Tuesday, January 5, 2010
Nath invites Malaysian cos to invest in highways sector
Nath invites Malaysian cos to invest in highways sector
The Financial Express, January 5, 2010, Page 11
Press Trust of India, Kuala Lumpur
India has achieved construction of 9 -km roads per day and the target of developing 20-km daily would be accomplished by this April, road transport and highways minister Kamal Nath said here on Monday.
‘‘We have reached 9-km per day of road construction and will hit our target of 20-km a day by April,’’ Nath, who is here to invite the Malaysian companies to enter the highway construction sector in India, said.
As many as 35 Malaysian companies are already involved with various infrastructure projects in India.
To have a 20-km of road construction a day or 7,000 km of roads a year, there has to be 20,000 km of work in progress, he noted.
The minister said between November 2009 and June 2010 contracts worth $20 billion would have been awarded. Referring to land acquisition, he noted that states would also need to address the issue. The transport and highways minister stressed that mega infrastructure projects would not be awarded to small companies.
‘‘Medium-sized companies should take more jobs and aspire to become bigger. If small companies take big projects I may not have the roads,’’ he said, adding such companies may not even be able to get finances.
‘‘We don’t want companies to take on more than they can chew. We also don’t want hoarding of contracts,’’ he added.
The Financial Express, January 5, 2010, Page 11
Press Trust of India, Kuala Lumpur
India has achieved construction of 9 -km roads per day and the target of developing 20-km daily would be accomplished by this April, road transport and highways minister Kamal Nath said here on Monday.
‘‘We have reached 9-km per day of road construction and will hit our target of 20-km a day by April,’’ Nath, who is here to invite the Malaysian companies to enter the highway construction sector in India, said.
As many as 35 Malaysian companies are already involved with various infrastructure projects in India.
To have a 20-km of road construction a day or 7,000 km of roads a year, there has to be 20,000 km of work in progress, he noted.
The minister said between November 2009 and June 2010 contracts worth $20 billion would have been awarded. Referring to land acquisition, he noted that states would also need to address the issue. The transport and highways minister stressed that mega infrastructure projects would not be awarded to small companies.
‘‘Medium-sized companies should take more jobs and aspire to become bigger. If small companies take big projects I may not have the roads,’’ he said, adding such companies may not even be able to get finances.
‘‘We don’t want companies to take on more than they can chew. We also don’t want hoarding of contracts,’’ he added.
Now, green norms mandatory for new government buildings
Now, green norms mandatory for new government buildings
The Financial Express, January 5, 2010, Page 11
Press Trust of India, New Delhi
New government and public sector undertakings (PSUs) buildings will have to mandatorily comply with new green rating norms to tackle climate change threats.
‘‘This decision was taken by the Centre two days ago to ensure that buildings are environment-friendly aiming to achieve high energy utilisation,’’ minister of new and renewable energy Farooq Abdullah said on Monday at a function here.
The minister said all new buildings of government and PSUs will have to comply with the requirement of at least 3 star rating under the Green Rating for Integrated Habitat Assessment (GRIHA).
Efforts will be, however, made for higher rating by such buildings subject to the site condition as western rating systems are not suited for Indian climate and GRIHA has been designed exclusively for Indian buildings, the minister added.
GRIHA is a national rating system under which green buildings will be rated by technical expertise from Teri, The Energy Resources Institute, headed by RK Pachauri.
The aim of a green building design is to minimise the demand of non-renewable sources and maximise its utilisation.
While emphasising on integrating traditional heritage with scientific tools, the minister suggested that even small dwelling units being constructed under the Indira Awas Yojna be brought under the GRIHA ambit to ensure sustainability.
Deepak Gupta, secretary in the renewable ministry, said CPWD has already adopted GRIHA rating and efforts are being made to spread awareness in this direction among the concerned stakeholders including builders, architects.
‘‘A technical group has also been constituted to study the feasibility of GRIHA in larger areas such as townships and campus. The team will submit its report within the next six months,’’ Gupta said.
