India likely to cut interest rates first time in 3-year

The rate rises have subdued inflation that was near double-digits for most of last year.

India s central bank was widely expected to cut interest rates on Tuesday -- its first reduction in three years -- to help spur growth that has slowed markedly due to relentless monetary tightening.

Economists forecast the rate reduction despite official data on Monday showing inflation climbed in March to an unexpected 6.89 percent from a year earlier -- above market expectations of a 6.7 percent rise.

"We expect a 25-basis point cut," said Siddhartha Sanyal, chief India economist at Barclays Capital. "The central bank will rebalance its priorities somewhat to boost growth, while not completely letting go of its anti-inflationary stance," he said.
The central bank s policymakers were due to announce their decision at around 0530 GMT.

Emerging market nations have been cutting rates to bolster expansion and shield their economies from Europe s sovereign debt crisis as well as the weakened US economy and to offset a slowdown in China.

But Asia s third-largest economy has kept rates at their highest level since 2008 to tame inflation, which has caused huge hardship to India s hundreds of millions of poor and is a political tripwire in the nation of 1.2 billion people.

The rate rises have subdued inflation that was near double-digits for most of last year and now policymakers  attention is focused on the slowing economy.

India s industrial output grew in February by a lower-than-expected 4.1 percent after expanding by just 1.1 percent in January, data last week showed.

The central bank hiked interest rates 13 times from March 2010, undertaking the most aggressive monetary policy tightening drive of all major economies, and it has kept rates on hold since late last year.

In a preliminary step to loosen monetary policy, the bank has twice reduced since the start of 2012 the amount of cash commercial banks must keep in reserve to a bid to boost lending and spur growth.

The government expects growth to improve in the new fiscal year which started April 1, targeted at 7.6 percent, but this is still far below the eight-to nine-percent growth for much of the past decade.

India s slowing growth comes as the Congress party-led government, battered by a string of graft scandals, has been under heavy financial market pressure to curb public spending and rein in a ballooning deficit.

But concerns about volatile global crude oil prices and a weak rupee remain, which means that the Reserve Bank of India will have to tread cautiously in lowering rates as it seeks to bolster the economy, economists said.

Analysts added that the country s inflation battle was far from won.

"India still has an inflation problem and is likely to have an inflation problem for the rest of 2012," said Moody s Analytics senior economist Glenn Levine.

 

Euro falls against major currencies in Asian trade

The euro fell against other major currencies on stop-loss sales in Asian trade on Monday, while China s decision to widen the range at which its currency trades against the dollar had little impact.

The euro bought $1.3021 and 105.05 yen in Tokyo afternoon trade, down from $1.3078 and 105.83 yen in New York late Friday. The dollar was changing hands at 80.66 yen against 80.91 yen.

The euro s decline came after the single currency also fell on Friday amid investor worries over eurozone debt and slowing growth in China as its economy grew less than expected in the first quarter.

The common currency sank further on Monday as sell orders were triggered at around $1.3050, said a senior trader at a major Japanese trust bank. The move also dragged the euro down against the yen, traders said.

Renewed concerns about the eurozone s fiscal problems resurfaced after Spanish bank borrowing from the European Central Bank surged to record highs in March.

"The euro is on its knees thanks to renewed funding pressures for Spain and Italy. Until that gets resolved the euro will remain under the pump," said David Scutt, senior trader at Arab Bank Australia.

On Monday, Japan s finance minister declined to confirm a weekend report that Tokyo was considering a $60.0 billion loan to the International Monetary Fund to help boost a global firewall against financial turmoil.

IMF funding will be a key topic at talks Friday in Washington of the Group of 20 finance ministers and central bankers, with IMF chief Christine Lagarde saying last week the fund may need less rescue-funding than previously thought.

"It is likely to be a policy-focused week this week," National Australia Bank said in a note. France also holds the first round of presidential elections at the weekend, where Socialist challenger Francois Hollande is seen as a possibly destabilising force for the euro, the bank said.

Currency trading was barely affected by China s weekend decision to widen the yuan s trading band against the dollar.

Western critics, led by the United States, have kept up pressure on Beijing over its foreign-exchange policies, saying it keeps the yuan artificially low to boost the country s exports.

A senior official at the Japanese finance ministry said Monday that China s move was "a step in a positive direction." The dollar was largely higher against other Asian currencies, rising to 1,138.75 South Korean won from 1,135.40 on Friday, to 30.87 Thai baht from 30.73 baht and to Sg$1.2539 from Sg$1.2485.

It gained to Tw$29.52 frin Tw$29.49 and to 42.77 Philippine pesos from 42.72 pesos but declined to 9,149.00 Indonesian rupiah from 9,175.00 rupiah.

 

Oil prices hovered near US$103 a barrel Tuesday in Asia as Europe s debt crisis flared again this time in Spain possibly undermining demand for crude.

Benchmark oil for May delivery was down 2 cents to $102.91 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 10 cents to settle at $102.93 in New York on Monday.

Brent crude for June delivery was down 22 cents at $118.46 per barrel in London.

Spanish bond yields jumped Monday as markets worried the country may require an international bailout to avoid a debt default. Most analysts are forecasting a mild recession in Europe this year, but renewed contagion from the continent's debt crisis could further hurt economic growth.

"Economic conditions in the big developed economies remain weak and there is potential for further downward revisions to crude oil demand," National Australia Bank said in a report.

Investors are also mulling the impact of meetings last weekend about Iran's nuclear program. Talks among Iran and six world powers didn't produce any concrete agreements, but negotiators said the tone was better than previous meetings, and the sides agreed to meet again on May 23.

In other energy trading, heating oil was down 0.4 cent at $3.12 per gallon and gasoline futures slid 1.0 cent at $3.26 per gallon. Natural gas fell 0.4 cent at $2.01 per 1,000 cubic feet.