Little growth sacrifice inevitable to rein in prices: RBI

As India seeks to control high inflation, RBI Governor D Subbarao has said a little sacrifice in growth is “inevitable” amid efforts to bring down prices to acceptable levels.

Subbarao said criticism is often directed towards the central bank that even though it has raised interest rates and runs a tight monetary policy, inflation is still “high and persistent” and growth has been hurt.

The RBI’s response to the criticism is that “some sacrifice of growth in inevitable, a necessary price we have to pay to bring down inflation. But that sacrifice of growth is only in the short term.

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Treasuries Rise As Japan Trade Data Signal Slowdown

Treasuries rose for a fourth day as global equities slumped after Japanese trade figures fell short of economists’ forecasts, reinforcing concern that Europe’s debt crisis and a slowdown in China are damping global growth.

Longer-term securities led advances before the Federal Reserve releases the minutes of its July 31-Aug. 1 policy meeting today. Vincent Reinhart, a former Fed official, urged Chairman Ben S. Bernanke to do more to spur growth. Chicago Fed President Charles Evans said a weakening in global trade is awful. Gains were limited before reports this week that analysts said will show U.S. home sales and durable goods orders rose last month.

“The main drivers today for Treasuries will be the housing data on one side and the equity trend on the other,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “Profit taking in equities should be a supportive factor for Treasuries. Existing home sales have the potential to surprise to the upside. That would limit the upside for Treasuries today.”

The benchmark 10-year yield declined two basis points, or 0.02 percentage point, to 1.78 percent at 6:53 a.m. New York time. The 1.625 percent note maturing in August 2022 rose 5/32, or $1.56 per $1,000 face amount, to 98 18/32.

The MSCI World Index of stocks slid 0.3 percent, while the Stoxx Europe 600 Index (SXXP) dropped 0.8 percent.

Japan Exports

Japan’s exports fell 8.1 percent in July from a year earlier, the Ministry of Finance said in Tokyo. Economists surveyed by Bloomberg forecast a decline of 2.9 percent.

Japanese shipments to the European Union slumped 25 percent, the biggest drop since October 2009, and those to China slipped 12 percent, the ministry said. European governments are struggling to find ways to pay their debts, while China’s gross domestic product growth has slowed for six quarters.

“The market is too optimistic on the economy,” said Kevin Yang, head of bond investment in Taipei at Hontai Life Insurance Co., which has $6 billion in assets. “Buy on dips.” Yang said he may increase his U.S. bond holdings today.

The U.S. central bank will consider circumstances in the economy and financial stability to decide whether it needs to step up monetary easing, Evans said to reporters today in Beijing. He declined to elaborate ahead of a scheduled press briefing tomorrow at the U.S. Embassy in China’s capital.

Bernanke should assure investors that “he’ll do whatever it takes” to stimulate the slowing economy, Reinhart, chief U.S. economist at Morgan Stanley, said yesterday.

Jackson Hole

The chairman ought to use his Aug. 31 speech at the Fed symposium in Jackson Hole, Wyoming, to expand his commitment to providing accommodation if needed because the central bank is falling short of its mission, Reinhart said in an interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen. Reinhart is the former head of the Fed board’s Division of Monetary Affairs.

The Fed is charged with promoting “maximum employment, stable prices, and moderate long-term interest rates,” according to the central bank’s website.

Investors who predict Treasury yields will rise say there are signs of improvement in the U.S. economy even as other countries struggle. Reports this month on retail sales and nationwide industrial production both showed gains.

Purchases of existing homes in the U.S. rose 3.2 percent in July from the month before, after sliding 5.4 percent in June, based on a Bloomberg survey of economists before the National Association of Realtors report today.

Monthly Loss

Ten-year yields rose to a three-month high of 1.86 percent yesterday from the record low of 1.379 percent July 25. Treasuries have handed investors a loss of 1.4 percent this month, according to a Bank of America Merrill Lynch index. (MXWO)

“I could see the U.S. 10-year yield going up a bit further,” said Roger Bridges, who oversees the equivalent of $15.9 billion as head of fixed income at Tyndall Investment Management Ltd. in Sydney. “The U.S. is beginning to pick up.”

Bridges favors shorter maturities, those that fall least if yields rise, he said. The 10-year yield may climb to match this year’s high of 2.4 percent, he said. An increase to that level by Dec. 31 would result in a 4.7 percent loss for someone who bought today, according to data compiled by Bloomberg.

The Fed is scheduled to buy as much as $2 billion of Treasuries due from February 2036 to August 2042 today as part of its efforts to exchange shorter-term Treasuries in its holdings for those due in six to 30 years to support the economy by putting downward pressure on long-term borrowing costs.

The U.S. central bank also bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing.

Policy makers need to see improvement, particularly in the labor market, Michael Carey, chief economist for North America at Credit Agricole Corporate & Investment Bank in New York, wrote in a report today. “Or else additional stimulus measures are likely,” he wrote.