Buildings will be rated on the basis of design, system design, including ventilation, water and waste management, indoor environmental quality and selection of ecologically sustainable materials.
Pachauri said, ‘‘The country is witnessing rapid boom in construction industry and the primary objective of the rating system is to help design green buildings and in turn help evaluate the greenness of buildings’’.
The Financial Express, January 5, 2010, Page 11
Press Trust of India, New Delhi
New government and public sector undertakings (PSUs) buildings will have to mandatorily comply with new green rating norms to tackle climate change threats.
‘‘This decision was taken by the Centre two days ago to ensure that buildings are environment-friendly aiming to achieve high energy utilisation,’’ minister of new and renewable energy Farooq Abdullah said on Monday at a function here.
The minister said all new buildings of government and PSUs will have to comply with the requirement of at least 3 star rating under the Green Rating for Integrated Habitat Assessment (GRIHA).
Efforts will be, however, made for higher rating by such buildings subject to the site condition as western rating systems are not suited for Indian climate and GRIHA has been designed exclusively for Indian buildings, the minister added.
GRIHA is a national rating system under which green buildings will be rated by technical expertise from Teri, The Energy Resources Institute, headed by RK Pachauri.
The aim of a green building design is to minimise the demand of non-renewable sources and maximise its utilisation.
While emphasising on integrating traditional heritage with scientific tools, the minister suggested that even small dwelling units being constructed under the Indira Awas Yojna be brought under the GRIHA ambit to ensure sustainability.
Deepak Gupta, secretary in the renewable ministry, said CPWD has already adopted GRIHA rating and efforts are being made to spread awareness in this direction among the concerned stakeholders including builders, architects.
‘‘A technical group has also been constituted to study the feasibility of GRIHA in larger areas such as townships and campus. The team will submit its report within the next six months,’’ Gupta said.
Buildings will be rated on the basis of design, system design, including ventilation, water and waste management, indoor environmental quality and selection of ecologically sustainable materials.
Pachauri said, ‘‘The country is witnessing rapid boom in construction industry and the primary objective of the rating system is to help design green buildings and in turn help evaluate the greenness of buildings’’.
Regulation came too late to stop housing bubble, says Bernanke
Regulation came too late to stop housing bubble, says Bernanke
The Financial Express, January 5, 2010, Page 18
Bloomberg
Federal Reserve chairman Ben S Bernanke said low central bank interest rates didn’t cause the housing bubble of the past decade and that better regulation would have been more effective in curbing the boom.
“The best response to the housing bubble would have been regulatory, rather than monetary,” Bernanke said on Sunday in remarks to the American Economic Association’s annual meeting in Atlanta. The Fed’s efforts to constrain the bubble were “too late or were insufficient,” which means that regulatory actions “must be better and smarter,” he said.
Bernanke said the Fed is improving supervision of banks and has strengthened measures to protect consumers of financial products. Senate Banking Committee chairman Christopher Dodd, who backs Bernanke for a second term, has called the Fed’s oversight of bank lending before the crisis an “abysmal failure.” Dodd proposes stripping the Fed and other agencies of bank supervision powers and moving them to a new regulator.
Scholars such as Allan Meltzer, a historian of the central bank, have criticised the Fed for helping fuel the housing boom by keeping interest rates too low for too long. The bursting of the housing bubble led to the worst recession since the Great Depression and the loss of more than 7 million US jobs.
“It sounds a little bit like a mea culpa,” said Randall Wray, an economics professor at the University of Missouri in Kansas City, who was in Atlanta and didn’t attend Bernanke’s speech. “The Fed played a role by promoting the most dangerous financial innovations used by institutions to fuel the housing bubble.”
Senator Richard Shelby of Alabama, the senior Republican on the Banking Committee, has said Bernanke failed to anticipate the crisis that led to Fed-backed bailouts of financial firms including Citigroup Inc. and American International Group Inc and doesn’t deserve a second term as Fed chief.
