Bonds, Currencies & Commodities
Fall in price of crude oil good for India: Credit Suisse

Crude oil prices have dipped below $100 for the first time since last July and have prompted analysts to sound an optimistic note on Asia’s economy. India is one of the beneficiaries, according to Credit Suisse

In a note released on 17 April 2013, Credit Suisse expects that the recent fall in crude oil prices will be positive for Asia as a whole, except Indonesia and Malaysia. Even India is expected to benefit. The note stated: “A sustained 10% drop in oil price will likely add 10-20 basis points (bps) to gross domestic product (GDP) growth in non-Japan Asia but subtract 50-90 bps off headline inflation.” Referencing to countries like India, it further added, “For fuel subsidisers, the lower oil price will improve their fiscal position with the exception of Malaysia.”
 

Crude oil prices have dipped below the $100 per barrel psychological barrier for the first time since July.  The key beneficiaries of the fall in crude are India, Thailand, China, Singapore, Taiwan, the Philippines, Hong Kong and South Korea. The biggest losers, however, are Malaysia and Indonesia. The reason—Malaysia is a loser because it is a net-seller of fuel as is Indonesia. Commodity prices, especially crude oil, have been significant influencers in emerging markets economies.
 


The fall in crude would result in fall in inflation, better fiscal situation and a more important yet possible outcome: rate cut by central banks. The report said, “Lower inflation pressure supports our view that central banks in India, Korea, Taiwan and the Philippines will cut their policy rates further.” Yet, Credit Suisse feels that central banks in Indonesia, Malaysia and Thailand will not ease their stance as their respective economies are already overheating.
 

It isn’t only crude oil prices that have been a significant event. Even other commodity prices have fallen, especially gold. According to the figure below, commodity prices decline would mean less headline inflation as well. Several important commodities like rice, soyabean, corn, palm oil (used by food manufacturers and FMCGs), rubber (used by automotives); all have declined when compared to 2012 price levels. This bodes well as far as inflation is concerned.
 


However, the biggest beneficiary of India’s fiscal situation is gold. It has been a remarkable fortnight for Indian markets as they take an astounding U-turn after correcting for much of the year. Apart from the fall in crude oil prices, the precipitous crash in gold prices, which careened down as much as 13% in just a few days, prompted many analysts and pundits to suddenly be optimistic about India’s macro picture and are already blowing their bull-horns. The markets have already reacted positively to the crude and gold price decline. The BSE Sensex has rebounded more than 2%, or more than 500 points, since news of gold sell-off, and is currently quoting at 18,731 at time of writing this piece.

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Stock, forex markets closed today

BSE, NSE, forex and money markets, commodity markets like oilseeds, pepper and metals are closed today for the festival of “Ram Navami”

The Bombay Stock Exchange, National Stock Exchange, forex and money markets, commodity markets like oilseeds, pepper and metals are closed today for the festival of “Ram Navami”.

 

However, bullion, sugar and grain markets will remain open as usual.

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