Both men started strongly on serve but it was the Swiss who put the pressure on first, forcing four break points in a tense game at 5-5.
GRAND SLAM TITLES
15 - Roger Federer
14 - Pete Sampras
12 - Roy Emerson
11 - Rod Laver
11 - Bjorn Borg
10 - Bill Tilden
8 - Ken Rosewall
8 - Ivan Lendl
8 - Andre Agassi
8 - Jimmy Connors
8 - Fred Perry


Federer was twice denied by Hawkeye, while Roddick saved two break points with trademark heavy serves, and the five-time champion was quickly made to regret the missed chances.
Moments later he was under pressure as he leaked a forehand into the tramlines to give Roddick a set point from seemingly nowhere, and when the Swiss made the same mistake in the following rally the American's supporters were on their feet applauding as their man took a shock lead.
The second set followed the same pattern, with neither player able to fashion a break point and Roddick now making 80% of his first serves.
It came down to a tie-break and, knowing his title hopes were under serious threat, Federer made a nervous forehand error to hand over the mini-break before the Roddick serve took over, sweeping the American to 6-2 and four set points.
An imperious Federer backhand and two service winners cut the deficit before Roddick had a chance on his own serve, but he put a high backhand volley well wide.
Federer fired a cross-court backhand pass to win a fifth straight point and earn a set point for himself, and Roddick pushed a backhand well over the baseline to bring Federer level at one-set all.
It was a body blow for the American and he headed straight to the locker room on the changeover before marching to the wrong end on his return to Centre Court.
Roddick's head cleared sufficiently for him to get a foothold in the third set and he saved a break point in game five with a serve.
The 26-year-old could win only two points on the Federer serve throughout the set but he forced another tie-break, and a chance to amend for the disaster of the second set.
A backhand approach into the net gave Federer the mini-break though and, although Roddick did well to close the gap to 6-5, the Swiss converted his third set point with a thumping forehand
If anyone thought that the smooth coronation of Federer was now back on track, Roddick had other ideas, playing a magnificent volley at 2-1 to earn two break points and taking the second with a backhand pass that Federer could not handle.
Roddick served out valiantly from 0-30 in game nine, thrilling the Centre Court crowd who were about to enjoy a fifth set that few had expected to see.
Federer had the first chance at a break in the decider but again Roddick served his way out of trouble, and the Swiss had still not broken his opponent after nearly three hours.
Both men appeared to be getting stronger and stronger and they were well and truly in the groove on serve, with Federer ahead in the ace count as the fifth set rolled on.
Roddick made his move at 8-8, firing a spectacular backhand winner down the line for 15-40, but five-time champion Federer responded magnificently with a service winner and a nerveless drive-volley.

The fifth set Sunday was by far the longest in a Grand Slam singles final in terms of games played, which is quite a statistic considering that Wimbledon began in 1877. The previous longest was in 1927, when René Lacoste of France beat Bill Tilden of the United States, 11-9, in the fifth set at the French championships.
But this year’s final certainly deserves a place on the shortlist of great Wimbledon matches.
The set became the longest in a men's singles final when Federer fired three aces in a row to move ahead 13-12, and Roddick began to look the more tired - but he refused to yield until the 30th game of the set.
The American looped a forehand long at deuce, and when he did the same on championship point Federer had his first service break of the day - and a historic victory after four hours and 17 minutes that takes him to the top of the Grand Slam list.
But there was some small consolation. The Centre Court crowd, accustomed to seeing Federer with the trophy, was in no mood to forget the man who finished second. The chants of “Ro-ger” were followed by chants of “Rodd-ick.”
Legends are legends, and performance is performance and from what we have witnessed here today was the highlight of how great the game has reached and yet I think we will have to hold on to our judegement regarding which is the best final we have seen recently because at the end of last year, it was last years final at Wimbledon, but after seeing today’s match, it will be this year for many. But, for me, I reserve my judgement after I see next years final. SO congratulations Roger Federer and commensurations Andy Roddick. I think we got to see the best tennis of the year and if Andy continues to play like this, he is surely in a league of champions who would have a say where the title would go at this years US Open.