Shelby, at a Dec 17 committee vote on Bernanke’s nomination to a second four-year term starting next month, said the former Princeton University professor “missed clear signals” when he was a Fed governor from 2002 until 2005. Bernanke still must be approved by the full Senate. Bernanke didn’t discuss the outlook for the US economy or Fed monetary policy in Sunday’s speech.
Bernanke said increased use of variable-rate and interest-only mortgages, and the “associated decline of underwriting standards,” were more responsible for the bubble than low rates.
The Financial Express, January 5, 2010, Page 18
Bloomberg
Federal Reserve chairman Ben S Bernanke said low central bank interest rates didn’t cause the housing bubble of the past decade and that better regulation would have been more effective in curbing the boom.
“The best response to the housing bubble would have been regulatory, rather than monetary,” Bernanke said on Sunday in remarks to the American Economic Association’s annual meeting in Atlanta. The Fed’s efforts to constrain the bubble were “too late or were insufficient,” which means that regulatory actions “must be better and smarter,” he said.
Bernanke said the Fed is improving supervision of banks and has strengthened measures to protect consumers of financial products. Senate Banking Committee chairman Christopher Dodd, who backs Bernanke for a second term, has called the Fed’s oversight of bank lending before the crisis an “abysmal failure.” Dodd proposes stripping the Fed and other agencies of bank supervision powers and moving them to a new regulator.
Scholars such as Allan Meltzer, a historian of the central bank, have criticised the Fed for helping fuel the housing boom by keeping interest rates too low for too long. The bursting of the housing bubble led to the worst recession since the Great Depression and the loss of more than 7 million US jobs.
“It sounds a little bit like a mea culpa,” said Randall Wray, an economics professor at the University of Missouri in Kansas City, who was in Atlanta and didn’t attend Bernanke’s speech. “The Fed played a role by promoting the most dangerous financial innovations used by institutions to fuel the housing bubble.”
Senator Richard Shelby of Alabama, the senior Republican on the Banking Committee, has said Bernanke failed to anticipate the crisis that led to Fed-backed bailouts of financial firms including Citigroup Inc. and American International Group Inc and doesn’t deserve a second term as Fed chief.
Shelby, at a Dec 17 committee vote on Bernanke’s nomination to a second four-year term starting next month, said the former Princeton University professor “missed clear signals” when he was a Fed governor from 2002 until 2005. Bernanke still must be approved by the full Senate. Bernanke didn’t discuss the outlook for the US economy or Fed monetary policy in Sunday’s speech.
Bernanke said increased use of variable-rate and interest-only mortgages, and the “associated decline of underwriting standards,” were more responsible for the bubble than low rates.
UK mortgage approval numbers rise
UK mortgage approval numbers rise
The Financial Express, January 5, 2010, Page 18
Reuters, London
British lenders approved the highest number of mortgages for house purchase since March 2008 in November and the Bank of England’s preferred gauge of money supply showed a marked pick-up, official figures showed on Monday.
The data come hot on the heels of a surprisingly positive manufacturing survey and will likely strengthen expectations that the BoE will not extend its 200 billion pound quantitative easing policy once the remaining funds are spent during the next month. The Bank of England said mortgage approvals numbered 60,518 in November, rising from an upwardly revised 57,718 in October and more than double its record low of 27,162 set in November 2008. Analysts had forecast a reading of 58,000.
They are consistent with our more constructive view on UK housing as well as for overall economic growth this year. The BoE’s preferred money supply gauge—M4 excluding intermediate other financial corporations—rose by 0.9%, its fastest monthly pace since April, and the three month annualised rate picked up to -2.2% from October’s -5.2%.
Dubai makes history in hard times, again
Dubai makes history in hard times, again
The Financial Express, January 5, 2010, Page 20
Reuters, Dubai
Started at the height of the economic boom and built by some 12,000 labourers, the world’s tallest building opened on Monday in Dubai as the glitzy emirate seeks to rekindle optimism after its financial crisis.