Interest rate decision will depend on inflation: RBI

Interest Rate Decision

The Reserve Bank today said it will assess if the declining trend in inflation is sustainable and accordingly take decision on reducing interest rate.

Inflation based on Wholesale Price Index (WPI) declined to 6.87% in July, from 7.25% in June. Still, it is much above the RBI’s 5-6% comfort level.

However, with the easing of inflation and contracting industrial output, the industry is clamouring for reduction in interest rate to spur growth.

“Interest rates to fall when inflation drops… (RBI) will assess if the inflation fall is sustainable,” RBI Deputy Governor K C Chakrabarty told reporters after meeting Economic Affairs Secretary Arvind Mayaram.

He said 5% inflation is India’s comfort zone.

The Reserve Bank is scheduled to review its monetary policy on September 17.

In its monetary policy review last month, RBI had kept key interest rate (repo rate) unchanged at 8% in view of high inflation.

After taking charge of the Finance Ministry this month, P Chidambaram had said that high interest rates “inhibit the investor and are a burden on every class of borrowers”.

He had said steps would be taken to bring down interest rates.

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Maruti Suzuki to lift Manesar lockout on Aug 21

Maruti Suzuki will lift the lock out at its Manesar plant on August 21, R C Bhargava, the chairman of India’s largest passenger car maker said on Thursday.

Maruti Suzuki  will lift the lockout at its Manesar plant on August 21,  R C Bhargava, the chairman of India’s largest passenger car maker said on Thursday. The company will make 150 cars a day initially once it reopens next week.

Maruti had shut the Manesar plant, following a workers unrest that left a general manager dead and 96 supervisors and managers injured, many having fractures, on July 18. Workers had also set fire to the office wing and main gate at the plant.

He said all the injured employees had now been discharged and some of them had returned to work.

Bhargava said safety of the employees will remain highest priority and the company with the help of Haryana Government has taken several steps to ensure the security.

There will be 500 armed Rapid Action Force personnel posted in the area with 200 of them on the Manesar factory campus and there will be policemen to ensure employees’ safe commute between their home and factory.

Maruti Suzuki will also separately employ 100 security guards, which will be stationed in the actual work area on the campus.

With such strong security presence, Bhargava said, it is unlikely that any one will resort to any violence at the plant.

The company’s most selling cars the Swift hatchback and DZire compact sedan are manufactured at Manesar.

Jigar Shah of Kim Eng Securities India estimates the company has lost production of 1,700 units per month since the lockout at Manesar.

For July, it has already lost production of 20,000 units and revenue of Rs 730 crore, he said in a recent report.

Maruti Suzuki shares ended down 1% at Rs 1,172.60 on NSE on Thursday. The company announcement of restarting the plant was made after market closed.

The stock is down 4.4% since the workers’ violence at the plant last

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China Export Growth Slides as World Recovery Slows

China’s export growth collapsed and imports and new yuan loans trailed estimates in July, adding to signs the global economy is weakening and raising the odds the government will step up measures to support expansion.

China’s export growth was close to zero in July, raising the odds the government will take more-aggressive measures to support growth after industrial output and retail sales data yesterday missed estimates.

Outbound shipments increased 1 percent from a year earlier, the customs bureau said today in Beijing, after an 11.3 percent rise in June. New local-currency lending was 540.1 billion yuan ($85 billion), the central bank said, lower than all 30 estimates in a Bloomberg News survey, compared with 919.8 billion yuan in June.

Stocks slid as the data boosted evidence that China’s interest-rate cuts and accelerated approval of investment projects have yet to propel growth, after a report yesterday showed industrial output rose the least since 2009. The slowdown intensifies risks of a seventh quarter of deceleration in the world’s second-largest economy.

“Monetary policy easing has to be more aggressive in the remainder of the year,” said Liu Li-Gang, Hong Kong-based head of Greater China economics at Australia & New Zealand Banking Group Ltd. He said there’s a risk of a “hard landing” and the government may lower banks’ reserve requirements as soon as today.

The MSCI All-Country World Index (SHCOMP) of global stocks fell 0.3 percent as of 11:02 a.m. in London. China’s Shanghai Composite Index dropped 0.2 percent, the first decline in six days.

Separate reports showed industrial output growth unexpectedly slowed last month to 9.2 percent from a year earlier and retail sales rose 13.1 percent, trailing analysts’ forecasts.

Money Supply

New yuan lending in July compared with the median estimate of 700 billion yuan in a Bloomberg survey. It was the lowest monthly figure since September 2011. Growth in M2, the broadest measure of money supply, was 13.9 percent last month, compared with the median forecast for a 13.8 percent gain.

The growth in July exports compared with the 8 percent median estimate in a Bloomberg News survey. Imports rose 4.7 percent, versus the survey estimate for 7 percent and a 6.3 percent increase in June.

