India Cuts Rates Unexpectedly While Japan Initiates New Bonds Sale

Daily Forex Fundamentals | Written by ecPulse.com | Apr 21 09 09:28 GMT |

Opposing all market expectations, the Reserve Bank of India shocked markets after cutting rates for the sixth consecutive time taking the reverse repurchase rates down to a record low of 3.25 percent from 3.5 percent in an attempt to stimulate growth in Asia's third largest economy as it is now expected to slow down at the weakest pace since 2003 to reach 6 percent. The repurchase rate was also cut by 25 basis points to 4.75 percent yet the cash reserve ratio was unchanged at 5 percent. It's a quite difficult time for the economy as they fail to increase spending during a time of elections. The government can't afford to increase spending and has failed to encourage lending at the same time which continues to place downside pressures to growth. Several sectors are still contracting and facing the impact of the global recession as exports collapsed to a record low in March, marking the longest decline in ten years whereas industrial production had fallen 1.2 percent during February. According to the Bank governor, the central bank in a statement today said that it will use 'a combination of monetary and debt-management tools' to help the economy as well as provide the financial system with 1.2 trillion rupees in the six months starting April through the purchase of government bonds and market stabilization bonds in an attempt to halt further borrowings from the government that have reached 4.35 trillion rupees so far. In addition, it seems like he's placing bets that the climate in the nation will be able to help spur consumer demand and pick up growth as rain may result in the boost of farm output. Elsewhere in the region, Governor Glenn Stevens of the Reserve Bank of Australia said that despite the economy had slid into the first recession in eighteen years, he still believes that the stimulus package created alongside the well developed banking system and China's performance will be sufficient to help the economy rebound and climb out of the slump. Prime Minister Kevin Rudd also said today that he may introduce a new stimulus package by May 12 different from the A$90 billion that has been previously introduced last October. The economy had contracted 0.5 percent during the last quarter yet many believe the fact that the economy will as a matter of fact rebound after signs of global economic recovery has emerged. Stevens said that in Australia 'public finances remain in very sound shape, with modest debt levels and a medium-term path for the budget back towards balance.' Finally, the Finance Minister Kaoru Yosano stated earlier today that the government is to sell 10.8 trillion yen worth of new bonds to help support the stimulus package. The 10.8 trillion will be separated to 7.3 trillion yen in construction bonds and 3.5 trillion yen in deficit-covering bonds. Unfortunately the main problem they face will be their public debt which was already 170 percent of GDP which is expected by the Organization for Economic Cooperation and Development to reach as high as 197 percent in the upcoming year Asian stock indices reacted negatively today as they retreated on growth concerns and mounting banking losses. The MSCI Asia pacific index retreated 1.8 percent at 5:21 p.m. to reach 88.37 points whereas the Nikkei 225 stock average slumped 2.4 percent, Hang Seng fell 3 percent and the S&P/ASX200 also fell 2.4 percent. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk