QBiz: IMF Warns US; India’s Current Account Deficit Risk Rises

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1. IMF Warns US Against Protectionist Trade Policies

The International Monetary Fund warned on Thursday, 14 June, that US President Donald Trump’s new import tariffs threaten to undermine the global trading system, prompt retaliatory responses from other countries and damage the US economy.

The IMF, in a review of US economic policy, also said that while the country’s economic growth is expected to be strong this year and next, recent tax and spending measures could cause greater risks from 2020 onwards.

Trump has riled key allies by pursuing protectionist trade policies, including the imposition of steel and aluminium tariffs on the European Union, Canada and Mexico.


2. The Rising Risks to Financing India’s Current Account Deficit

It’s not just that the current account deficit is widening—the means of financing it also became more risky in 2017-18. On the one hand, higher oil prices are raising the current account deficit and on the other, foreign direct investment—the most stable source of financing the deficit—has come down.

This has led to greater reliance on foreign portfolio inflows, particularly volatile debt inflows and also on short-term credit.

This is a problem, because the US Federal Reserve has been raising interest rates and has signalled more rate hikes to come.

(Source: Livemint)


3. FII Flows to Indian Markets May Slow as Fed Hikes Rates

Foreign investors, who have pulled out nearly $240 million from Indian stocks since the beginning of the year, may continue selling after Wednesday’s interest rate increase in the US, but domestic institutions which have supported the markets so far are expected to cushion some of the blow, experts said.

Wednesday’s quarter percentage point increase—the second hike this year and the seventh since it started increasing lending rates in 2015—takes overnight lending rate in the US to a range between 1.75 percent and 2 percent.

(Source: Livemint)


4. Nasdaq Hits New Closing High, S&P 500 Gains After ECB Decision, US Data

The S&P 500 edged up and the Nasdaq reached another record closing high on Thursday, 14 June, after the European Central Bank said it would avoid raising interest rates until mid-2019, and data showed US economic strength.

The strong US retail sales numbers came a day after the US Federal Reserve increased its key interest rate and hinted at the possibility of two more hikes by the end of 2018.

The ECB announced it would end its bond-purchase program at year-end but signalled that any interest rate hike was still distant.

(Source: Reuters)


5. DoT Seeks ₹2,100 Crore from Idea Before Merger With Vodafone

The Department of Telecommunications (DoT) will insist on a bank guarantee for a little over ₹2,100 crore from Idea Cellular Ltd towards one-time spectrum charges as a precondition to approve its merger with Vodafone India, a person aware of the matter said.

The merger of Idea and Vodafone will create the world’s second-largest and India’s largest telecom firm. It is aimed at dominating a market that Mukesh Ambani’s Reliance Jio Infocomm Ltd had disrupted with free voice calls and low data tariffs.

(Source: Livemint)


6. Fed Sets Limits on Biggest Banks’ Loans to Each Other

The Federal Reserve has set limits aimed at addressing one of the leading causes of the 2008 financial crisis — the buildup of loans extended by one bank to another among the biggest Wall Street institutions.

At a meeting Thursday, 14 June, the Fed governors adopted a new rule that caps a big bank’s credit exposure to another bank. The rule is close to a proposal the central bank floated two years ago, but it makes revisions for the credit limits to be tailored to the size of the bank. That’s in line with the Fed’s current approach to regulation under new leaders appointed by President Donald Trump.


7. Kotak Mahindra Bank on Course to Have 16 Million Customer Base by September

Private sector lender Kotak Mahindra Bank (KMB) is on course to have a customer base of 16 million by September, from the current level of 13 million, which also includes the bank’s 811 customers, managing director and CEO Uday Kotak wrote to the bank’s shareholders in its 2017-18 annual report. “On 29 March, 2017, while launching 811, we had made a commitment to double our customer base in 18 months, that is, to about 16 million by September 2018,” he said.

Kotak had said in March that as of December 2017, the bank added 50 percent of the target and was in excess of 12 million accounts, adding that, on a monthly basis, the bank was adding customers at a rate 2.5-3 times higher than it did a year ago.


8. CP, CD Rates Cool off After Change in Liquidity Rules

Interest rates on Commercial Paper (CP) and Certificates of Deposits (CD) have seen a dip in the past few days with banks getting some additional liquidity after the Reserve Bank of India (RBI) changed the Liquidity Coverage Ratio(LCR) rules on 6 June.

RBL Bank, for instance, had issued a two-month CD at 7.85 percent on 25 May but paid only 7.2 percent for the paper of the same tenor on 6 June. Again, IDFC Bank picked up money at 7.71 percent for a three-month CD on 17 May but was able to borrow at 7.17 percent via a similar tenor paper on 11 June. At 7.91 percent, South Indian Bank too paid 30 bps less on 18 May. However, the lender was able to access money at just 7.61 percent on 5 June.


9. 'Damaging' Vacancy Puts India Statistics Reputation at Risk

Gathering reliable economic data in India is challenging enough. It’s been made more difficult in the more than four months that the nation has been without a chief statistician.

TCA Anant retired from the Central Statistics Office on 31 January and the government has been looking for a replacement ever since.

At stake is the reputation of an institution that’s been working hard to rectify the image that India has deficient and unreliable economic data. With an economy of $2.3 trillion a large part of which is rural and informal — collecting timely and accurate information is a gargantuan effort, made harder by the fact that the statistics office is without a leader.

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Topics:  IMF   Vodafone   QBiz 

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