Birla Sun Life MF introduces Birla Sun Life Fixed Term Plan

Birla Sun Life Mutual Fund has announced the New Fund Offer (NFO) for Birla Sun Life Fixed Term Plan—Series DF, a close ended income scheme

The NFO opens for subscription on 18 July 2011 and closes on 28 July 2011. The duration of the scheme will be 368 days from the date of allotment of units. No entry and exit load is applicable. The investment objective of the scheme is to generate income by investing in a portfolio of fixed income securities maturing on or before the duration of the scheme.

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Bankers want a halt to hikes, clarity on future rate, inflation

We have also urged the RBI to come out with a clear statement on the future interest rate and inflation scenarios in the 26th July policy document so that the banks and the industry can plan better," CEO of Indian Banks Association K Ramakrishnan told reporters

Mumbai: Amid a steep slowdown in credit offtake and an unexpected spike in deposits, bankers today urged the Reserve Bank of India (RBI) to hold the policy rates at the current levels and sought a clearer picture on the future interest rates and inflation scenario at its policy review next week, reports PTI.

"Credit growth has been too lax for some time now. So we want the monetary authority to send out a signal that there is a pause on rate tightening. Such a stance can send out the right signal to bankers as well as the industry.

We have also urged the RBI to come out with a clear statement on the future interest rate and inflation scenarios in the 26th July policy document so that the banks and the industry can plan better," CEO of Indian Banks Association K Ramakrishnan told reporters.

He was talking to the media after the customary pre-policy meeting with RBI brass at the Mint Road office here.

Prominent bankers, led by State Bank chairman Pratip Chaudhuri, HDFC Bank's Aditya Puri, Bank of Baroda's MD Mallya and Bank of India's Alok Misra met deputy governor Subir Gokarn and aired views on the interest rates, credit and deposit growth, overall economic growth, stressed assets and other macroeconomic data ahead of the first quarter policy review on 26th July.

In its attempt to tame inflation, the central bank has spiked its key rates a record 10 times since March 2010 whereby it has pushed up the short-term lending (repo) and reverse repo or borrowing rates by a massive 275 basis points (bps).

Analysts are expecting another 25 bps spike on 26th July as inflation situation is still highly sticky.

With the provisional estimates for inflation for June at a double-digit mark at 9.44% and a recent hike in fuel prices, analysts and the industry are expecting further escalation in prices, and another bout of tightening next week by RBI.

Bank of Baroda chairman and managing director MD Mallya, who is also chairman of IBA, warned of a steeper slowdown in credit growth. He said that as no new projects were being planned by the industry, it was unlikely that banks would see an uptick in advances in the current quarter as well.

However, he said, the industry would wait a while longer to decide whether to scale down the growth targets further.

He pointed out infrastructure as among the sectors that have seen lowest credit growth. Ironically, this was one of the most vibrant sectors last year, he said.

The head of the third largest state-run lender also warned that bankers could see more deterioration in the asset quality of SME advances going forward, if the overall industry scene remained cloudy as it is today.

On the liability front, the bankers in general have been witnessing reasonable growth in deposits, especially savings accounts.

Bank of India chairman and managing director Alok Misra said it was a bit early to revise downward the industry's growth target, even as the early signals were not encouraging.

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China just cannot do anything wrong, at least that’s what the government and some economists think

There is a lot that may not look right with the Chinese economy. Yet the faith that the Chinese government and foreign economists place in Chinese regulations, restrictions and policies remains absolute

Laws are supposed to solve problems. A government perceives some sort of economic or social problem. Then in step the technocrats, the bureaucrats, or the executive, and implements a solution, a regulation, or a policy. There is one problem, unintended consequences. Certain people may not believe that a government decision works for them, so they find a way around it. An excellent example is inflation in China. It is out of control.