All Saying Different Things, All of Them Correct

This is going to be one of those rare blog posts where I agree with everyone. There has been a lot of great economics related content on the web the past few days.

In the New York Times Allan Meltzer  worries that we will soon have a great deal of inflation:

Milton Friedman often said that “inflation was always and everywhere a monetary phenomenon.” The members of the Federal Reserve seem to dismiss this theory because they concentrate excessively on the near term and almost never discuss the medium- and long-term consequences of their actions. That’s a big error. They need to think past current political pressures and unemployment rates. For the next few years, they cannot neglect rising inflation.

Whereas Paul Krugman believes we need to fear deflation:

Things get even worse if businesses and consumers expect wages to fall further in the future. John Maynard Keynes put it clearly, more than 70 years ago: “The effect of an expectation that wages are going to sag by, say, 2 percent in the coming year will be roughly equivalent to the effect of a rise of 2 percent in the amount of interest payable for the same period.” And a rise in the effective interest rate is the last thing this economy needs.
Concern about falling wages isn’t just theory. Japan — where private-sector wages fell an average of more than 1 percent a year from 1997 to 2003 — is an object lesson in how wage deflation can contribute to economic stagnation.

Who is right? They both are - here is how it is possible:
Right now the economy is walking a tightrope act, and the statistics do not lie( i don’t accept it always, but people do,so can put the argument from that perspective) - we are not in a 'balanced' state and we risk falling off the rope onto the deflation side. At least in theory monetary policy and fiscal policy can be used to push us towards being balanced again by increasing the rate of inflation. I say in theory, because I believe fiscal stimulus is unlikely to work well in the real world. Monetary policy, of both the conventional and unconventional sorts can certainly increase the money supply leading to increased rates of inflation. But it is easy to push to far, risking falling off the other side of the tightrope in the long run - for the reasons Meltzer gives. We need to fear falling off of either side of the tightrope.
And why is deflation harmful in a recession? Krugman gives one reason, though I also agree with an argument made by Arnold Kling:

Workers view wage rates as signals of their employer's long-term commitment to their welfare. Thus, a wage cut is a particularly negative signal, and it is difficult to cut wages in a downturn without causing major problems.

More specifically, it is difficult to cut nominal wages in a downturn. We can however, a cut real wages is possible (which is what in reality needs to happen) by leaving nominal wages unchanged and having a positive rate of inflation.
Of course, there is also the issue of the unemployed, who no longer have wages to cut and require jobs. I agree with Mark Thoma's take:

Artificially restraining wages from falling is not the correct response, the key is to drive the unemployment rate down so that the labor market tightens and wages rise in response. That is why it's essential that stimulus programs provide a boost to employment, and I've wondered from the start if the stimulus programs we enacted have focused enough on providing employment opportunities.

One policy that would help accomplish this, is to cut the payroll taxes paid by firms, as to reduce the costs of employing workers.

Dim and distant, but a glimmer nonetheless!

My views on the economy, the stock market, the problems with the banks, the Geithner plan and whether there's light at the end of the tunnel.

The rate of economic contraction will slow from the -6% of the first quarter to a figure closer to -2%. And next year the economic recovery will be so weak--growth below 1% and the unemployment rate peaking at 10%--that it will still feel like a recession even if we may be technically out of it. So, compared with the bullish consensus that sees positive growth at 2% by the third and fourth quarters of this year and a return to potential growth by 2010, my views are consistently more bearish.

Still, compared with the sharp contraction in U.S. and global growth in the first quarter of this year, the rate of economic contraction will slow down for the U.S. and other advanced economies by year-end. That is only a mild improvement in what is still a severe U-shaped recession, with a very weak and tentative recovery by 2010.

