No immediate threat to India’s sovereign rating: S&P

“We do not see an immediate impact on India’s sovereign rating (BBB-/Stable) resulting from the lowering of the US sovereign rating to AA+. However, ballooning fiscal deficit constrain India’s sovereign ratings” S&P’s sovereign analyst Takahira Ogawa said

New Delhi: Standard and Poor's (S&P) has said there is no immediate threat to India’s sovereign debt rating of BBB, though loose fiscal policy and the government’s inability to carry forward economic reforms could have implications in the medium-term, reports PTI.

“We do not see an immediate impact on India’s sovereign rating (BBB-/Stable) resulting from the lowering of the US sovereign rating to AA+,” S&P’s sovereign analyst Takahira Ogawa told PTI.

S&P recently lowered the sovereign rating of the US to AA+ from AAA. The ratings are opinions that reflect the ability and willingness of the rated entity to meet financial obligations.

The decision to lower the sovereign rating of the US had deleterious consequences for stock markets all over the world, including India.

Referring to problems with regard to high inflation and the fiscal deficit in India, Mr Ogawa said, “Potential longer-term consequences may point to negative factors.”

He further said that while tight policies could have a positive bearing on the country’s rating, deterioration in fiscal health and setbacks on the economic reforms front might result in a downgrade.

India has been struggling to deal with inflation, which is nearing the double-digit mark. Headline inflation stood at 9.44% in June, while food inflation was 9.90% for the week ended 30th July.

On the fiscal side, rising prices of crude oil and high food and fertiliser subsidies, coupled with the inability of the government to raise Rs40,000 crore from the divestment of equity in public sector companies during 2010-11, could create problems.

Inflation, Mr Ogawa said, “Remains India’s biggest challenge in the near-term, as high inflation could push up credit costs and dampen the country’s economic growth trajectory.”

Although the pace of food price rise seems to have stabilised to ‘some extent’, prices of manufactured products are still increasing, he said.

Referring to public finances, Mr Ogawa said, “Ballooning fiscal deficit also constrain the sovereign ratings on India.

Continuing its fiscal consolidation policies into fiscal 2012 will be a key challenge for the government.”

India’s sovereign rating, S&P said, could be raised if “the government continues to reduce the public sector’s deficits materially.

“For example, future government initiatives to significantly reduce subsidies for fertilisers, foods and fuels would be a positive factor in improving the expenditure structure of the budget and reducing the negative influence of potential external shocks on India's fiscal position,” the agency said.

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After NSE, USE to impose charge on currency derivatives trade

Welcoming the NSE decision, USE managing director and chief executive T S Narayanaswami said charging a fee is important. “You are not in business if you don’t charge a fee, but in charity,” he added

Mumbai: The United Stock Exchange (USE), which has premier bourse BSE (Bombay Stock Exchange) as its largest shareholder, has said it will soon take a call on imposing service charges on currency derivatives trading, reports PTI.

“We welcome the decision by the National Stock Exchange (NSE) and we will take a call on imposing charges soon. Our board will meet by the last week of this month to decide on this,” USE managing director and chief executive T S Narayanaswami told PTI here.

Welcoming the NSE decision, he said charging a fee is important, otherwise it will not be business, and pointed out that everyone was doing it for free all this while, impacting the sustainability of the private players.

“The NSE decision to charge a fee should help the business. You are not in business if you don't charge a fee, but in charity,” said Mr Narayanaswami.

On 12th August, the country’s largest stock exchange by volume, the NSE, had said it would start levying charges on currency derivatives trading from 22nd August.

The move came within two months of the Competition Commission of India (CCI) holding the largest currency player guilty of abusing its dominant market position with subsidised and unfair pricing and slapping the NSE with Rs50.5 crore in penalties in June.

The CCI order came pursuant to a complaint by rival privately held (Financial Technologies) exchange MCX-SX. The MCX Stock Exchange had also welcomed the decision by its rival bourse and said it was a very positive development for the currency derivatives market.

The NSE had been claiming that it waived the charges for the benefit of the market and the consumers and all market players—including exchanges, members and consumers—have benefited from the move and it would challenge the CCI order.

When asked if the broking community will take such a decision kindly, Mr Narayanaswami said, “By and large, brokers should accept as long as they have liquidity. Frankly speaking, I don’t expect any protest from the brokers.”

Whether he sees any price war in the wake of the NSE move, he said: “I won’t be surprised if there is price competition.”

But he refused to comment on whether he would charge less than the rival NSE.

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July inflation to be close to double-digit, say experts

“Though global commodity prices have declined in the past week it is still too early to factor that into inflation. Besides, the spill-over of the domestic fuel price hike of May will continue to have some impact and so headline inflation in July around 10%,” Deloitte, Haskins & Sells director Anis Chakrabarty opined

New Delhi: Pressure on the price front is likely to continue with the headline inflation in July expected to be close to double-digit, keeping the Reserve Bank of India (RBI) on the path of tight monetary policy, reports PTI.

The inflation numbers for July will be released on Tuesday.

“Though global commodity prices have declined in the past week it is still too early to factor that into inflation. On the other hand, the spill-over of the domestic fuel price hike of May will continue to have some impact and so headline inflation in July could be close to 10%,” Deloitte, Haskins & Sells director Anis Chakrabarty said.

The near double digit inflation, he added, could prompt the RBI to continue with its tight monetary policy which it had been following since March 2010.

“In such circumstances a further rate hike cannot be ruled out,” Mr Chakrabarty said.

Inflation, as measured by the Wholesale Price Index (WPI), stood at 9.44% in June. It has been above the 9% mark since December last year.

The RBI has hiked its key policy rates 11 times since March 2010 to tame the rate of price rise. India Inc has said that repeated rate hikes have affected investments by raising borrowing cost.

“Inflation will be close to 10% for July. As per our estimates, it will be around 9.8%,” Crisil chief economist DK Joshi said.

Factors like high price rise of food and manufactured items will contribute to the rise in inflation, he added.

“Inflation is now broad-based and not confined to any specific segment of the WPI pie,” Mr Joshi said.

He said there is a high probability of RBI going for hike of 25 basis points in its rates in its 16th September mid-quarterly policy review.

“A reversal in the RBI’s monetary stance and focus on inflation management in the near term is unlikely, unless there is a sharp and sustained downtrend in commodity prices,” ICRA economist Aditi Nayar said.

The better-than-expected 8.8% growth in industrial production in June may also provide the RBI more leeway to go for rate hike.

“Industrial output has grown at 8.8% in June...

Such numbers may also prompt the RBI to go ahead with further rate tightening in case inflation is seen to persist at over 9%,” Mr Chakrabarty said.

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