In China the government's economic policies have a great deal of street cred. After all, didn't China use its control over the banking system to avoid a major recession that crippled the West? Haven't they successfully engineered constant, rapid, often double-digit growth? According to the Financial Times, economists think that China can do it again. "Most economists expect inflation to peak this month and begin to ease in the second half of the year as Beijing's tightening policies take effect." Many economists also expected the central bank's rate increase in July to be its last for the year. In June, Chinese premier Wen Jiabao encouraged these views by declaring victory over inflation. Mr Wen wrote that "China has made capping price rises the priority of macro-economic regulation and introduced a host of targeted policies. These have worked."  

It seems that 'most economists' have a lot of patience as well as almost religious belief in China's ability to control its economy. Sadly, the Chinese government first started 'tightening' in February of 2010. As part of its tightening programme it has raised reserve ratio requirements four times in 2011 and interest rates five times since October 2010. But it hasn't stopped inflation.

Consumer price inflation has been rising since the middle of 20l0. It reached a 34-month high of 5.5 % and then topped that in June, when it rose to 6.4%. This is the highest inflation rate since June 2008, when CPI hit 7.1 %. The only thing that stopped inflation then was a global meltdown. Even the headline number might be too low. Food prices rose 14.4 % from a year earlier in June, exacerbated by a 57 % increase in the price of pork.

Like prices, growth shows no sign of slowing. The Chinese economy did dip to a 9.5% growth in the most recent quarter, but industrial production has increased 15.1% since May. Retail sales in June are up 17.7% and real estate is still booming despite efforts to control it. Housing sales in June rose 31 % from May and China's largest developer, Vanke Co, reported that sales had increased 79 % this year.

To slow this torrid growth in prices, the Chinese have resorted to restrictions and controls rather than the market. They required sellers of pork, rice, noodles, cooking oil and other staples to ask permission before raising their prices. They even fined the international consumer goods firm Unilever, for announcing planned price rises.

The problem with these mandates is that they don't work. The Chinese, like Wall Street banks, are past masters at getting around regulations. According to the People's Bank of China, of the 14.27 trillion yuan of new credit extended in 2010, about 41.5 % came from other non-bank channels. Just published figures reveal that local government debt had soared to $1.7 trillion, or about 27 % of the nation's gross domestic product. To get around restrictions on lending, local governments created 6,576 local government investment vehicles, which are not included on the state-owned banks' balance sheets along with other off-balance sheet dodges like entrusted loans.

So despite the tightening efforts, China's banks succeeded in extending 633.9 billion yuan ($98 billion) of loans last month, which represents an increase of 14.9 % from May. The money supply is also out of control. M2 growth rate rose to a three-month high of 15.9 % in June, accelerating from 15.1 % from May, which according to a local economist was "unexplainable". A Credit Suisse report states that Chinese credit growth has reached a critical level, which in other countries has signaled a sudden downturn.

One thing that the Chinese could do to tame inflation would be to subject the yuan to market forces, but they have no intention of doing so. Instead they have to print yuan to buy all the foreign exchange streaming into the country. As its foreign reserves rise to unsustainable levels, so does its rate of inflation.

The off-balance sheet lending spree has created another mountain of bad loans that may be as high as $400 billion. A Fitch ratings gauge suggests that China faces a 60% risk of a banking crisis by mid-2013.

And yet the faith that the Chinese government and foreign economists place in Chinese regulations, restrictions and policies remains absolute. China simply cannot have either a hard landing or hyper inflation and that's the law.
 
(The writer is president of Emerging Market Strategies and can be contacted at [email protected]  or [email protected].)

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COMMENTS

pantulu

5 years ago

The author appears to think that markets are the ultimate and no intervention is needed to control prices. Unfortunately this theoretical asumption is not valid in actual practice especially when it pertains to food items which cotribute a lot to inflation. We have the example in India where some items like tomatoes are destroyed since vested interests would not like prices to fall because of abundant supply. Intervention is definitely needed to make the produce reach the market and prices are correspondigly controlled. This applies to many items where the supply is sufficient but the prices are artificially jacked up.

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