he RBI cracked down on offshore foreign exchange trading by Indians through online trading websites, asking banks to report any such remittances to the regulator.

In a circular issued late on Tuesday, the Reserve Bank of India (RBI) asked banks to advice customers not to undertake forex trading on foreign websites that offer currency contracts by accepting margins through credit card and online money transfer mechanisms.

The RBI also asked banks to close the credit card or online bank account of a customer that is found to be in violation of the rule.

The rupee has been hard hit in this summer's rout of emerging currencies, losing around 20 percent of its value against the dollar at one point, and significantly increasing the burden of Indian companies' dollar debt.

The central bank has been trying to curb the offshore rupee market by asking banks to cut down on overnight positions as well as asking foreign institutional investors to produce documentation from clients in order to hedge their currency risk in the onshore forward markets.

The central bank has already reduced the limit for remittances made by residents to $75,000 from $200,000 per financial year.

5 reasons why stock markets think Modi is good for them

 
Shishir Asthana in Mumbai

Narendra Modi's elevation as BJP’s candidate for prime minister’s post was officially announced post market hours on Friday. However, by noon it was already clear that his name would be announced by evening.
Some expected the market to react to the event but it did not. And it is unlikely that it will, for the simple reason that he is not the prime minister, yet. Having said that, many in the markets and Corporate India world prefer to see him over anyone else as the next prime minister of the country.
We look at some of the reasons quoted by the market and why it senses a bullish undertone in Modi’s candidature announcement.
A survey carried out by ET CEOs Confidence before Modi’s candidature was announced suggested that an overwhelming three-fourths of the 100 CEO’s surveyed prefer Modi as the next prime minister.
Rahul Gandhi bagged to get votes of only seven CEOs.
Corporate India has been at the receiving end of ‘policy paralysis’. The report says CEOs have voted for a strong leadership, intent, decision and action, which Modi has demonstrated in Gujarat. Rahul Gandhi has no such claims to his name.

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.

Markets volatile ahead of FOMC outcome

Markets have turned volatile in morning deals as investors will be counting on the Federal Reserve to launch only a modest scaling back of stimulus later in the day.

At 1055 hours, the Sensex was up 19 points at 19,823 and the Nifty was flat at 5,853.

The gains were aided by Reliance Industries, ITC and HUL.

In the broader markets, the mid and smallcap indioces advanced and was up 0.3-0.5%.

On the sectoral indices, IT, Power and Auto indices were the only indices in the negative.

Will the Fed start its famed taper in September?

64% of 800 investors polled think it will start this week but weak US data suggest it might not be aggressive.
Two big events this week - the Federal Open Market Committee (FOMC) meeting on Wednesday and RBI's policy review on Friday - will determine which way equity markets head.
Since June, the Federal Reserve has been looking to taper its $85 billion a month bond buying programme. The FOMC's meeting is crucial for emerging markets like India because over the last few years, financial markets have been fuelled by easy liquidity.

Since 2009, $100 billion has flowed into Indian equities. Not surprising, then, that the talk of a possible taper from this month has sent risk assets and commodities into a tailspin.
So, are the taper related fears unfounded or are they real? To begin with, markets have already priced in some tapering from this month. However, if the Fed tapers its bond buying by $10 billion, the impact on financial markets would be negligible.
But if it is higher than $10 billion, markets may roil. According to a Barclays survey, conducted among 800 global investors, 64 per cent of respondents believe tapering will start this week and almost all of them expect it to occur before the end of the year.

Investors now perceive the removal of Fed stimulus will start earlier, the survey says. Forty five per cent expect the Fed to finish their open-ended QE3 programme in second quarter of 2014, while most respondents in our June survey thought it would happen in the fourth quarter of 2014 or later.

Interestingly, most investors believe equities have become less attractive but have shown a slight increase in their preference for emerging markets and commodities from June.

Barclays says: "The perception of key risks has also shifted. Last quarter, a reduction in Fed policy stimulus was seen as the key risk for markets by nearly 40 per cent of survey participants; today, the number is just 26 per cent."
Several economists in the US believe concerns regarding a taper could be premature, as growth data continues to be weak and the Fed does not want "risk off" trades just yet.
Talks of a taper have pushed up interest rates in the US by over 100 basis points and any further increase would impact growth. For starters, it is believed growth has slowed in the third quarter (ended September) from the 2.5 per cent seen in the second quarter. Economic growth bottomed out in the fourth quarter of 2012 when it touched 0.1 per cent. While there is no doubt that growth is picking up, questions remain on how sustainable this would be without the stimulus.