The stock market has predicted six out of the last zero economic recoveries. For the last 18 months, we've had six bear market rallies, and at the beginning of each one of these suckers' rallies the delusional perma-bulls repeated that this was the beginning of a bull market rally. And for six times these perma-bulls were totally wrong as the rally fizzled and new lows were reached. And for six times I correctly pointed out that these were bear market rallies.

But such perma-bulls have no shame in showing up over and over again on CNBC and talking up their books and being proved wrong over and over again. As I have never been a "perma-bear," in spite of the "Dr. Doom" nickname, I will be the first one to call the bottom of this severe recession and the bottom of the bear market when I see sustained evidence of robust and consistent economic recovery.

I see the latest rally as another bear market rally, as over the next few months, the news--macro news, earnings news, financial news, corporate default news, financial firms insolvency news and so on--will be worse than expected by the consensus. Look how wobbly the stock market was on Monday when the expected news that the Big Three are in Big Trouble led to a 3% to 4% market fall. Do you listen to Tim Geithner, who says that some banks need "large amounts of assistance," and who is now pushing--like Bernanke--for fast-track Congressional approval of a law that will allow the takeover of systemically important financial institutions and bank holding companies? This market recovery has still very shaky legs, and it will continue to lurch until the U.S. and global economic recovery does occur and is more robust and sustained.

The global economic contraction is still very severe: In the Eurozone and Japan there is no evidence of "green shoots" or positive second derivatives; and in the U.S. and China such evidence is still very, very weak. So investors and markets are way ahead of actual improvements in economic data. And the idea that stock prices are forward-looking and bottom out six to nine months before the end of a recession is incorrect.

First, we've already had six bear market rallies and, despite the "prediction" of stock prices, not a single economic recovery. Second, in 2001 a short and shallow eight-month recession was over by November, but stock prices kept falling for another 16 months until March 2003. This time around, the recession will be of at least 24 months duration--three times as long and five times as deep, in terms of GDP contraction, as the one in 2001. This time the deflationary forces are global, not just in the U.S. and Japan. This time we have the worst financial and banking crisis since the Great Depression, while in 2001 there was no banking crisis. This time we've got the worst housing recession since the Great Depression, with home prices still bound to fall another 15% to 20% for a cumulative fall of 40% to 45%. This time corporate default rates on junk bonds are predicted by Moody's to peak at 20%, not the 13% of the previous recession.

Thus, the idea that a weak U.S. and global recovery with massive deflationary pressures and a severe financial crisis and massive corporate defaults will lead to a robust recovery of earnings and a sharp persistent bull-market rally in equities is totally far-fetched.

As I have argued before, the risk of an L-shaped near-depression will be significantly reduced if aggressive policy actions were undertaken. That risk of near-depression is now lower than it was three months ago--but not gone altogether--as policy makers in the U.S. and globally have finally gotten religion and taken out all their policy bazookas, missiles, rockets and artillery and started to use them.

These more aggressive and front-loaded policies include massive monetary easing and zero policy rates; quantitative easing; unconventional monetary and credit actions to reduce the spread between market rates and government bond yields; significant--if in some cases still insufficient--fiscal policy stimulus; policies to restore credit growth and reduce the credit crunch; policies to clean up toxic assets of banks; policies to recapitalize banks and take over the insolvent ones; policies to reduce the tsunami of foreclosures and reduce the debt servicing and debt burden of distressed households; policies to support emerging market economies under stress; and policies of appropriate regulatory forbearance to restore credit and liquidity in financial market.

