ECB keeps rates unchanged

ecb

 

Main rate stays at 0.75%.

The European Central Bank has kept eurozone interest rates on hold. The main refinancing rate stays at 0.75%, where it has been since July 2012.

Although the decision was widely expected, some analysts expect the ECB to cut rates in the coming months.

Mario Draghi, the president of the ECB, will hold a press conference later this afternoon to explain the decision.

UK has already returned to growth

uk recession

UK has already returned to growth, says OECD

Hopes that Britain will avoid a triple-dip recession were bolstered after a leading forecaster said the country had already returned to growth and official figures showed the key services sector expanding at its strongest pace in five months.

 The UK economy will dodge a recession with a return to yearly growth of 0.5pc in the first quarter of this year, according to the OECD.

The UK enjoyed yearly growth of 0.5pc in the first quarter of this year, to be followed by a 1.4pc expansion in the next three months, according to estimates from the Organisation for Economic Co-operation and Development.

“The UK is doing fairly well I would say … this avoids a triple-dip in that country,” said Pier Carlo Padoan, the OECD’s chief economist. “We see a global outlook improving after a weak 2012.”

The Paris-based think-tank’s growth projections compared to the UK economy’s 1.2pc contraction in the final three months of last year, as the OECD uses annualised rather than quarterly growth rates. On a quarterly basis, the UK economy shrank by 0.3pc at the end of last year.

The more upbeat outlook was echoed in the US, where officials reported that the world’s biggest economy grew faster than thought in the fourth quarter of last year, at an annual rate of 0.4pc, up from an initial 0.1pc estimate.

The news cheered Wall Street, pushing the S&P 500 share index into fresh highs as it hit 1,567 points at one point, above its 2007 all-time record.

Current account deficit rises to alarming 6.7% in Q3

current account deficit

India’s current account deficit (CAD) widened from 5.4 per cent in the July-September quarter to a record high of 6.7 per cent of GDP in the October-December quarter, driven mainly by huge trade deficit, said a release by the Reserve Bank of India. This is much higher than the 6.4 percent estimated by a Media poll.

 A surge in capital flows helped finance the current account deficit.

 “The pickup in capital flows was mainly due to foreign portfolio investment which rose to USD 8.6 billion during Q3 of 2012-13 from USD 1.8 billion in Q3 of previous year. While loans availed by banks and corporate sector amounted to USD 7.1 billion, net Foreign Direct Investment (FDI) declined to USD 2.5 billion in Q3 of 2012-13 from USD 5 billion in the corresponding quarter of 2011-12,” the RBI release said.

 Exports growth during the third quarter was muted as compared with a 7.6 per cent growth in Q3 of 2011-12, the RBI release said.

 Imports, however grew 9.4 per cent, spurred largely by oil and gold imports.This has resulted in the trade deficit widening to USD 59.6 billion in Q3, compared to USD 48.6 billion during the corresponding period of the previous year.

Why Cyprus Is a Special Case

 

The Cyprus bailout deal is a big improvement over the first botched attempt. It doesn’t repeat the error of breaching the guarantee on bank deposits up to 100,000 euros. Instead, it restructures the two biggest banks and forces their creditors, including large depositors, to take huge losses.

Yet the euro area’s leaders must do a lot more to convince Europeans and the markets that they have drawn the right lessons from this debacle. They need to say clearly why Cyprus is an exception and commit to integrating the euro area further so that it’s less vulnerable to such crises. They’re failing on both points.

 

March 26  — John Woods, Hong Kong-based chief investment strategist for Asia Pacific at Citigroup Inc.’s private bank, talks about the economic impact of Cyprus’s banking crisis on the rest of Europe. He speaks with Susan Li and Rishaad Salamat on Bloomberg Television’s “Asia Edge.” 

March 26  — Philippe D’Arvisenet, chief global economist at BNP Paribas SA, talks about Europe’s sovereign debt crisis and the outlook for the euro. Cyprus dodged a disorderly sovereign default and unprecedented exit from the euro by bowing to demands from creditors to shrink its banking system in exchange for 10 billion euros ($13 billion) of aid. D’Arvisenet speaks in Singapore with Haslinda Amin on Bloomberg Television’s “On the Move.”