Burj Dubai, whose opening has been delayed twice since construction began in 2004, would mark another milestone for the deeply indebted emirate with a penchant for seeking new records.
Dubai, one of seven members of the United Arab Emirates, gained a reputation for excess with the creation of man-made islands shaped like palms and an indoor ski slope in the desert. With investor confidence in Dubai badly bruised by the emirate’s announcement in November that it would seek a debt standstill for one of its largest conglomerates, the Burj Dubai is seen as a positive start to the year after a bleak 2009.
The project has been scrutinised by human rights groups, who have objected to its treatment of laborers, as well as by environmentalists who said the tower would act as a power vacuum, increasing the city’s already massive carbon footprint.
But despite the criticism, many say the edifice, believed to have cost $1.5 billion to build, is an architectural marvel. The tower’s height has been kept a closely guarded secret until now. Developer Emaar Properties PJSC will reveal the height—known to exceed 800 meters (2,625 feet)— on Tuesday and Dubai’s ruler will inaugurate the opening.
Experts believe Dubai’s recent financial troubles have not hurt sales of approximately 1,100 residential units in the Burj —meaning tower in Arabic —saying they were nearly all sold. Dubai’s real estate sector crashed at the end of 2008 when the global financial crisis hit the emirate after a six-year economic boom. Thousands of jobs were slashed and projects worth billions of dollars were canceled or delayed.
With analysts suggesting tax-free Dubai might sell some of its assets to boost revenues and slash $80 billion in debt, many wondered if the tower was on the list for grabs. Dubai, with few natural resources of its own, expects a budget deficit of 2% of GDP this year.
The Financial Express, January 5, 2010, Page 20
Reuters, Dubai
Started at the height of the economic boom and built by some 12,000 labourers, the world’s tallest building opened on Monday in Dubai as the glitzy emirate seeks to rekindle optimism after its financial crisis.
Burj Dubai, whose opening has been delayed twice since construction began in 2004, would mark another milestone for the deeply indebted emirate with a penchant for seeking new records.
Dubai, one of seven members of the United Arab Emirates, gained a reputation for excess with the creation of man-made islands shaped like palms and an indoor ski slope in the desert. With investor confidence in Dubai badly bruised by the emirate’s announcement in November that it would seek a debt standstill for one of its largest conglomerates, the Burj Dubai is seen as a positive start to the year after a bleak 2009.
The project has been scrutinised by human rights groups, who have objected to its treatment of laborers, as well as by environmentalists who said the tower would act as a power vacuum, increasing the city’s already massive carbon footprint.
But despite the criticism, many say the edifice, believed to have cost $1.5 billion to build, is an architectural marvel. The tower’s height has been kept a closely guarded secret until now. Developer Emaar Properties PJSC will reveal the height—known to exceed 800 meters (2,625 feet)— on Tuesday and Dubai’s ruler will inaugurate the opening.
Experts believe Dubai’s recent financial troubles have not hurt sales of approximately 1,100 residential units in the Burj —meaning tower in Arabic —saying they were nearly all sold. Dubai’s real estate sector crashed at the end of 2008 when the global financial crisis hit the emirate after a six-year economic boom. Thousands of jobs were slashed and projects worth billions of dollars were canceled or delayed.
With analysts suggesting tax-free Dubai might sell some of its assets to boost revenues and slash $80 billion in debt, many wondered if the tower was on the list for grabs. Dubai, with few natural resources of its own, expects a budget deficit of 2% of GDP this year.
India to build 20 km roads per day
India to build 20 km roads per day
Business Standard, January 5, 2010, Page 1
Road trade and Highways Minister Kamal Nath said India had increased its per day construction of roads to 9 km and the target of developing 20 km daily would be accomplished by April. Thirty-five Malaysian companies are already involved with various infrastructure projects in India.