These policies will not restore positive growth in advanced economies until next year, but will reduce the rate of economic contraction to a more moderate pace by the end of 2009. Thus, as I noted earlier, the rate of the advanced economies' economic contraction will slow down from the peak contraction of this year's first quarter (-6%) to a more modest contraction in the fourth quarter (-2%) and a very weak positive growth (0% to 1% in U.S., Europe and Japan) in 2010 with still sharply rising unemployment rates peaking at 10% in these advanced economies. This will be an improvement compared with the fourth quarter of 2008 and first quarter of the 2009 collapse of global economic activity, but still a much more bearish scenario than the bullish case of positive and high (2%) growth by the third and fourth quarters and return to potential growth by 2010.

So the road ahead is still very, very bumpy. The worst for the degree of economic contraction may be behind us by the second or third quarter of this year, but there will not be any robust and sustained recovery as the damage of the financial and real excesses of the last few years will have lasting effects on actual and potential growth for the U.S. and global economies. And the burden of trillions of dollars of additional fiscal deficits and debts in advanced and emerging economies will be a drag on actual and potential growth for years to come.

But if aggressive policy actions are accelerated after the G-20 meeting in London, one can expect a slow and painful process of mending the U.S. and global economy that will still take a long time. That will, however, allow us to see the light at the end of the tunnel some time next year, first for the real economies, next for financial markets and finally for the financial system and its wounded institutions

Slowdown in Economic Growth in GDP Growth in 2009

In Q4 2008, economy expanded 5.3%, slowest pace since Q4 2003, (Q3 2008: 7.6%, Q2 2008: 7.9%) due to contracting manufacturing (-0.2%), agriculture (-2.2%) and exports

Growth forecasts revised down: 2008: 7.8% (IMF), 7.4% (ADB), RBI: 7.5%; Govt: 7.1%, i-banks: 5.6-8%, RGE Monitor: 6%. Forecast for 2009: 7.1% (govt); 5.1% (IMF); 7% (ADB); I-banks: 4.3-6.3%, RGE Monitor: 5%

Since December 2008 Govt and central bank have been giving fiscal stimulus package aimed at non-bank financial corporations, infrastructure, housing, SMEs, exporters; reducing taxes, easing credit access. Since September 2008: Central bank continues inject liquidity, ease capital inflows and cut policy rates. Further rate cuts and credit easing, and fiscal stimulus expected in 2009 though close to 10% of GDP of fiscal deficit will limit the latter

Growth, capital expenditure and consumer spending in 2007/08 was fueled by global growth and liquidity boom, capital inflows and asset bubbles. But global credit crunch, risk aversion and Foreign Institutional Investor (FII) sell-off have severely affected domestic liquidity for banks, stock market and real estate correction, bank lending to finance consumer spending and investment. Domestic slowdown will aggravate asset market correction during 2009 and put bank performance at risk

Consumers hit by high inflation, tight lending standards, job losses, slower income growth, negative wealth effect from correction in stock and home prices

Recent boom in capital expenditure (37% of GDP) is being hit as manufacturing and industrial production are declining since December 2008; several investment projects are being canceled/postponed due to capital crunch; corporate earnings have also taken a hit since Q4 2008 on slowing domestic demand, tighter credit, volatile stock market and drying Initial Public Offerings (IPOs), global liquidity crunch that is limiting access to external finance (major source of capital); corporate savings will run down domestic savings while government runs a deficit

External Sector: Exports have been contracting since late-2008 since major export markets (US and EU) are in recession and high growth markets (Asia, Middle-East) are slowing. Financial sector woes in the West are affecting IT service exports. Vulnerability to trade and current account deficits (expected to exceed 10% and 3% of GDP respectively) on high oil import bill of 2008, contracting exports, slowing remittances from the West and Gulf. These factors pose risk to the current account while slowdown in capital inflows (FII outflow, easing FDI on risk aversion, global liquidity crunch) poses risk of financing external deficit. These factors have pushed rupee to a 5-yr low