The head of the euro area group of finance ministers, Jeroen Dijsselbloem, appeared to draw all the wrong conclusions in a March 25 interview, after the new deal was struck. He suggested that the Cyprus pact offered a new template for resolving the debt crisis.

Under this new model, the burden of repairing banks would shift from taxpayers to private creditors. Specifically, Dijsselbloem said he hoped the new approach meant that the 500- billion-euro European Stability Mechanism would never be used to directly recapitalize banks.

Rail travel gets costlier as fares hiked by upto 20%

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pavan

 

 

In the first hike in ten years, Union Railways Minister Pawan Kumar Bansal on Wednesday increased passenger fares by upto 20 percent across the board.

 

The new fare will be effective from January 21 midnight. Indian Railways is looking to raise Rs 6,600 crore through the fare hike.

 

The Rail Minister said that extra revenue earned through the fare hike will be used to maintain cleanliness and safety. He also said that the Railways is making efforts to meet safety requirements. The minister added that there will be no fresh fare hike in the Rail Budget.

 

As per the new fare chart, following changes have been made in the passenger fare:

 

2nd class ordinary suburban- 2 paise per Km

 

2 class ordinary non suburban- 3 paise per Km

 

2nd class mail express train- 4 paise per Km

 

Sleeper class- 10 paise per Km

 

Ac chair car- 10 paise per Km

 

Ac 2 tier- 15 paise hiked earlier and additional 6 paise now

 

Ac first class- 10 paise per Km hiked earlier, in addition 3 paise per Km now

The Fiscal Cliff Explained

 

“Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, the end of the tax cuts from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect. According to Barron’s, over 1,000 government programs – including the defense budget and Medicare are in line for “deep, automatic cuts.”

In dealing with the fiscal cliff, U.S. lawmakers have a choice among three options, none of which are particularly attractive:

They can let the current policy scheduled for the beginning of 2013 – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.

They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the United States’ debt will continue to grow.

They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.

Can a Compromise be Reached?

 

The oncoming fiscal cliff is a concern for investors since the highly partisan nature of the current political environment could make a compromise difficult to reach. This problem isn’t new, after all: lawmakers have had over a year to address this issue, but Congress – mired in political gridlock – has largely put off the search for a solution rather than seeking to solve the problem directly. Republicans want to cut spending and avoid raising taxes, while Democrats are looking for a combination of spending cuts and tax increases. Although both parties want to avoid the fiscal cliff, compromise is seen as being difficult to achieve – particularly in an election year. There’s a strong possibility that Congress won’t act until the eleventh hour. Another potential obstacle is that the next Congress won’t be sworn in until January 3, after the deadline.

The most likely outcome is another set of stop-gap measures that would delay a more permanent policy change until 2013 or later. Still, the non-partisan Congressional Budget Office (CBO) estimates that if Congress takes the middle ground – extending the Bush-era tax cuts but cancelling the automatic spending cuts – the result, in the short term, would be modest growth but no major economic hit.

Possible Effects of the Fiscal Cliff

If the current laws slated for 2013 go into effect, the impact on the economy would be dramatic. While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion, the CBO estimates that the policies set to go into effect would cut gross domestic product (GDP) by four percentage points in 2013, sending the economy into a recession (i.e., negative growth). At the same time, it predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs. A Wall St. Journal article from May 16, 2012 estimates the following impact in dollar terms: “In all, according to an analysis by J.P. Morgan economist Michael Feroli, $280 billion would be pulled out of the economy by the sunsetting of the Bush tax cuts; $125 billion from the expiration of the Obama payroll-tax holiday; $40 billion from the expiration of emergency unemployment benefits; and $98 billion from Budget Control Act spending cuts. In all, the tax increases and spending cuts make up about 3.5% of GDP, with the Bush tax cuts making up about half of that, according to the J.P. Morgan report.” Amid an already-fragile recovery and elevated unemployment, the economy is not in a position to avoid this type of shock.

The cost of indecision is likely to have an effect on the economy before 2013 even begins. The CBO anticipates that a lack of resolution will cause households and businesses to begin changing their spending in anticipation of the changes, possible reducing GDP before 2012 is even over.