Global central banks unlikely to fight dollar: Poll

London: Global central banks are unlikely to take steps to make their currencies more competitive against the US dollar whose current weakness should prove to be temporary, a Reuters poll found.

The monthly survey of more than 60 foreign exchange analysts and economists showed the euro - which soared above USD 1.38 before shock low inflation data last week - will ease gradually over the next 12 months from here.

That view reflects expectations the US Federal Reserve will start cutting its monthly bond purchase stimulus early next year, probably by March.

After the Fed surprised markets by refraining from doing that this September, major global currencies have strengthened against the dollar. That has caused problems for export-reliant countries, both in Europe and emerging markets.

Still, 28 out of 35 analysts who answered an extra question said the dollar`s weakness would not push world central banks to ease policy to help regain a competitive edge against the greenback.

"(That`s) unlikely, because Fed tapering is inevitable and thus most emerging market currencies will be vulnerable over the medium term," said Barclays analyst Mike Keenan.

But the dollar probably won`t rally soon. The poll showed the dollar index relative to a basket of major currencies closing the year at 81, compared with 80.5 on Wednesday.

Into next year, that should change.

For one thing, the euro`s strength will gradually dissipate next year. That will be at least some relief for the European Central Bank, which meets on Thursday to set policy and is under pressure to act against very weak inflation and boost fragile growth.

The poll`s median outlook showed the euro - which was trading around USD 1.35 on Wednesday - holding around that level in a month`s time, before slipping to USD 1.33 in three months, USD 1.30 in six and USD 1.27 in a year from now.

"We expect a near-term euro appreciation against the dollar given the likely continued U.S. fiscal uncertainties, followed by retrenchment in 2014 as the focus returns to growth and interest rate differentials," said Ric Deverell, head of global foreign exchange at Credit Suisse.

Against sterling, the euro looks set to keep its value for the most part, holding at 84 pence on Wednesday and forecast at 83 pence in a year`s time.

Sign in | Create a Rediffmail account Rediff.com » Business » Rajan meets PM, FM ahead of monetary review Rajan meets PM, FM ahead of monetary review

Days before his first monetary policy review, Reserve Bank of India (RBI) Governor Raghuram Rajan met Prime Minister Manmohan Singh and Finance Minister P Chidambaram on Tuesday. 
The meeting also comes at a time when the US Federal Reserve is expected to take a call on tapering of the bond-buying programme known as quantitative easing.
“RBI has constant consultations with the finance ministry. This meeting was part of that. We discussed a whole gamut of issues,” Rajan told reporters on Tuesday after meeting Chidambaram.
Later, during the day, the government hiked import duty on gold jewellery to 15 per cent from the existing 10 per cent in an effort to curb the spiralling current account deficit (CAD) that touched an all-time high of 4.8 per cent of the GDP in FY13.
A six-month high inflation in August has already made things tough for Rajan at a time when industry is demanding cut in the policy rate to boost growth.
Inflation rose 6.1 per cent in August from 5.8 per cent in July, driven by expensive food items, particularly onions, which saw the rate of price rise skyrocketing to 244.6 per cent from an already high 119.4 per cent.
According to a report by Dun and Bradstreet, RBI is expected to maintain a status quo on the policy rate. Ironically, onion prices can’t be brought down by interest rate policy.
However, that may desist Rajan from easing the central bank’s monetary stance in the mid-quarter review on the 20th of this month, economists said.
India’s economic growth crashed to a four-year low of 4.4 per cent in the first quarter of 2013-14.
On the other hand, inflation in manufactured products further fell to 1.9 per cent from 2.81 per cent, despite depreciation of the rupee, increasing imported inflation. This showed that demand in the Indian and global economy remained subdued.
Usually, it is manufactured product inflation on which RBI focuses its attention; it is core inflation within manufactured item inflation that RBI is usually concerned.
The core inflation relates to manufactured items sans food articles. It fell further to 1.9 per cent in August from 2.3 per cent.
The low rate of price rise in manufactured items and core inflation should have been ideal conditions for RBI to cut rates, but the party is being spoilt by food articles.

Gold falls below $1,300 as Fed stimulus decision looms

 
Singapore: Gold extended losses into a third session on Wednesday, falling over 1 percent to trade below USD 1,300 an ounce, with investors expecting the US Federal Reserve to announce a reduction in its bullion-friendly stimulus measures.

The Fed is expected to begin its long retreat from ultra-easy monetary policy by announcing a small reduction to its USD 85 billion monthly bond purchases following a two-day policy meeting that ends on Wednesday. Many expect a USD 10 billion cut.

