While the RBI may have indicated the end of its rate hike cycle, Nomura says it sees no scope for rate cuts any time soon and expects policy interest rates to remain on a prolonged pause until 2015
The Reserve Bank of India (RBI) left its repo rate unchanged at 8.00% as was widely expected, as CPI inflation seems to be panning out in line with its target of 8% by January 2015, while risks to the target remain broadly balanced. The RBI cut the statutory liquidity ratio (SLR) by 50 basis points to 22.5% to allow banks to expand credit to the non-government sector, in line with the Urjit Patel committee recommendations. RBI's forward guidance has become neutral to slightly dovish from hawkish up until the previous policy statement, which has fuelled expectations of rate cuts.
While the RBI may have indicated the end of its rate hiking cycle, Nomura says in its view, rate cuts are still contingent on the inflation trajectory and the RBI's estimate of what the real policy rate should be.
"We see no scope for rate cuts any time soon and expect policy interest rates to remain on a prolonged pause until 2015. No doubt, inflation will at times undershoot the RBI projections owing to base effects, but they would have to be sustainably below 8% by January 2015 and 6% by January 2016 for the RBI to start easing policy rates, given that the RBIs credibility hinges on meeting these targets," Nomura said in a research note.
Nomura said, CPI inflation, currently at 8.6% year-on-year (y-o-y) in April 2014, is likely to moderate sharply in second half on base effects, rise back closer to 8% in Q1 2015 and then moderate again towards 6% by January 2016. This assumes an 8% repo rate, 5% per annum increase in minimum support prices (MSP) and steady moderation in nominal rural wages for the forecast horizon of the next 18 months. "If the RBI starts cutting rates, then reaching 6% in 2016 will be difficult unless MSP and rural wages fall even more sharply, which we don't expect," it added.
The RBI replaced the export-credit refinance (ECR) facility with a special term repo. It reduced the liquidity provided under the ECR facility from 50% of eligible export credit outstanding to 32% and also introduced a special term repo facility of 0.25% of aggregate deposits. RBI also reduced the statutory liquidity ratio (SLR) by 50bp from 23% to 22.5%. "Overall," Nomura said,"these two steps are liquidity neutral. We note that the banking system is running an excess SLR of as much as 28% of aggregate deposits, so reducing the mandatory requirement from 23% to 22.5% – especially in the current low credit growth environment – should have hardly any impact from a bond demand perspective. However, steps such as an SLR cut will gain relevance when credit growth picks up at some stage down the line."
Other than improving liquidity, Nomura said it sees the current change in the RBI's policy stance as another factor that should be supportive for rates. "Given the RBI's policy stance has become more dovish, we believe the probability has increased that the next step –whenever it comes – will be a cut rather than hike. This was the main reason why the swap rates and bond yields fell on Tuesday. Put it another way, the market removed the probability of a hike as the next step and introduced some probability of a rate cut as the next step leading to a fall in yields. The 5-year swap rate fell 14bp and 10-year bond yields fell by 6bp on the day. We expect this fall in rates to be sustained as the market will find it difficult to price in the probability of a hike over the coming months, given the central bank's current stance. With that assumption, we expect 5-year swaps to hover in a range of 7.90% to 8.10%. We also expect 10-year bond yields to be in the range of 8.45% to 65%," Nomura added.
A New York City Department of Investigation report documents a shocking coziness between the two top law enforcement officials in Brooklyn
The correspondence between the senior Brooklyn judge and the long time district attorney is remarkable even for the often troubled world of Brooklyn politics. On a near daily basis, the judge advised the district attorney—on how to get re-elected, on how to deal with his own legal problems, and, perhaps most importantly, on how to manage any damage from an investigation into possibly wrongful convictions won by the district attorney's office over the years.
The judge is Barry Kamins, the man who during the correspondence was in charge of all criminal courts in Brooklyn. The district attorney is Charles J. Hynes, who served as the top prosecutor in Brooklyn for 24 years before, despite Kamins's campaign advice, he lost his bid for a seventh term last fall. Their communications became public Monday when the New York City Department of Investigation issued a damning 27-page report into how Hynes financed and conducted his 2013 re-election campaign.
Kamins, who had recently been promoted to an even more senior job in the New York State court system, has been relieved of his duties, and it is possible he will ultimately retire. Hynes could face criminal charges, and the office he once ran could find itself the target of more investigations.
ProPublica has spent more than a year examining the question of prosecutorial misconduct, and much of our focus has been on the office Hynes ran in Brooklyn for more than two decades. Hynes has been accused in one prominent lawsuit of having overseen an office where misconduct was condoned, and ProPublica has indeed found instances in which prosecutors working for Hynes violated their legal obligations but suffered no serious consequences.
The emerging information about Hynes' relationship with Brooklyn's top judge adds to the picture of a judicial system with few checks and balances.