Since the Fed met at the end of July, there have been 21 growth-related data releases. Of the 21 releases, 12 have been below consensus.

New home sales in the US in the month of July have fallen by 13.4 per cent. Bank of America Merrill Lynch says it's a close call but it is still in the December camp when it comes to the Fed's possible tapering.

'RBI unlikely to reverse liquidity tightening steps on Sep 20'

 
Mumbai: Reserve Bank's new Governor Raghuram Rajan may wait for signs of a sustained stability in the rupee and is unlikely to reverse the liquidity tightening steps at Friday's mid-quarter review, Standard Chartered Bank said Tuesday.

"While the rupee's 7.6 percent appreciation (against dollar) from September 3-16 is encouraging, the RBI might prefer to wait longer for confirmation of sustained currency stability - a key determinant of such a reversal," it said in a report here.

"A complete reversal of liquidity tightening measures on September 20 looks unlikely to us," it added.

In order to arrest rupee's fall, Rajan's predecessor D Subbarao in July had announced liquidity tightening measures, including a cap on banks' overnight borrowings which increased the short-term rates in the system.

The RBI reduced the banks' liquidity adjustment facility (LAF) borrowing limit from 1 percent of the total deposits to 0.5 percent and also asked banks to maintain higher average CRR (cash reserve ratio) of 99 percent of the requirement on daily basis.

The StanChart report, however, said the RBI might recalibrate some of its liquidity-tightening measures in the mid-quarter monetary policy review on September 20 to reassure the market that the steps announced are temporary.

According to the report, RBI Governor could reduce the daily minimum CRR balance from 99 percent, or marginally increase the LAF borrowing limit from 0.5 percent of net demand and time liabilities (NDTLs).

"These changes are unlikely to reduce the call rate substantially below the MSF rate which is at 10.25 percent, but we believe they would offer some comfort to the markets, with the hope of further easing later," it said.

StanChart expects the RBI Governor to stay hawkish on inflation front as August CPI inflation remained elevated, and moreover, WPI inflation accelerated to 6.1 percent. "The headline number is likely to keep the RBI cautious."
The report said the RBI may adopt a wait-and-see stance on September 20 given that the government is yet to announce measures to contain the fiscal deficit at 4.8 percent of GDP.

In the first four months of FY'14, the fiscal deficit reached a level equivalent to 60 percent of the budgeted target. StanChart expects the US Fed to taper its quantitative easing by USD 10 billion per month and maintain a relatively dovish policy tone.

"If the RBI only fine tunes the existing liquidity framework and reiterates its intent to gradually exit the tight liquidity regime, then we expect a limited market response," the report said.

"The markets will then watch closely for signals from the new Governor on the timeline and possible preconditions for a roll-back of liquidity-tightening measures," it said.

The report said given the uncertainty over the RBI's potential monetary policy responses, it remains neutral on government securities duration.

Rate cuts may be delayed with RBI focus on rupee: Barclays

New Delhi: With the Reserve Bank's policy focus geared towards supporting the rupee, the central bank may delay easing rates to between December and April 2014, a Barclays report says.

According to the global brokerage firm, the RBI is likely to remain focused on supporting the rupee, which has depreciated by more than 13 percent since May and crossed the psychological level of 62 against the dollar last week.

"As such, while the focus is on the INR, we think monetary policy calibration will eventually be biased towards further easing, rather than tightening. However, we think further policy easing will likely be delayed," Barclays said in a research note.

The financial services major believes key policy rates would be eased by as much as 75 basis points in this fiscal but it would be a "delayed" affair.

"We still expect 75 bp of repo rate cuts, but now we expect them to take place between December 2013 and April 2014, rather than our initial expectation of September -December 2013," Barclays said.

The industry has been demanding a cut in key policy rate to boost economic activities. Industrial output contracted for the second consecutive month in June.

Moreover, inflation rose for the second consecutive month and shot up to 5.79 percent in July, driven largely by double-digit rise in prices of food articles, including vegetables and onions.

The RBI, in its First Quarter Review of Monetary Policy on July 30, left all key interest rates unchanged.

The repo rate, at which the RBI lends to the system, was kept at 7.25 percent and the cash reserve ratio, the amount of deposits banks park with it, was unchanged at 4 percent.

The RBI is scheduled to hold its next mid?quarter review of policy on September 18.