The Reserve Bank of India came forward to make a positive decision to cut the interest rates, CRR by 100 bps, repo rate by 50 bps. The RBI took the bold decision to cut CRR for injecting nearly Rs 1 Lakh crores in to the system.
This support to system can build confidence and ease the pressure on the stock markets due to the impending MF and FMPs redemption pressure. The Govt has recognized the slow down in the industrial activity especially in manufacturing sector. The agricultural commodity led industries like, Tractors & automobile, Textiles and Sugar sector season has begun but the liquidity crunch will impact the farmers that could be very costly while in an election year. The woes of reality sector due to the tight loan availability not only impact the builders but the big un-organised labourers and the related down the line industries. These steps will through a positive signal that the govt. at the helm is for the masses and willing to listen to the voices of the industry.
Saturday, November 01, 2008
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Serbia raises interest rates in surprise move
• Reuters
• , Friday October 31 2008
(Updates with more detail, analysts' reaction)
By Gordana Filipovic
BELGRADE, Oct 31 (Reuters) - Serbia's central bank, going against the flow in most of the world, raised interest rates by two percentage points on Friday to prop up the faltering dinar currency and fight high inflation.
The decision was announced ahead of a Savings Week initiative, with banks trying to attract back savers, after an 8.5 percent decline in deposits earlier this month on fears that the global financial storm could hit Serbia.
The National Bank of Serbia said it would raise its two-week repo rate to 17.75 percent as of Nov. 3, the day when governor Radovan Jelasic is due to present the reasons for the rate decision.
The rate change came as a surprise. A Reuters monthly poll of analysts and currency dealers earlier this week showed 17 out of 19 respondents expecting no rate change.
In response to the world financial crisis, many central banks have recently cut interest rates seeking to spur growth, although Iceland tightened by 6 points this week.
"If they hiked rates in different circumstances, the impact of the rate rise on the dinar would have been more significant," said Zoran Petrovic, board member at Raiffeisenbank.
The tightening lifted the dinar by nearly 0.5 percent to 84.30/euro at the end of the trading session, up from 84.75/euro where it traded before the rate decision.
But dealers said the dinar reaction could not have been any stronger in a thin market, as banks still prefer euro liquidity to dinars, and refrain from trading among themselves.
Thin interbank liquidity prompted a series of central bank interventions this week, but it could not curb the dinar falls.
With a seven percent loss this year, the dinar was the biggest loser in Eastern and Central Europe. The Romanian leu lost 2.28 percent in 2008 and the Hungarian forint 3.42 percent.
CRITICAL WEEK
Many in the market say the Savings Week through Nov. 9 will be a make-or-break period for Serbia's financial stability, as an estimated 800 million euros worth of last year's 12-month savings mature and no one has an idea if savers will agree to leave the money with banks for another year.
"Banks will try to attract as many new deposits as possible," a senior treasury analyst said. "New deposits will be our euro liquidity and if people decide to keep on saving, the pressure on the dinar will ease."
Bankers said it was difficult to guess people's choices.
"For some, the interest rate hike can be a signal that they are serious about inflation and the dinar, and perhaps they will decide to stay. But some may read this as a sign of trouble," one senior treasury analyst said. "We'll see next week."
Banks are offering rates between 6.0 and 9.75 percent a year on euro deposits and 20 percent on dinar savings.
With the economy still expanding, Serbia's central bank was more concerned about fighting inflation, analysts said. "Serbia clearly has a problem with inflation, not recession, and it has to be addressed," said Dusko Vasiljevic of CEVES think-tank.
Earlier in the day, the official statistics reported core inflation prices rising at a monthly rate of 1.1 percent in October, up from 0.9 percent last month, far above the central bank's amended target of 8.7 percent at the end of 2008.
The bank last raised the two-week repo rate by 50 basis points to 15.75 percent on May 29 on signs that it would overshoot the 3-6 percent core inflation target for 2008. (additional reporting by Ivana Sekalarac) (Editing by Mike Peacock and Andy Bruce)
Iceland hikes interest rates to 18%The rate rise means that investors get a much higher return for putting money back into the Iceland's crippled financial systemJulia Kollewe guardian.co.uk, Tuesday October 28 2008 12.45 GMT Article history
Icelandic krona. Photograph: Nordicphotos/Alamy
Iceland's central bank unexpectedly raised interest rates by 6 percentage points to 18% today as part of a loan agreement with the International Monetary Fund.
The move was designed to restore trust in Iceland's battered currency. After the announcement, the Icelandic krona traded internationally for the first time in a week.
The rate hike, which took rates to the highest since the Icelandic central bank began targeting inflation in 2001, came just a fortnight after borrowing costs were eased. Last week Reykjavik agreed a stand-by loan of $2.1bn (£1.33bn) with the IMF, but its prime minister said the country needs another $4bn.
Two weeks ago, the central bank cut rates by 3.5 percentage points to 12%. "This has come a bit out of the blue following the latest interest rate cut," said Elisabeth Gruie, emerging markets strategist at BNP Paribas. "And it reflects a desperate attempt to restore a degree of confidence in the local market and restore trading in the Icelandic krona, which has been completely frozen."
The island has been hit hard by the global financial crisis and three of its biggest banks have been nationalised.
The rate rise means that investors get a much higher return for putting money back into the Iceland's crippled financial system.
"It is of overarching importance to restore stability in the foreign exchange market and support the exchange rate of the crown," said the central bank, Sedlabanki.
Its governor David Oddsson said the rate rise was required before the IMF's board signed off the package, which is expected to happen on Thursday.
He admitted that Icelanders would suffer from higher borrowing costs. "This rate will obviously be very hard on the public and businesses. It should not come as a surprise given the enormous blow when 85% of the banking system collapses," he said.
But the central bank chief, a former prime minister who has faced calls to resign, said the island would bounce back. "At the end of all this, my guess is that the biggest surprise will be how fast we were back on our feet given the enormity of the blow."
Iceland's finance minister, Arne Mathiesen, said interest rates could come down again once the krona had stabilised.
Jon Harrison, an analyst at Dresdner Kleinwort, said the rate hike would help but more work was needed before people felt comfortable trading the krona. "That's started today, but it's still very illiquid," he said.
the inflation in India deflating for last 5 weeks and likely to touch 9% by December ending. In case govt can dare to cut the fuel price( even for the elections sake)then the inflation will fast recede. The markets are facing the liquid crunch, so is our industries. The decision to cut the CRR and SLR will not dampen the financial system if not boost the economy at this critical stage.
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