Food and oil subsidies, pre-election and fiscal stimulus spending are expected to push fiscal deficit to 10% of GDP in FY ending Mar 2009 and over 9% in FY ending Mar 2010; S&P and Fitch have cut ratings to 'negative'. This may raise govt debt issues to over US$70 billion in 2009 raise interest rate and depress bond prices,putting risk of financing twin deficits at a time when capital inflows are already drying up

What others are saying

JP Morgan: Targeted 7.1% GDP growth in 2009 by government would not achievable, since fiscal packages in December 2008 and January 2009 and monetary easing in late-December 2008 need 6 or 9 months to show up in the growth rate

IMF: Significant downside risks to GDP growth in 2008 (6.3%) and 2009 (5.3%) but government measures could be an upside though constrained by the fiscal deficit and large public debt, thereby increasing dependence on monetary policy

Citi: While trend in auto, cement, steel and retail sales in February 2008 expected to be positive, real estate, freight and port traffic as well as march data are still worrisome; hard to achieve 7.1% growth in 2009 

EIU: 7.1% growth in 2009 targeted by government is overly optimistic; Global deleveraging and risk aversion will limit the availability of financing for investment and consumption, which will increase the pain on industrial and services sectors; Despite of struggling by govt. to create enough jobs for labor force, number of unemployed workers would increase (500,000 jobs were lost in Oct-Dec-08); It will play the important role for election in April-09  

Deloitte: India economy has been impacted by four different ways; weak manufacturing, falling exports, revenues of software companies and closing credit tap in banking sector

Morgan Stanley: Recent growth trend above sustainable levels was driven by capital inflows. Stimulus measures won't prevent a deeper slowdown in domestic demand, cost of capital, industrial production and exports

Kotak: India in a two-year cyclical slowdown with slowing saving and investment, but this phase may be short and shallow unless the global economy deteriorates more than expected. But new capacities in mining coming on-stream, large consumption stimulus, high domestic saving base will help sustain reasonable growth. The sharp deterioration in activity Q4 2008 may have got arrested in Jan 2009; fiscal package too small to sustain the current investment and growth cycle and is constrained by fiscal deficit; monetary stimulus will help reduce interest rates but pace of rate cuts will ease

Goldman Sachs :growth will reach a trough in Apr-Jun-09  before recovering by end-FY10; Stimulus would support specific sectors amid the downturn but not enough to reduce impact of slowdown on aggregate demand

WEF: Dependence on capital flows to finance current a/c deficit is a risk; global crisis could cause sharp capital outflows, fall in share and asset prices, reduction in availability of finance

 

Please do leave your comments. Would like to hear from your perspective also.

India's Stock Market in a Bear Market Rally?

 

On March 26 2009 Sensex rose to a 2 month high crossing the 10,000 mark on easing inflation and U.S. market rally.

In spite of some stabilization from 2008 trends, Sensex had fallen 12.65% in 2009 as of mid-March as risk aversion and FII outflows continue. Top10 firms lost over $4 bn from their market capitalization in Feb 2009. Stock market fell over 56% in 2008 from the Jan-08 peak making it one of the worst performing markets among Asia, BRICs and EMs

Stock market will face further risks in 2009 as investor sentiment will continue to trend down amid significant slowdown in GDP growth, domestic demand, lower corporate earnings, political uncertainty, increasing terrorist activities, sharp depreciation of Indian rupee and expected future weakness against USD, and lower dividends forecast for 2009 (on global liquidity crunch, contracting industrial activity though easing commodity prices related cost of production is a plus). Slowing IPOs, capital raising activity by firms is affecting their expansion plans. This will weigh down on investment in 2009 and further flight out of foreign capital from Indian markets

FIIs have sold over $1.8 bn in 2009 as of mid-March and $13 bn in 2008 (after buying $17 bn investment in 2007) and their share in BSE-500 Companies (which a/c for a large share in market cap) has also declined; this is causing rupee depreciation, depletion of forex reserves