No monetary tightening expected: Basu
No monetary tightening expected: Basu
Business Standard, January 05, 2010, Page 1
BS Reporter / New Delhi
Two key functionaries in the government expect no monetary tightening measures soon, despite the rising food inflation. Instead, they see food prices cooling by the next month.
Kaushik Basu, chief economic advisor in the Ministry of Finance, today said there was no need to take steps which could have implications for growth and employment. “Right now, there are no expectations of monetary tightening, nor do I believe there is a reason for it,” Basu said at a Ficci event. He added that food inflation would peter out in few months.
Planning Commission Deputy Chairman Montek Singh Ahluwalia, too, said food prices were expected to moderate by the next month, as the current price rise was not due to excess liquidity in the economy. Food inflation reached an 11-year high of 19.95 per cent in the second week of December.
Commenting on the country’s gross domestic product, Basu further said, “India might grow slightly above 7.5 per cent in the current year (fiscal), and achieve 9 per cent growth in 2010-11…If India’s growth crosses that of China in 4-4 years, it should not be a surprise.”
Business Standard, January 05, 2010, Page 1
BS Reporter / New Delhi
Two key functionaries in the government expect no monetary tightening measures soon, despite the rising food inflation. Instead, they see food prices cooling by the next month.
Kaushik Basu, chief economic advisor in the Ministry of Finance, today said there was no need to take steps which could have implications for growth and employment. “Right now, there are no expectations of monetary tightening, nor do I believe there is a reason for it,” Basu said at a Ficci event. He added that food inflation would peter out in few months.
Planning Commission Deputy Chairman Montek Singh Ahluwalia, too, said food prices were expected to moderate by the next month, as the current price rise was not due to excess liquidity in the economy. Food inflation reached an 11-year high of 19.95 per cent in the second week of December.
Commenting on the country’s gross domestic product, Basu further said, “India might grow slightly above 7.5 per cent in the current year (fiscal), and achieve 9 per cent growth in 2010-11…If India’s growth crosses that of China in 4-4 years, it should not be a surprise.”
Lax Oversight Caused Crisis, Bernanke Says
Lax Oversight Caused Crisis, Bernanke Says
Business Standard, January 05, 2010, Page 11
By CATHERINE RAMPELL, ATLANTA
Regulatory failure, not low interest rates, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday.
Mr. Bernanke’s remarks, perhaps his strongest language yet assessing the roots of the financial crisis, came as he awaited confirmation for a second term as Fed chairman and as he sought greater regulatory authority from Congress.
“Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates,” Mr. Bernanke said in remarks to the American Economic Association.
Mr. Bernanke, addressing accusations that the Fed contributed to the financial crisis, argued in his speech that the interest rates set by the central bank from 2002 to 2006 were appropriately low. He was a member of the board of governors of the Federal Reserve system for most of that period.
“When historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment,” Mr. Bernanke said.
Some lawmakers and economists have argued that the Fed kept interest rates too low in the aftermath of the 2001 recession, making loans cheap and feeding reckless lending by banks.
“I strongly disapprove of some of the past deeds of the Federal Reserve while Ben Bernanke was a member and its chairman, and I lack confidence in what little planning for the future he has articulated,” Richard Shelby of Alabama, the Senate Banking Committee’s top-ranking Republican, said in December during a committee vote on Mr. Bernanke’s reconfirmation.
The Senate Banking Committee approved Mr. Bernanke’s renomination last month. He is expected to be reconfirmed by the full Senate before his current term expires on Jan. 31, despite some vocal opposition.
Even if confirmed, however, Mr. Bernanke is likely to face further political challenges over financial regulatory reform and the governance of the Fed.
The House passed a provision to audit the Fed as part of a larger financial reform package last month. Representative Ron Paul, Republican of Texas, has been carrying the banner for such an audit for decades.
The debate over what caused the financial crisis comes as the economy shows signs of recovery and as Congress considers a wide-ranging overhaul of financial regulation.
In a separate talk on Sunday at the conference, Donald L. Kohn, the Fed’s vice chairman, listed several measures the central bank was likely to take to shed the problematic assets it took from banks during the financial crisis. He said “the appropriate use and sequencing of these tools is under active discussion” by regulators.
