Intelligentguess

• Overnight Money rates have crashed
  • Less than 1.5% for borrowing against collateral
  • Less than 4% for clean borrowing
  • Highest rate at which overnight money was dealt today is 5.80%

• Bond yields have eased
  • Yields on the ten year benchmark bond has fallen 15 basis points

• RBI’s repo window is being subjected to large requests for funds deployment
  • More than INR 250 bn in spite of a limit of INR 3 bn per day that the central bank imposed a few days ago. No wonder it is forced to reject most of the requests

• Mutual Funds are flush with funds with large inflows into liquid schemes

• Three month assets (benchmark Commercial Paper) rates have fallen more than 200 basis points from their March end peaks

• The Indian Rupee trades at a new high almost every day.
  • On an REER basis it is now overvalued by more than 10% against the USD

Situation Normal!

Or is it …….

The lull before another storm!

Watch this space.

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At the Monetary Policy Meeting held today, the Bank of Japan ( BOJ ) decided, by a unanimous vote,[Note] to set the following guideline for money market operations for the intermeeting period:

The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0.5 percent.

i.e - The Bank of Japan held its at 0.5 percent at the end of a two-day policy meeting Tuesday

Note on statement issued by the Bank post the April 9-10 2007 meet

There was only one change in statement from the previous monetary policy meeting held on Mar 19-20 2007. 

In the Mar 19 - 20 2007 meet the BOJ had stated: “Domestic corporate goods prices are expected to be somewhat weak or flat in the immediate future, due to the drop in international commodity prices”.

In the April 9-10 2007 meet the BOJ has stated : “Domestic corporate goods prices are expected to level off in the immediate future, as the decline in international commodity prices has come to a halt”.

Back ground 

• In Feb’07 BOJ had raised the benchmark interest rate quarter a percentage point from 0.25% to 0.5 %.
• Feb’07 Consumer prices were at a negative -0.20 % p.a - the lowest in the past 11 months and slipping into a negative for the first time in 10 months. That CPI report undermined hopes that Japan has fully escaped deflation, or the downward spiraling of prices that drags on wages and overall growth - despite other signs of recovery, including rising corporate profits and expanding gross domestic product.
• While production is not expected to immediately drop - it does not look like having much growth either for the immediate future (reflecting the recent trend in New Orders). Over the longer term production does look like dropping ( towards Q3 - Q4 2007 )  

Conclusion ( click on chart for a clearer visual)

1. With consumer prices on the decline it is unlikely that BOJ will consider raising interest rates in the near future
2. BOJ will be watching the effects of the Feb’07 0.25% hike on consumption and production. With production and consumption expected to drop towards Q3 - Q4 2007 BOJ may not find the need to increase rates even in the medium term.  

Related links :

1. Japan - Consumer Price Index (CPI) continues its drops into negative territory in Feb’07
2. Japan - Producer Price Index (PPI) annual growth rate drops in Feb’07 (effects interest rate outlook)
3. Japan - GDP growth stronger in Q4 2006
4. Japan : IIP - Production grows moderately in Feb’07 (on an annual basis)

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