The trade surplus was $25.1 billion in July compared with $31.5 billion a year earlier. The median projection was $35.1 billion.

Excluding distortions caused by the timing of the Lunar New Year holiday, it was the worst export growth since 2009. The figures put China further at risk of missing its 10 percent goal of trade expansion for the year. China is still “confident” of achieving the target, Gao Hucheng, a vice commerce minister, said at a briefing today.

EU Sales

China’s sales to European Union countries fell 16.2 percent last month and growth in U.S. exports slowed to 0.6 percent from 10.6 percent in June, customs data showed.

The odds the government will “greatly step up” policy easing or stimulus are “surely on the rise,” Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said in a note today. The central bank may cut banks’ reserve requirements “soon” and another interest-rate reduction is “in the pipeline,” Lu said, after two so far this year.

Barclays Plc yesterday cut its estimate for third-quarter growth to 7.7 percent from 8.2 percent while Deutsche Bank AG lowered its forecast to 7.5 percent from 7.9 percent.

China’s central bank halted gains in the yuan in the first half of the year, providing some help to exporters amid deteriorating global demand. The currency has fallen 1 percent against the U.S. dollar this year.

The yuan was little changed against the dollar today at 6.3600, according to the China Foreign Exchange Trade System.

Clothing Supplier

Li & Fung Ltd., the world’s largest supplier of clothes and toys to retailers, plunged in Hong Kong trading by the most since listing in 1992 after slowdowns in the U.S. and Europe caused a slump in first-half operating profit. The company, whose customers include Wal-Mart Stores Inc. and Target Corp., sells goods that are made in China.

Separately today, the Ministry of Finance said fiscal spending rose 37 percent in July from a year earlier, while fiscal revenue rose 8.2 percent.

Elsewhere in the Asia-Pacific region, Singapore said its economy shrank an annualized 0.7 percent last quarter, less than the preliminary reading of a 1.1 percent contraction. Hong Kong said gross domestic product expanded 1.1 percent in the second quarter from a year earlier, compared with the median estimate for a 1.2 percent rise.

German inflation unexpectedly slowed in July to 1.9 percent from 2 percent in June. French industrial production stagnated in June, the latest sign that the euro area’s second-largest economy may be heading for its first recession in three years.

Russian Rates

The Russian central bank refrained from raising borrowing costs for an eighth month, highlighting “significant” inflation risks from a weaker harvest and higher interbank rates that constrain lending growth.

Brazil’s unemployment rate probably fell to 5.7 percent in June, the third monthly decline, based on the median estimate of 35 economists. Canada’s jobless rate may have been unchanged at 7.2 percent in July.

Exports present the biggest uncertainty to China’s outlook, Song Guoqing, an adviser to the People’s Bank of China, said last month. He estimated economic growth may slow to 7.4 percent this quarter.

In its second-quarter monetary policy report released Aug. 2, the central bank said the “primary risk for the global economy is still the European debt crisis,” and that the possibility of Europe “triggering a double dip in the global economy can’t be ruled out.”

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TV digitisation: Aug 21 deadline for inter-connection pacts

Signalling a clear intention to implement Cable Digitalisation by the due date, broadcasting sector regulator TRAI has pulled up broadcasters and Multi System operators (MSOs) for not finalising inter-connection agreements and has now set a August 21 deadline for it.

Sources told PTI that in a meeting held yesterday TRAI Chairman Rahul Khullar told broadcasters and MSOs that the regulator will have to step in and decide the tariffs and carriage norms if they failed to finalise these contracts.

The interconnection agreements decide the price and terms at which channels are bought by MSOs from broadcasters for further transmission to cable households.

The Government has already announced that the cable sector would be digitalised in the four metros by October 31 this year and in the rest of the country by December 2014. The finalisation of interconnection is an important pre-requisite for digitalisation of the cable sector.

The inter-connection agreements would also have a bearing on the retail price which the consumer would have to pay for watching these channels, officials said.

Sources said that TRAI officials also expressed unhappiness at the Interconnection Agreements not being finalised despite giving adequate time and the opportunity given for them by both TRAI and MIB.

“Top TRAI officials in the meeting said digitalisation of the cable sector was imperative as it was the will of the Parliament. Any attempt to derail or delay it would not be tolerated,” a well placed source said.

The sources further said that in the meeting TRAI officials informed that the regulator had kept a watch on each development and felt that there was failure on the part of both broadcasters and the MSOs to arrive at mutually negotiated agreements.

Sources said that representatives of broadcasters and MSOs explained that they were under active negotiations and the deals are on the verge of commercial closure.

Sources said that in the meeting some industry representatives sought time up to August 31 but it was not accepted.

After further deliberations in the meeting, it was agreed that both the parties would try to conclude the agreements with major MSOs by 21st August, sources said.

In case of non finalisation of the agreements beyond this date, the result would be stipulation of terms by TRAI, it was decided in the meeting, sources said.

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