Intelligentguess

Situation

The impact of large individual tax deposits resulted in budget receipts of $383.6 billion and a
surplus of $177.7 bn for Apr’07

Fiscal deficit as a % of Real GDP stood at - 6.17% at the end of Q1 2007 ( Q1 always tends to have the worst fiscal situation as a % of GDP)

Background ( click on image for a larger visual)

• April always tend to have the largest monthly surplus of the year.
• Within this - this $177.7 bn has been the largest surplus since Apr’01 ( $ 189.8 bn )
• Since 1980 this is the second highest monthly surplus ( after Apr’01) 
• As can be seen in the image the savings rate has steadily improved along with the improvement in the fiscal situation

 Conclusion ( click on image for a larger visual)

1. Q2 always tends to have the best fiscal situation (Q2 for both 2005 and 2006 were at a fiscal surplus)
2. We can expect the surplus as a % of GDP to be to be towards a 4.50% for Q2 2007.

Related links

• USA - Deficit increases in Mar’07 ( on an annual basis)
• USA - Q1 2007 GDP annual growth slumps to its lowest since 2003 Q3
• USA - Relationship between Fiscal Deficit and Savings rate ( since 1981 )
• USA - Relationship between GDP and Savings rate ( Quarterly data since 1985 )
• USA - Fiscal situation as a percentage of GDP, under the recent four Presidencies ( since 1980 )
• USA - Manner in which the Deficit has been financed since 1995 ( Savings viz external debt)

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Situation

On a monthly basis prices rose by 0.28 % (0.35 % in Feb’07)

On an annual basis prices rose by  2.78 % p.a ( 2.97% p.a in Feb’07)

Background

• The annual inflation is at its lowest levels since July 2004 ( 2.87% p.a)
• The European Commercial Bank (ECB) had raised its interest rates from 3.25% to 3.75%,  in Dec’06 (25 basis ponts), and in Marc’07 (25 basis points).
• The European Commercial bank ( ECB) aims at inflation ( CPI ) rates of below, but close to, 2% over the medium term. They have achieved this primary goal. ( read : Euro area - CPI Prices up by 1.8% p.a in Jan’07). 
• New Orders growth has been declining since the interest rate hike in Dec’06
• Members of the ECB have suggested that they may consider raising interest rates in June’07

Conclusion (click on image for a better visual)

With the expected hike in rates in Jun’07 - we can expect PPI to range initially towards the 2.00% - 2.50%, and post that remain below 4.0% in coming months

Related Links

• Euro area - ECB raises interest rates by 0.25 basis points to 3.75 percent per annum

• Euro area - Producer Prices ( PPI) : Prices rise at the lowest pace since Aug’04 ( on an annual basis)
• USA - Producer prices continue to grow in Mar’07
• UK - Producer prices ( PPI) have a sharp rise in Mar’07 
• Japan - Producer prices ( PPI ) inches up in Mar’07

• Euro area - Inflation (CPI) flat in Mar’07
• USA - Inflation (CPI) inches up in Mar’07 , while core inflation drops
• UK - Inflation ( CPI) at its highest since Sept’92
• Japan - Inflation indices ( CPI ) deflate in Mar’07 - Bank rates likely to remain unchanged
• India - marginal drop in inflation ( CPI )

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The Reserve Bank of India (RBI) had, in its annual policy statement, stated that guidelines for trading in credit default swaps (CDS) in the Indian markets would be released by May 15.

Well, today happens to be May 15, and the guidelines are yet to be released.

Marketmen await with bated breadth. There are still a few more hours to go before the day ends.

Update :  May 15 has passed by. No guidelines forthcoming from RBI. So, they haven’t kept their word. Not surprising to some of us, though it must be a puzzle to many (why commit a deadline if you can’t meet it). Of course, no explanations for not meeting the deadline too. Why bother about such niceties? When you are the central bank, who is going to question you.

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The Reserve Bank of India has released figures relating to its operations in the foreign exchange markets for the month of March 2007.

It bought USD 2.3 bn worth of foreign currency in March taking the cumulative figure for the financial year beginning April 1, 2006 to USD 26.8 bn.

The March figure alone is slightly lower than my own expectations, but well in line with what happened to the Indian currency in the fx markets during that time.

The cumulative USD 26.8 bn figure for FY07 translates to a rupee (INR) infusion of 1.19 trn. To put matters in perspective the growth in Reserve Money (M1) during this period was INR 1.33 trn.

RBI’s dollar purchases were almost 90% of reserve money growth. Fx reserves at the end of March, when expressed in rupee terms, stood at INR 8.68 trn. Reserve Money stock at the end of March stood at INR 9.59 trn. This ratio of the two also stands at approx. 90%

If this is not dollarization of the Indian monetary system, what else is it?

Given the difficulties that the RBI has had in recent times in conduct of monetary policy arising out of the primacy that it accords to the managed float in currency management, we might as well give up the managed float and move towards a fixed peg aka China.

At least then we could put the blame for our policy woes on Bernanke and Co.

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Situation

On a monthly basis prices fell to a  - 0.78 % (rise of 0.78% in Feb’07)

On an annual basis prices rose by  6.70 % p.a ( 7.60 % p.a in Feb’07)

Background

India - Monetary Policy Statement released

Indian Monetary Policy - Quick Comments

India : Consumer Price Index (CPI) - Prices jump in Feb’07

Conclusion (click on image for a better visual)

• Expect CPI to range between a 6.3% p.a and 7.5% p.a initially
• Drop below the 5.6% p.a towards end 2007

Related links

• UK - Inflation ( CPI) at its highest since Sept’92
• Euro area - Inflation (CPI) flat in Mar’07
• Indian inflation remains high - Expect hawkish monetary policy to continue
• USA - Inflation (CPI) inches up in Mar’07 , while core inflation drops
• Japan - Inflation indices ( CPI ) deflate in Mar’07 - Bank rates likely to remain unchanged

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Situation

On a monthly basis production has contracted by -0.65%  ( 0.75% growth in Feb’07)

On a yearly basis production has grown by 2.78 % p.a ( 4.45 % p.a in Feb’07)

Background

• Production grew moderately in Feb’07. 
• The pace of new orders growth had dropped in Feb’07
• According to the Survey of Production Forecast in Manufacturing,　Production is expected to increase in April and May. ( the increase may be modest) 

Conclusion  (click on image for a better visual)

1. Production growth rate can be expected to be towards 2.0% p.a (with a maximum of 4.00 % p.a) for the 1st half of 2007
2. Prodcution growth rate can be expected to drop to a sub 2.5% p.a to a 0% p.a towards end 2007

Related Links

• USA - Production grows in Mar’07 at the slowest pace since Sept’05
• Euro area - Production (IIP) grows in Feb’07
• UK - Production - annual growth rate slips to a negative in Mar’07
• India - Production grows in Mar’07

• Japan - Orders grow at a slower pace in Feb’07
• USA - New Orders continues declines in Feb’07
• Europe - New Orders growth rate drops in Feb 2007

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