Valuations have shown significant correction as P/E ratios are down from a high of 28 in early 2008 to ~9 in early Feb 2009, and are also cheap in terms of  bond/equity yield gap, market cap/GDP relative. But given that corporate earnings will ease further and risks to the corporate sector are to the downside in 2009 on demand slowdown and credit crunch, valuations might fall further making an attractive buying opportunity by end-2009 or early-2010

Q4 2008: Profits for top line of 595 companies grew 17% from 35% in Q3 2008. The bottom line saw net profit fall 21.1% on lower realization for commodities, marked-to-market losses on derivatives exposures and high finance charge

Energy stocks (losses of oil companies), real estate (slowing capital inflows, housing correction), auto (slowing demand), banking (defaults), tech (slowing IT exports), cement, metals, finance along with retail investors have taken a hit

Again, what others are saying have also been quoted. They are as follows:

Stock market regulator: FIIs are lending and borrowing overseas by using offshore derivatives (P-notes) to short sell in the market

UBS : India's benchmark stock index would rise though FY2009/10 due to relative cheap price in March 2009 compare to other markets; Index will increases  as extending a bull market in anticipation of of a recovery in earnings

HSBC :Cheaper valuation, government stimulus plans as well as government pumps about US$ 100billion would rebound stock market; rupee's depreciation again U.S. dollar in 2008 would make overseas investors to attract India's stock market in 2009

Kotak (via bloomberg): Market was already expected the rate cut, the fear now is that govt are running out of measures that they can use to stimulate economy

Fundsupermart: still cautious on India as earnings might slow down further and market is still expensive compared to other Asian markets

Goldman Sachs : Further fall in markets, FII holdings expected as less favorable macro outlook and corporate earnings don't support the high equity valuations

Indian Economy in a Deflationary Mode. Will the Central Bank Continue to Cut rates?

The world is running in circles with this financial crisis that has got all tangled into it without leaving anyone. I know for many this is still a recession stage, but many of the facts point to us that all are in early stage of depression or last stage of recession. But as far as any economy is concerned, all are pointing towards downward growth and India is no exception. Indian economy is in a deflationary mode, but the question is whether central bank will continue to cut rates?

• Easing Inflation: Wholesale Price Index (WPI) slowed to 0.27% (lowest in 33 years) in the week ending March 14 2009 from 0.44% in the week ending March 7 2009 (lowest level in two decades). 2008's base effects, slowing food and fuel prices (fuel price cut in December 2008), commodities, power due to global recession and domestic demand slowdown led the fall in the WPI. But Consumer Price Index (CPI) hasn't eased much compared to WPI (8-11% in mid-March 2009).
• Inflation outlook: While WPI might turn negative by March-end/April on easing supply-side factors, CPI might remain high until late-2009 and might slow only as demand eases. This might constrain rate cuts by RBI. Further cut in fuel prices expected which along with recent cuts in excise and service taxes will drive down inflation further. Credit growth has slowed to 19.6% y/y by mid-Jan 2009. Good agriculture harvest also a positive. Deflationary pressures might continue until the end of 2009
• Mar 4: RBI cut interest rate to 5% from 5.5% (5th time since Oct 2008); reduced reverse repurchase rate to 3.5% from 4% as growth slowed to 5.3% in Q4 2008 along with contracting exports, slowing investment and bank lending. Rate cuts are aimed to provide domestic and FX liquidity, improve credit growth
• Jan 2009: Cash Reserve Ratio(CRR) (5%) unchanged after cutting rates aggressively since late-2008. But RBI extended the special refinance facility and short-term repo facility for banks to meet the funding requirements of MFs, NBFCs and HFCs up to Sep 2009
• Central Bank: "While financial markets continue to function in an orderly manner, India’s growth trajectory has been impacted both by global financial crisis and downturn much deeper and wider than anticipated with declining WPI. Banks should monitor loan portfolio to prevent asset impairment, price risk appropriately but continue to lend to creditworthy enterprises"
• Room to cut rates further since growth forecasts will be revised down amid contracting exports and industrial production (real estate, construction, auto, consumer durables) and slowing capital expenditure and consumer spending, cooling labor market and wage pressures. Aggressive monetary stimulus needs to complement the fiscal stimulus (whose size is constrained by fiscal deficit). Inflation is also trending down sharply giving room for more rate cuts to prevent negative real rates. In spite of liquidity injections, global credit crunch, capital outflows and central bank's foreign exchange interventions are keeping liquidity tight. This is affecting private sector's access to credit as bank lending rates haven't eased much and lending standards to firms and consumers have become stringent. Household and firms' bank Non Performing Assets (NPAs) are rising
• Risks of easing rates: Will exacerbate capital outflows and rupee decline. interbank rates have eased since Q4-08; Will not be sufficient to offset the pull back in private domestic demand in 2009. Banks are also reluctant to cut rates too low, and lend to risky sectors like auto, real estate and are instead preferring to park funds in govt bonds. Aggressive rate cuts, liquidity injection and currency depreciation poses inflation risk during recovery in an economy with structurally strong domestic demand
• Since Oct 2008's liquidity squeeze, spike in overnight call and inter-bank rates and slowing domestic demand, RBI has aggressively cut rates (first time in over 4 years), reducing the amount banks are required to invest in govt bonds to 24% from 25%, easing credit cost and conditions for restructuring loans directed towards small and medium enterprises (SMEs), corporate sector and housing sector, injecting liquidity into banking system, buying back govt bonds, improving credit access to banks, investors, Mutual Funds, easing capital inflows, FX intervention by RBI to contain rupee slide

