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Friday, June 27, 2008
Inflation to bring growth down
Inflation, fuelled by surging energy and commodity prices and interest rate hikes by the Reserve Bank, could pull down India's economic growth from the projected eight per cent to 7.8 per cent this fiscal.
"High oil prices, strong input costs and a depreciating Rupee continue to exacerbate inflationary and other pressures. High interest rates, along with a slowing global economy, will trim GDP growth to 7.8 per cent in 2008-09," Standard & Poor's Asia-Pacific Chief Economist, Subir Gokarn, said in a statement here today.
The inflation rate was expected to be around 8.5 to nine per cent during this fiscal.
Rising inflation, a forecast slowdown in economic growth, and turmoil in the global financial markets have dampened investor confidence and led to foreign capital outflow.
"This has led the rupee, which was already under pressure from a rising oil import bill, to depreciate as sharply this year as it appreciated in 2007," the statement said.
As global market conditions become more stable and oil prices moderate, the rupee could appreciate to around Rs 41-41.5 vis-a-vis the US dollar towards the end of the fiscal year, the statement added.
The country's current account deficit was expected to swell to about 2.6 per cent of GDP.
"Fiscal improvements in the past few years are likely to be reversed this year, due to a surge in oil, fertiliser and food subsidies," the statement also said.
The Central government's fiscal deficit (including off-budget liabilities) is an estimated 6.2 per cent of GDP, compared with the budgeted 2.5 per cent (excluding off-budget liabilities). The consolidated fiscal deficit of Centre and states should touch 8.5 per cent of GDP, the statement said.
Crisil's chief economist, D K Joshi, said "after four years of noteworthy fiscal consolidation, a reversal is on the cards in 2008-09."
The fiscal improvement was supported by very strong revenue gains, particularly from direct taxes.
"These gains are now being offset by the sharp surge in the subsidy burden from petroleum products and fertilisers," Joshi said.
The 6th Pay Commission and the farm loan waiver announced in the Union budget by the Finance Minister would add to the fiscal stress this year, he said.
However, despite the deterioration, the situation is not yet as bad as it was in the beginning of this decade when the consolidated deficit of the centre and states was above 10 per cent of GDP, he said.
A bright day for bullion metals
Gold registers highest one day gain in two years
Bullion metals ended considerably higher today, Thursday, 26 June, 2008. Prices declined as the dollar weakened against its rivals. Prices soared as the energy costs also increased considerably today. The increase in energy costs increase demand for the precious metal as a hedge against inflation. Silver prices also rose the most in two weeks.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies.
Comex Gold for August delivery rose $32.8 (3.7%) to close at $915.1 ounce on the New York Mercantile Exchange. It was the biggest percentage gain for a most-active contract since June, 2006. Last week, gold prices ended higher by $30.6 (3.5%). Last month, in May, it ended with a gain of higher by $22.5 (2.5%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.
This year, gold prices have gained 9.7% till date against a 7% drop for the dollar against the euro. Before May, for April, prices closed lower by 6.3%. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.
On Thursday, Comex silver futures for July delivery rose 61.3 cents (3.7%) to $17.22 an ounce. Last week, silver has gained 5%. Silver has gained 15.5% in 2008 till date.
Silver prices ended the month of May 2008 with a gain of 2.7%. For April, it closed lower by 5.5%. Silver had gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
At the currency markets on Thursday, the dollar continued to decline, a day after the Federal Reserve left interest rates unchanged and voiced concerns about surging commodity prices, but failed to signal urgency to raise rates to curb inflation. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, was at 72.55, compared with 72.90.
The Federal Reserve yesterday sharpened its focus on inflation, saying that the upside risks to inflation have increased. Fed held its target for short-term interest rates steady at 2%.
Since last September, Fed has axed interest rates seven times and brought it down to 2%. On the other hand, the ECB has kept rates unchanged at 4% since June, 2007. Gold gained 39% from 17 Sept as the Fed slashed rates from 5.25%.
In the crude market on Thursday, crude oil jumped above $140 a barrel to a record as Libya threatened to cut output, OPEC's president said prices may reach $170 by the summer and the dollar weakened. Crude oil for August delivery rose $5.09 (3.8%) to $139.64 a barrel.
Gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. In 2006, silver had jumped 46% while gold gained 23%.
At the MCX, gold prices for August delivery closed higher by Rs 377 (3.1%) at Rs 12,601 per 10 grams. Prices rose to a high of Rs 12,639 per 10 grams and fell to a low of Rs 12,238 per 10 grams during the day’s trading.
At the MCX, silver prices for July delivery closed Rs 743 (3.2%) higher at Rs 24,130/Kg. Prices opened at Rs 23,465/kg and rose to a high of Rs 24,374/Kg during the day’s trading.
Crude prices shoot up by $5
Prices close at a new all time high aided by a host of factors
Crude futures rose by more than $5 at one shot today, Thursday, 26 June, 2008. A host of factors contributed to this sudden rise. First and foremost, the dollar weakened today. Then, Libya threatened to cut output and also OPEC's president said prices may reach $170 by the summer.
Crude-oil futures for light sweet crude for August delivery today closed at $139.64/barrel (higher by $5.09/barrel or 3.8%) on the New York Mercantile Exchange. It traded as high as $140.06 during intra day trading. This was an all time new closing price for crude. Last week, crude prices closed lower by 0.2%. Prices are 98% higher than a year ago. For the year, crude is up by 42% till date.
It was reported today that Libya may curb output because of a U.S. law that allows terror victims to seize assets of foreign governments as compensation. OPEC President Chakib Khelil was also reported to have said that oil may surge as high as $170 in near months on a European interest rate rise.
Yesterday, the EIA reported that U.S. crude supplies climbed by 800,000 barrels to 301.8 million for the week ended 20 June. It was the first reported rise since early May. Supplies had fallen a total of nearly 25 million in five weeks. EIA also reported that motor gasoline supplies fell 100,000 barrels to 208.8 million barrels. Distillate stocks were up 2.8 million barrels at 119.4 million barrels.
Saudi Arabia pledged last weekend that it will pump an extra 200,000 barrels a day next month to calm the oil market.
Brent crude oil for June settlement today rose $5.5 (4.1%) to $139.83 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.
Natural gas in New York advanced after a U.S. government report showed supplies last week gained less than forecast and as crude oil rose to a record. Natural gas for July delivery rose 35.2 cents (2.8%) to settle at $13.105 per million British thermal units. Futures have gained 75% this year. The July contract expired today.
EIA reported today that inventories advanced 90 billion cubic feet in the week ended 20 June to 2.033 trillion cubic feet.
Against this backdrop, July reformulated gasoline rose 11.7 cents to close at $3.5113 a gallon and July heating oil gained 13.4 cents to end at $3.8834 a gallon.
At the currency markets on Thursday, the dollar continued to decline, a day after the Federal Reserve left interest rates unchanged and voiced concerns about surging commodity prices, but failed to signal urgency to raise rates to curb inflation. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, was at 72.55, compared with 72.90.
The Federal Reserve yesterday sharpened its focus on inflation, saying that the upside risks to inflation have increased. Fed held its target for short-term interest rates steady at 2%.
At the MCX, crude oil for July delivery closed at Rs 5,901/barrel, higher by Rs 175 (3.1%) against previous day’s close. Natural gas for July delivery closed at Rs 557.5/mmbtu, higher by Rs 6.3/mmbtu (1.1%).
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