Bond Vigilantes

Loan growth is slow. Why then are interest rates still so high?

In the 1980s, there was a band of high-profile bond traders who used to sell bonds heavily whenever they suspected that the central banks were not acting strongly and quickly enough to reduce deficits, government borrowings and inflation. Edward Yardeni, market strategist, called them bond vigilantes. Bond traders in India are...

Premium Content
Monthly Digital Access

Subscribe

Already A Subscriber?
Login
Yearly Digital Access

Subscribe

Moneylife Magazine Subscriber or MAS member?
Login

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Food inflation jumps to 15.6% as potato prices soar

Food inflation shot up to 15.6% for the second week of November on the back of spiralling potato prices, which have more than doubled in the past year, reports PTI.

Other essential items like pulses and onion rose by more than 25% in the wholesale market, government data on inflation for the week ended 14th November showed.
 
"Food inflation is incredibly high...The drought has aggravated the situation and I expect the wholesale price-based inflation to rise to around 7% by March next year," said HDFC Bank economist Jyotinder Kaur.
 
With inflationary pressure building up, the RBI in its next policy review may take steps to check easy money. "It is likely that RBI in its January policy might go for monetary tightening measures and raise the cash reserve ratio (CRR) or policy rates," Kaur said.
 
According to the inflation data, potato prices rose by 111%, pulses by 35% and onion by 27% in the one-year period ending 14th November.
 
Staple items like wheat and rice rose by 12% each during the period. Vegetable prices too continued to go up, registering a 12% rise during the same period. However, among fuels, petrol prices fell by 12%, cooking gas by 7% and diesel by 6%.
 
Food inflation for the week ended 14th November was significantly higher even when compared on a weekly basis.
 
Axis Bank economist Saugata Bhattacharya said the persistence of higher food prices is worrying. "I expect wholesale price inflation to rise between 7% and 8% by March-end," he said.
 
Among other items, urad and poultry chicken prices rose by 15% each, eggs by 8%, moong by 6%, arhar by 5% and fruits & vegetables by 3%.
 
Led by costlier food prices, wholesale inflation rose to 1.3% in October from 0.5% in the previous month. Inflation had remained in the negative for 13 straight months before trudging into positive territory in the first week of September at 0.1%.
 
Among non-food articles, raw silk rose by 3% and fodder and groundnut seed by 2% each. Barley, however, fell by 2% and tobacco by 3%.
 
The fuel index, on the other hand, remained unchanged at the previous week's level. The primary articles index rose by 1.2% on a weekly basis and by 11.04% on an annual basis.
Yogesh Sapkale
Like this story? Get our top stories by email.

User

COMMENTS

siva

9 years ago

Good news

As the greenback loses its sheen, gold’s gleam is shining bright

Countries look to park their funds in the yellow metal due to a falling US dollar and diminishing yields from government securities

The month of December 2009 is expected to be very exciting for gold lovers, bullion dealers, speculators and central banks as the International Monetary Fund (IMF) is set to sell an additional 190 tonnes of gold. India is seen as the leading suitor while smaller countries are expected to jump into the gold-buying fray.

Early last month, the RBI bought 200 tonnes of gold from the IMF for over $6.70 billion.

After India’s big purchase, Sri Lanka announced that the country had bought 10 tonnes of IMF gold for about $375 million while Mauritius purchased 2 tonnes for $71.70 million. This created speculation that almost every country is keen to increase reserves by buying the yellow metal on the back of a declining US dollar.

Speaking on the RBI’s purchase of gold, J Moses Harding, head of global markets group, IndusInd Bank, said that the purpose of the central bank’s investment in gold may have been to re-balance its investment portfolio for better returns.

Mr Harding also said that it does not make sense to hold most investments in low-yielding bonds (issued by the US or other developed countries) and as a strategy, RBI should look at spreading its investment portfolio across different asset classes and across currencies.

Since gold prices are already up by 15%-20% since the RBI’s purchase of gold, it is not sure whether the rally in gold would sustain over the longer term—beyond three-five years—and investments at the current level should be
short term in nature, he added.

The global markets expect gold prices to cross $1,200 per ounce since prices began rising from the September 2009 low of $992 per ounce. Speculations that central banks would purchase more gold to hedge against the falling US currency and fears about inflation in the year 2010 have driven prices upwards.

According to Mr Harding, the weak dollar and low interest rate regimes in developed economies will keep the bull phase of gold intact for an extended period of time. But it is very difficult to set a target as gold is trading at levels not seen before (after a sharp fall from $1,030 to $680 per ounce since March-October 2008), registering a 75% rally since October 2008, he said.

Mr Harding also feels that the yellow metal is now in safe haven due to weak (and uncertain) equity markets across the globe and low yields on bonds. Also, the performance of the real-estate market is under a cloud as a quick global economic turnaround is not expected, he added.

History indicates that gold prices have always been riding on the movement of the US dollar. Hence, investors need to be very cautious when it comes to investment in gold from here on, as gold prices are being clearly driven by the depreciating US dollar. If the greenback shows strong signs of appreciation in the future, a correction in gold prices is probably likely.

Despite the fact that gold prices have made new highs globally, the demand in India still remains suppressed.

According to provisional data released by the Bombay Bullion Association (BBA), India’s gold imports have declined to around 18 tonnes for November 2009, compared to the 34 tonnes the country had imported the same month last year. In October 2009, the country had imported 48 tonnes of gold, a rise of 45% compared to 33 tonnes in the corresponding period last year due to sharp rise in jewellery demand and a pick-up in investment.

In November 2009, Minerals & Metals Trading Corporation (MMTC) had picked up 15.13 tonnes from the global market as against 10.42 tonnes in the same period in 2008-2009. In the first ten months of 2009, gold imports were 156.9 tonnes, down 59% from 383 tonnes in the same period in 2008, as per BBA data. Again, gold imports till November this fiscal remained low at around 400 tonnes, compared with 635 tonnes in the same period last year.
-Swapnil Suvarna [email protected]
 

Like this story? Get our top stories by email.

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

online financial advisory
Pathbreakers
Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
online financia advisory
The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Online Magazine
Fiercely independent and pro-consumer information on personal finance
financial magazines online
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
financial magazines in india
MAS: Complete Online Financial Advisory
(Includes Moneylife Online Magazine)