What others say

• Citi: further interest rate cut or reductions in CRR in April 2009 is expected due to given high fiscal deficits, limited fiscal space, weak macro data, and lowering inflation rate 
• EIU: deflationary impact of global recession and easing commodity prices will persist till 2009-end; central bank is expected to cut interest rate further in Q1 2009
• Kotak: Near-zero WPI may not lead RBI to cut rates since CPI is still high. But quantitative easing by the Fed may lead RBI to step up its open market purchases against large fiscal borrowings but it will still resist private placement of government debt on its balance sheet
• Goldman Sachs: WPI to enter a period of deflation from April until end-2009 due continuing demand destruction and large base effects from 2008. Central bank could cut cash reserve ratio for banks by mid-2009 to provide liquidity but might not cut interest rate further until end of general election in
• Nomura (not Online): Central Bank would cut interest rates in April and June due to soft transmission of stimulus to economy
• DBS: Deterioration in growth is main reason of rate cut; further rate cut expected by April 2009 
• Morgan Stanley: RBI's easing will reduce systemic risks in banking system but won't renew business and consumer sentiment in near-term

CNBC you have to report TRUTH… FIX CNBC!!

If the Jon Stewart vs. Jim Cramer fiasco wasn’t enough to convince you that some content changes are due at CNBC, I’m not sure what will.

As I’ve said a few times here at SF and around the blogosphere, the CNBC we have today isn’t the CNBC that I knew 10 years ago as people say it to me.  There is a larger focus on sensationalism and talking heads debating themselves rather than reporting business news.

I’m not a believer that over the top debates and guest speakers arguing with seasoned reporters is proper etiquette for a business network.

I have been telling people that over the past 2-3 years, that what is being reported in the television are not the truth and its just a window dressing to fool or exploit all of us as we think they know everything and we don’t know anything. Well, I think now atleast people will start giving a year to my thoughts with JON STEWART bringing out the truth through humor and his comedy to the public.

If you feel the same way, or just want to put a warning shot across their bow, please consider signing the FixCNBC.com petition.

If getting called out for their lack of ethics by a channel who’s most notable show contains 4 foul-mouthed 4th graders (aka - Southpark), then maybe a petition of a few hundred thousand disgrunted viewers can shake things up a bit.