Spot gold had fallen 1.2 percent to USD 1,293.69 an ounce by 0217 GMT, bringing the year's losses to 23 percent. It had earlier dropped to USD 1,291.34 - its lowest since August 8.

"It all dependent now on the FOMC," said a precious metals trader in Hong Kong, referring to the Federal Open Market Committee. "It depends on what the language is going to be on their stimulus and what sort of tapering they pursue."

"Gold is still technically under pressure and will probably struggle to go above USD 1,350 again."

Traders said prices would find their next support level at USD 1,270- USD 1,280 an ounce.

Gold, often seen as a hedge against inflation and a slowing economy, benefited when central banks around the world launched stimulus measures to support their economies. The metal hit an all-time high of about $1,920 an ounce in 2011.

But this year several analysts have cut their forecasts for gold prices in anticipation of the US central bank curbing its stimulus measures. Goldman Sachs expects prices to drop to USD 1,050 by the end of next year.

PHYSICAL DEMAND

Due to the volatility in prices, physical demand has failed to pick up rapidly in key consumers India and China. Expectations that prices could fall further once the Fed announces a cut in stimulus have also restrained purchases.

Shanghai gold futures fell 2 percent on Wednesday.

Top gold consumer India increased its import duty on gold jewellery to 15 percent from 10 percent, setting it higher than the duty on raw gold in a move to protect the domestic jewellery industry.

The Indian central bank and finance ministry have taken several steps this year to curb bullion imports in an effort to reduce the country's record trade deficit.

Silver and palladium dropped about 1.6 percent, while platinum fell nearly 1 percent.

G20 Summit: PM leaves for St.Petersburg

New Delhi: Prime Minister Manmohan Singh on Wednesday left for St.Petersburg to attend the eighth G20 Summit during which he is expected to push for a coordinated plan to avoid disruption in India and other large developing economies by imminent phasing out of fiscal stimulus by US Federal Reserve.

While the dispute between Russia and the US over the conflict in Syria is likely to overshadow the two-day summit starting tomorrow in the Russian city, splits between emerging markets and the US over its winding down of stimulus and the slowing growth of India and other four BRICS countries are expected to remain in focus.

Brazil, India, Russia, China and South Africa--grouped in the informal BRICS bloc seen as an alternative economic powerhouse--all go into the meeting experiencing slowing growth, embattled currencies and huge capital outflows.

In a statement before leaving for the Summit, Singh called for an "orderly exit" from unconventional monetary policies being pursued by the developed world for the last few years to avoid damaging growth prospects of the developing world.

Singh, who has attended all the previous G20 summits since the first meet in Washington in 2008, is due to return home on Saturday evening.

Why India’s gold has outperformed global prices

Gold price hits fresh all-time high of Rs 35,074 per ten grams in futures trade on Wednesday on heavy buying as rupee plunged to its new record low of 68.85 against the US dollar.

Despite recovering about USD 240 an ounce, or more than 20 percent, since hitting a near three-year low of USD 1,180.71 in late June, gold prices are still down 15 percent so far this year in international market. On the contrary, the yellow metal, which plunged to a low of Rs 25,000 in mid-April, is at a record high in India.

Here’s looking at why gold price in India is spiralling:

Rupee depreciation: The depreciation in rupee has cast a huge impact on the escalation of gold prices as it makes imports costlier. Rupee is down nearly 19 percent so far this year. Hence, gold price in India cannot be at parallels with the price in international market. The difference arising out of the depreciation in rupee has pushed the gold prices higher.

Gold import duty:Gold import duty has also added fuel to the rapidly increasing gold price. In order to contain the widening Current Account Deficit (CAD), the government this month hiked the import duty on gold from existing 8 percent to 10 percent, which has led to a straight jump of more than 600 per 10 gram in gold prices. Prior to this hike, the government had twice hiked import duty from 4 percent to 6 percent and 8 percent respectively.

Geo-political tensions: Geopolitical tensions in Syria are one of the reasons that have immediately triggered the hike in gold prices. Analysts believe that the possibility of US military action against Syria is driving demand for safe-haven assets including gold. Speculations are also doing the rounds that Fed might delay tapering of its bond buying programme if US forces attack Syria.

Low-level demand/ETF buying: In the last two weeks, SPDR gold trust, the world's largest gold-backed exchange-traded fund, has reported inflow, signalling renewed interest of market players. Apart from ETF buying, low-level buying also stoked up prices.

Central Bank’s buying: International Monetary Fund (IMF) data has showed that central banks continued to add to their gold reserves. Turkey added the most by buying 22.5 tonnes of gold in July, while Russia's holdings topped 1,000 tonnes. The accumulation of gold by the central banks has underpinned demand for gold, which in turn has strengthened the metal’s price.