One thing seems certain: No one interested in Brooklyn politics—those newly intrigued or those familiarly appalled—will soon forget the frank 2013 email exchanges between two of the most powerful law enforcement officials in Brooklyn.
"Judge Kamins appears to have, among other things, regularly advised Hynes regarding advantageous political endorsements, provided feedback on Hynes' public statements, assisted Hynes in his preparation for televised debates, and communicated with other individuals on Hynes' behalf regarding campaign-related activity," the report said by way of summary.
Kamins' input could be as mundane as a copyediting suggestion on a campaign announcement or as grave as how Hynes could best deal with a crisis wracking the office during the campaign: the possibility that the district attorney's office had sent innocent people to prison based in part on the flawed work of an apparently rogue police detective.
Those exchanges about wrongful convictions take place in late May 2013, weeks after Hynes had agreed to release a convicted murderer after 23 years in prison because of concerns about the honesty of the detective who had helped make the original case.
Hynes, facing an onslaught of unflattering news articles and editorials, had subsequently agreed to have some 50 murder cases involving the detective reviewed by his office. He informed Kamins that he wanted to appoint a panel of purportedly independent legal figures to, in effect, review his office's review.
"I don't agree with a board to 'review' findings," Kamins wrote to Hynes. "If this group should find fault with the work of the office that puts you in a worse situation. What do you do then? Go back and start over? It could be a disaster."
Kamins, in addition to suggesting people to serve on the panel, proposes allowing its members to participate in the actual review.
"That way," he wrote, "the final product will not be subject to further review and will have the appearance of independent judgment."
The Department of Investigation's findings were first reported by the New York Times.
Kamins and Hynes have long been both personal friends and major players in Brooklyn's legal world.
Kamins in the 1970s served in the district attorney's office, later became a defense lawyer, went on to head the New York City Bar Association, and was eventually made a judge. While a defense lawyer, Kamins had been a regular campaign contributor to Hynes, and a New York Times article in 1994 reported that he had benefited from what struck many as a kind of legal patronage: regular, paid appointments to serve as a special prosecutor in cases where Hynes, as district attorney, had a conflict of interest. Kamins has taught at two of the city's better law schools and in the last few months was named by the state's chief judge to serve as head of policy and planning for New York's court system.
A senior New York court official said it did not appear Kamins had broken any laws. His future, then, could well be decided by the Commission on Judicial Conduct, which has the power to remove him from his job and perhaps sanction him further.
"Joe Hynes and Barry Kamins have been friends for 40 years and have talked politics most of that time," said Paul Shechtman, Kamins' lawyer. "And the great bulk of this was Judge Kamins listening to Joe's gripes about a campaign that turned out to be much more closely contested than he ever imagined. But the Judge did nothing to influence the course of any case. He never favored Joe in the courtroom and he never would."
The Department of Investigation, having been quietly alerted to potential misconduct by Hynes and Kamins late last year, found that Hynes had misused hundreds of thousands of dollars of the office's money to pay for his campaign, and had improperly enlisted the help of his senior staff to participate in his re-election effort.
Hynes has not responded publicly to the findings.
One person who knows Kamins well said it was possible the judge still was not cognizant of how serious his misconduct was. Certainly, much about the exchanges with Hynes seems bafflingly casual. They each talked about keeping communications secret, but both used their government email accounts. Hynes even shared his communications with Kamins with other people in his own office.
"You are the new David Garth," Hynes wrote to Kamins in one email, invoking the legendary New York political consultant.
"Yes. I charge very little to be a consultant," Kamins responded, foreseeing a triumph for Hynes and a joyous election night with the district attorney and his wife. "My only request: standing next to you and Pat at the victory speech."
Kamins, the emails make clear, played a role in trying to get a fair hearing and good press for Hynes at The New York Times, the New York Law Journal and other publications. He claimed that he tried to "pump" the president of the Brooklyn Bar Association for information about what might come up in a looming campaign debate Hynes was to have with the man who ultimately defeated him, former federal prosecutor Kenneth Thompson. He even reviewed the opening statement Hynes was to give at the start of one debate with Thompson.
"Very good," Kamins wrote, "except do you want to go negative right away?"
Near the end of the Department of Investigation report, investigators relate two episodes in which Kamins offered actual, concrete legal advice to Hynes—on the merits of a lawsuit brought by a political rival of Hynes to prevent CBS from broadcasting a program featuring the Brooklyn District Attorney's office and on the question of whether a newspaper article that upset Hynes might be libelous.
The report concludes by listing a dozen roughly aspects of the judicial code of conduct that Kamins might have broken.
Joel Rudin, the lawyer who has sued Hynes office for a range of misconduct, is mentioned unflatteringly by Kamins in the emails.
"I've always had a deeply felt regard for Barry Kamins, and it's very painful to see how he completely lost perspective about what he was doing and who he was," Rudin said. "And I feel sorry for him."
It is unclear how long it will take the Commission on Judicial Conduct to review Kamins' behavior.
But one future event Kamins and Hynes jokingly discussed is not apt to take place. In one email, Hynes said he looked forward to the day Kamins would swear him in as a judge.
Kamins wrote back optimistically:
"My fondest wish."
Joaquin Sapien contributed reporting.
Should the government seriously consider making Railways into a corporate body, as this would enable them to go in for joint ventures, modernise, disinvest and even raise capital for their need?
Out of the 40 Railway Ministers we have had in India so far, eight of them have come from Karnataka, and Sadanand Gowda inherits what Mallikarjun Kharge left for him to do! Luckily for Sadanand Gowda, he is on a long haul and hopefully can accomplish a few things before his term expires some five years from now!
Generally, in a well run railway system, at the very least there are two tracks in use for increasing and smooth running of railways, both to carry passanger and freight traffic. Karnataka, for instance, has only 12% of its tracks in double line, as against 73% in West Bengal. we must admit though, that because of its vast hinterland and abundance of coal mining activity in the area for over 100 years, double tracks had to be laid for smooth transportation.
This is a problem with several other states too, and one of the main objectives for the new Railway Minister is to ensure that double tracks are laid as quickly as possible.
The cheapest source of power has been coal, which India has in abundance and the world's largest coal mining company operates from Kolkata. However, this has been plagued by continuous bottlenecks in the transportation of coal from pit heads to centres of consumption. Most times one hears of rakes not being available, which has eventually brought grief to the consumer.
With the new government in place and the Ministers settling into their jobs, for reducing power shortages which affect the industry, the government plans to speedily implement three key rail links to facilitate movement of coal, which have been at various stages of development:
- Tori-Shivpuri-Kathotia in North Karanpura, Jharkhand
- Bhupdeopur-Korichchaapar to Mand Raigadh Mines in Chhatisgarh
- Barpali-Jharasuguda in IB Valley, Odisha.
When completed, these corridorsare projected to get an additional 300 million tonnes of coal moved from these collieries. Until then, according to Narasing Rao, CMD of Coal India Ltd, we would not be able to get more than 30 million tonnes per year!
These corridors under development, are expected to cost the exchequer Rs7,500 crore, in addition to which, other issues like forest and environmental clearances, land acquisition and rehabilitation/ resettlement of displaced persons, and law and order problems will also have to be resolved satisfactorily. As Narasing Rao is reported to have stated that "it is crucial that the infrastructure for transporting coal are in place so as to obtain the potential 300 million tonnes of coal!”
Last year (2013-14), about 171 million tonnes of coal had to be imported, to meet domestic needs. By 2016-17, the demand for coal is expected to increase by 185 million tonnes. It may be remembered that India's known reserves of coal are stated to be the third largest globally, but our main problem has been to mine and evacuate the coal from the pitheads due to transport bottle necks. Railways, therefore, have a crucial role to play.
In the recent past, there have been talks and debates about whether foreign direct investment (FDI) in Railways should be allowed or invited, and if so, to what extent? Apart from expansion of single to double tracks, the other major issue has been whether time has come for India to be able to go in for super speed rail system?
The development of the Railway system has been slow and also subject to various problems of land acquisitions, rehabilitation, environmental concerns etc. Because of its slow speed in delivery, movement of cargo, even domestically is being lost to more efficient road transportation, at higher costs and wastage of precious foreign exchange on imported fuel. Coal mining industry needs to play a vital role in national development and that itself needs to be modernised.
Reverting therefore to the issue of Railways, should it be privatised? It was recently reported in the press that, Rakesh Mohan, Executive Director of International Monetary Fund, and formerly a deputy governor of Reserve Bank of India, seems to have expressed a suggestion that the Government could seriously consider making Railways into a corporate body, as this would enable them to go in for joint ventures,modernise,
disinvest, and even raise capital for their needs. He was not in favour of privatisation.
In the meantime, the Associated Chambers of Commerce and Industry of India (Assocham), in an advertisement campaign, called for reviving the Indian Railways as the "growth engine" of the Indian economy. Narendra Modi, the Prime Minister, had also called for the same.
The Assocham campaign calls for the implementation of the Kakodkar Committee Report and suggests a 15 year Mega Plan (2015-30) as a single package for transformation of entire rail network in the country. Such a plan includes development of additional seed freight corridors, accelerating and segregating passenger traffic, speedy connection to
ports, and increasing the number of tracks to facilitate such movements. High speed rails would have to be dealt with separately as they require different types of foundation etc.
Minister Sadananda Gowda has a long way to go to make the Indian Railways a bigger part of the Growth Engine as envisioned by the Prime Minister, Narendra Modi.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)