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Bloomberg.com: India & Pakistan
India Exports Fall a Second Month, Adding Pressure to Cut Rates
Jan. 1 (Bloomberg) -- India’s exports fell for the second straight month, adding pressure on the central bank to cut interest rates and support growth in Asia’s third-largest economy.
The Reserve Bank of India, which has reversed four years of monetary tightening in the past three months, has room to slash rates further after a report today showed inflation slowed to a 10-month low.
Lower borrowing costs will spur consumer demand among the nation’s 1.2 billion people and compensate for falling orders from recession-hit U.S. and Europe, India’s biggest markets. India became vulnerable to slowdowns and financial crises in other countries after it started to open its economy in 1991.
“The negative news on the external side intensifies pressure on the Reserve Bank to cut rates to stoke domestic demand,” said Prasanna Ananthasubramaniam, an analyst at ICICI Securities Ltd. in Mumbai.
Overseas shipments dropped 9.9 percent to $11.5 billion from a year earlier after contracting 12.1 percent in October, the first decline in seven years, the government said in New Delhi today.
Demand for made-in-Asia goods has slumped amid the deepening global economic slowdown. China’s exports in November fell 2.2 percent, the first decline in seven years. Singapore’s exports posted the biggest contraction in more than six years in the same month.
“My difficulties are increasing as export orders are slowing due to the recession in Europe,” said Heung Soo Lheem, managing director of the Indian unit at Hyundai Motor Co., South Korea’s largest automaker. “We need strong support from the government to keep our plants in good shape.”
Spending Plan
The government, which unveiled excise duty cuts and a 200 billion-rupee ($4 billion) spending plan last month to boost consumption, will announce more steps to help exporters, Trade Minister Kamal Nath said Dec. 11.
The central bank in November extended the period for subsidized pre-shipment credit to nine months from six months and increased the export refinance limit for commercial banks.
Still, Palaniappan Chidambaram, who was moved to the home ministry from finance after the Mumbai terrorist attacks in November, says India will focus on boosting local consumer spending, accounting for 60 percent of the nation’s $1.2 trillion economy, to make up for waning global demand.
“Overseas demand for goods will remain muted as there are no signs of growth revival in the U.S. and Europe,” said Shubhada Rao, an economist with Yes Bank Ltd. in Mumbai. “Companies can turn to the domestic market to offset the loss from foreign sales.”
Borrowing Costs
Measures to spur the economy began on Oct. 6 when Reserve Bank of India Governor Duvvuri Subbarao cut the amount of money lenders need to set aside with the central bank. On Oct. 20, he presided over the first rate reduction in four years. India’s repurchase rate is 6.5 percent, down from 9 percent set in July.
There is “considerable scope” to reduce borrowing costs, the finance ministry said last week, after a drop in commodity prices cooled inflation from a 16-year-high of 12.91 percent in August.
Benchmark wholesale prices rose 6.38 percent in the week to Dec. 20 from a year earlier after gaining 6.61 percent the previous week, the commerce ministry said in New Delhi today. Economists expected an increase of 6.41 percent.
Inflation may slow to 5 percent by the end of March, Arvind Virmani, the finance ministry’s top economist, said last week.
“The decline in inflation gives the Reserve Bank comfort to lower borrowing costs,” said Indranil Pan, chief economist at Mumbai-based Kotak Mahindra Bank Ltd. “The economy needs to be nursed back into good health and, therefore, we need rate cuts.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
Last Updated: January 1, 2009 06:13 EST
India Exports Fall a Second Month, Adding Pressure to Cut Rates
Jan. 1 (Bloomberg) -- India’s exports fell for the second straight month, adding pressure on the central bank to cut interest rates and support growth in Asia’s third-largest economy.
The Reserve Bank of India, which has reversed four years of monetary tightening in the past three months, has room to slash rates further after a report today showed inflation slowed to a 10-month low.
Lower borrowing costs will spur consumer demand among the nation’s 1.2 billion people and compensate for falling orders from recession-hit U.S. and Europe, India’s biggest markets. India became vulnerable to slowdowns and financial crises in other countries after it started to open its economy in 1991.
“The negative news on the external side intensifies pressure on the Reserve Bank to cut rates to stoke domestic demand,” said Prasanna Ananthasubramaniam, an analyst at ICICI Securities Ltd. in Mumbai.
Overseas shipments dropped 9.9 percent to $11.5 billion from a year earlier after contracting 12.1 percent in October, the first decline in seven years, the government said in New Delhi today.
Demand for made-in-Asia goods has slumped amid the deepening global economic slowdown. China’s exports in November fell 2.2 percent, the first decline in seven years. Singapore’s exports posted the biggest contraction in more than six years in the same month.
“My difficulties are increasing as export orders are slowing due to the recession in Europe,” said Heung Soo Lheem, managing director of the Indian unit at Hyundai Motor Co., South Korea’s largest automaker. “We need strong support from the government to keep our plants in good shape.”
Spending Plan
The government, which unveiled excise duty cuts and a 200 billion-rupee ($4 billion) spending plan last month to boost consumption, will announce more steps to help exporters, Trade Minister Kamal Nath said Dec. 11.
The central bank in November extended the period for subsidized pre-shipment credit to nine months from six months and increased the export refinance limit for commercial banks.
Still, Palaniappan Chidambaram, who was moved to the home ministry from finance after the Mumbai terrorist attacks in November, says India will focus on boosting local consumer spending, accounting for 60 percent of the nation’s $1.2 trillion economy, to make up for waning global demand.
“Overseas demand for goods will remain muted as there are no signs of growth revival in the U.S. and Europe,” said Shubhada Rao, an economist with Yes Bank Ltd. in Mumbai. “Companies can turn to the domestic market to offset the loss from foreign sales.”
Borrowing Costs
Measures to spur the economy began on Oct. 6 when Reserve Bank of India Governor Duvvuri Subbarao cut the amount of money lenders need to set aside with the central bank. On Oct. 20, he presided over the first rate reduction in four years. India’s repurchase rate is 6.5 percent, down from 9 percent set in July.
There is “considerable scope” to reduce borrowing costs, the finance ministry said last week, after a drop in commodity prices cooled inflation from a 16-year-high of 12.91 percent in August.
Benchmark wholesale prices rose 6.38 percent in the week to Dec. 20 from a year earlier after gaining 6.61 percent the previous week, the commerce ministry said in New Delhi today. Economists expected an increase of 6.41 percent.
Inflation may slow to 5 percent by the end of March, Arvind Virmani, the finance ministry’s top economist, said last week.
“The decline in inflation gives the Reserve Bank comfort to lower borrowing costs,” said Indranil Pan, chief economist at Mumbai-based Kotak Mahindra Bank Ltd. “The economy needs to be nursed back into good health and, therefore, we need rate cuts.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
Last Updated: January 1, 2009 06:13 EST