But, as members of the rate-setting Federal Open Market Committee said last month, he noted that the fragile economic recovery and weak job market would “warrant exceptionally low” interest rates “for an extended period.”
Mr. Bernanke, in his talk, echoed his previous calls for Congress to grant the Fed greater oversight powers over the financial system, like the ability to help monitor and regulate against “systemic risk.”
Business Standard, January 05, 2010, Page 11
By CATHERINE RAMPELL, ATLANTA
Regulatory failure, not low interest rates, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday.
Mr. Bernanke’s remarks, perhaps his strongest language yet assessing the roots of the financial crisis, came as he awaited confirmation for a second term as Fed chairman and as he sought greater regulatory authority from Congress.
“Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates,” Mr. Bernanke said in remarks to the American Economic Association.
Mr. Bernanke, addressing accusations that the Fed contributed to the financial crisis, argued in his speech that the interest rates set by the central bank from 2002 to 2006 were appropriately low. He was a member of the board of governors of the Federal Reserve system for most of that period.
“When historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment,” Mr. Bernanke said.
Some lawmakers and economists have argued that the Fed kept interest rates too low in the aftermath of the 2001 recession, making loans cheap and feeding reckless lending by banks.
“I strongly disapprove of some of the past deeds of the Federal Reserve while Ben Bernanke was a member and its chairman, and I lack confidence in what little planning for the future he has articulated,” Richard Shelby of Alabama, the Senate Banking Committee’s top-ranking Republican, said in December during a committee vote on Mr. Bernanke’s reconfirmation.
The Senate Banking Committee approved Mr. Bernanke’s renomination last month. He is expected to be reconfirmed by the full Senate before his current term expires on Jan. 31, despite some vocal opposition.
Even if confirmed, however, Mr. Bernanke is likely to face further political challenges over financial regulatory reform and the governance of the Fed.
The House passed a provision to audit the Fed as part of a larger financial reform package last month. Representative Ron Paul, Republican of Texas, has been carrying the banner for such an audit for decades.
The debate over what caused the financial crisis comes as the economy shows signs of recovery and as Congress considers a wide-ranging overhaul of financial regulation.
In a separate talk on Sunday at the conference, Donald L. Kohn, the Fed’s vice chairman, listed several measures the central bank was likely to take to shed the problematic assets it took from banks during the financial crisis. He said “the appropriate use and sequencing of these tools is under active discussion” by regulators.
But, as members of the rate-setting Federal Open Market Committee said last month, he noted that the fragile economic recovery and weak job market would “warrant exceptionally low” interest rates “for an extended period.”
Mr. Bernanke, in his talk, echoed his previous calls for Congress to grant the Fed greater oversight powers over the financial system, like the ability to help monitor and regulate against “systemic risk.”
Volatile capital flows could pose problems, says RBI
Volatile capital flows could pose problems, says RBI
Business Standard, January 05, 2010, Section II, Page 2
BS Reporter / Mumbai
Rapid and volatile capital inflows or outflows could pose significant policy challenges, potentially leading to exchange rate overshooting, asset price volatility and financial instability, Reserve Bank of India (RBI) Deputy Governor Shyamala Gopinath said in Mumbai today.
“In this context, appropriate and pragmatic use of capital account regulations may have to be considered by emerging markets to maintain financial stability,” said Gopinath
However, Gopinath said capital inflows were not a concern at the moment.
“We don't look at the levels (of the rupee), only the volatility. There have been no concerns on inflows,” Gopinath told reporters on the sidelines of a conference.
In 2009, foreigners bought $17.5 billion worth of domestic shares, just $327 million short of the 2007 record of $17.78 billion. The heavy buying helped the rupee rise 12.2 per cent from a record low of 52.2 hit in early March.
Separately, Gopinath said RBI would issue norms on repos in corporate bonds before its third quarter monetary policy review on January 29.
The central bank had in September last year proposed guidelines for repurchase agreements, or repos, in corporate bonds, a move bankers said would add depth to the relatively illiquid market.
However, the markets will have to wait longer for introduction of credit default swaps (CDS).
“We are looking very closely at what is happening in the international markets. This is something which is at a very embryonic stage and there are complex issues to be sorted out,” Gopinath said.
The deputy governor hinted that these instruments would be traded over-the-counter, saying that single-name CDS’ were not easily amenable to an exchange-traded or a central counterparty (CCP) platform. “Even in international markets I have not seen a single-name CDS traded on a CCP platform,” she said.
The deputy governor said public sector banks should improve their ability to lend in the term-money market. “The term-money market continues to remain dormant with low turnover despite several initiatives taken by the Reserve Bank, mainly reflecting the inability of the market participants to take a medium-term view on interest rates and liquidity,” Gopinath said. “However, the CD market is active and reflects the unsecured term-money market rates,” she added.
RBI is not in favour of relaxing the minimum tenor of non-convertible debentures from the current 90-day limit it had imposed in the second-quarter monetary policy review.
“The suggestion… cannot be acceded to as under the law, corporates are prohibited from issuing unsecured debentures with maturity of less than 90 days. Allowing markets to issue very short-term instruments could have systemic implications,” Gopinath said. She added that there were other instruments in the short-end like repo, CBLO (collateralised borrowing and lending mechanism) and CPs that could meet the requirement of investors.
Business Standard, January 05, 2010, Section II, Page 2
BS Reporter / Mumbai
Rapid and volatile capital inflows or outflows could pose significant policy challenges, potentially leading to exchange rate overshooting, asset price volatility and financial instability, Reserve Bank of India (RBI) Deputy Governor Shyamala Gopinath said in Mumbai today.
“In this context, appropriate and pragmatic use of capital account regulations may have to be considered by emerging markets to maintain financial stability,” said Gopinath
However, Gopinath said capital inflows were not a concern at the moment.
“We don't look at the levels (of the rupee), only the volatility. There have been no concerns on inflows,” Gopinath told reporters on the sidelines of a conference.
In 2009, foreigners bought $17.5 billion worth of domestic shares, just $327 million short of the 2007 record of $17.78 billion. The heavy buying helped the rupee rise 12.2 per cent from a record low of 52.2 hit in early March.
Separately, Gopinath said RBI would issue norms on repos in corporate bonds before its third quarter monetary policy review on January 29.
The central bank had in September last year proposed guidelines for repurchase agreements, or repos, in corporate bonds, a move bankers said would add depth to the relatively illiquid market.
However, the markets will have to wait longer for introduction of credit default swaps (CDS).
“We are looking very closely at what is happening in the international markets. This is something which is at a very embryonic stage and there are complex issues to be sorted out,” Gopinath said.
The deputy governor hinted that these instruments would be traded over-the-counter, saying that single-name CDS’ were not easily amenable to an exchange-traded or a central counterparty (CCP) platform. “Even in international markets I have not seen a single-name CDS traded on a CCP platform,” she said.
The deputy governor said public sector banks should improve their ability to lend in the term-money market. “The term-money market continues to remain dormant with low turnover despite several initiatives taken by the Reserve Bank, mainly reflecting the inability of the market participants to take a medium-term view on interest rates and liquidity,” Gopinath said. “However, the CD market is active and reflects the unsecured term-money market rates,” she added.
RBI is not in favour of relaxing the minimum tenor of non-convertible debentures from the current 90-day limit it had imposed in the second-quarter monetary policy review.
“The suggestion… cannot be acceded to as under the law, corporates are prohibited from issuing unsecured debentures with maturity of less than 90 days. Allowing markets to issue very short-term instruments could have systemic implications,” Gopinath said. She added that there were other instruments in the short-end like repo, CBLO (collateralised borrowing and lending mechanism) and CPs that could meet the requirement of investors.
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