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UPDATE 2-India's c.bank surprises with early post-budget rate cut

Wed Mar 4, 2015 12:02am EST

(Updates with market moves, comment)

By Rafael Nam

MUMBAI, March 4 (Reuters) – India’s central bank lowered its policy repo rate by 25 basis points to 7.5 percent on Wednesday, its second inter-meeting cut this year on the back of easing inflation and what it said was the “weak state” of parts of the economy.

Although markets had broadly expected the Reserve Bank of India to cut rates again after its surprise January easing, few had expected a move as early as this week, just days after the government presented its annual budget for the coming fiscal year.

“Given low capacity utilisation and still-weak indicators of production and credit off-take, it is appropriate for the Reserve Bank to be pre-emptive in its policy action to utilise available space for monetary accommodation,” RBI Governor Raghuram Rajan said in a statement.

The cut comes days after the government and the Reserve Bank of India agreed to formally adopt inflation targeting, although the central bank had been effectively using targets since early 2014.

Analysts said the RBI’s rate cut appeared to give backing to the government’s fiscal plans and its pledge to exercise responsibility despite a delay in meeting a fiscal deficit target of 3 percent of gross domestic product by a year to 2017/18.

“The Reserve Bank of India is expressing its confidence on inflation outlook,” said Radhika Rao, economist at DBS in Singapore. “This also means that despite a higher fiscal deficit, the quality of fiscal consolidation has satisfied central bank’s expectations.”

Indeed, in an otherwise cautious policy statement, central bank governor Raghuram Rajan said fiscal and monetary policy would work “in a complementary way”: “The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative,” Rajan said.

Indian bonds and rupee rose sharply after the cut. The benchmark 10-year bond yield dropped to as much as 7.61 percent, its lowest level since July 15, 2013. The partially convertible rupee gained to as much as 61.65 to the dollar, its strongest level since Feb. 4.

MORE TO COME?

While Rajan signalled positive trends in inflation, analysts cautioned that the prospect of slashing rates was reduced, given the new inflation targets and a statement that contained words of warning as well as encouragement.

“I feel another 25 bps is possible, maybe in the April policy but after that there will be a pause,” said Rupa Rege Nitsure, group chief economist at L&T Financial Services.

Indian inflation has moderated sharply as oil prices slumped since last year. In January, consumer prices INCPIY=ECI rose an annual 5.11 percent, having fallen from double digity levels as recently as November 2013.

That was well within the inflation target of 4 percent, with a band of plus or minus 2 percentage points, agreed by the RBI and the government, which will be set starting from the financial year ending in March 2017.

Rajan said in the statement the RBI would seek to bring the inflation rate to 4 percent, the midpoint of that band by the end of the two-year period starting in 2016/17.

The statement also noted that the rupee’s relative strength added to disinflationary pressures, although Rajan said the RBI does not target exchange rates or have a target for currency reserves.

Rajan also cast doubt on the government’s revision to its data methodology last month that resulted in the economy showing growth of 7.5 percent year-on-year during the last quarter, higher than China, when previously India’s economy was regarded as struggling to get out of a rut.

“The picture it presents of a robust economy, with growth having picked up significantly over the last three years, is at odds with still-low direct measures of growth of production, credit, imports and capacity utilisation as well as with anecdotal evidence on the state of the economic cycle,” Rajan said.

“Nevertheless, the picture of a steadily recovering economy appears right.”

New Post has been published on http://www.newsfrombanks.com/update-2-indias-sahara-says-bank-letter-underpinning-rescue-deal-was-forged.html

UPDATE 2-India's Sahara says bank letter underpinning rescue deal was forged

Fri Feb 6, 2015 1:00am EST

(Adds comments from Mirach Capital paragraphs 3-4)

By Sumeet Chatterjee

MUMBAI Feb 6 (Reuters) – Indian conglomerate Sahara Group described as fake a Bank of America letter intended to show a U.S.-based firm had enough funds to arrange a $ 2 billion deal to bail out its jailed boss, Subrata Roy.

The statement, issued on Thursday, came a day after Reuters reported evidence that Saransh Sharma, a California man who was leading the deal through his company Mirach Capital Group, didn’t have the money to pull off the transaction.

Mirach, in a statement emailed to Reuters, denied forging the document and said Sahara’s lawyers had verified the company’s financial capabilities.

Mirach also said it was no longer willing to raise funds for Sahara by refinancing the conglomerate’s overseas hotels but “remains ready, willing and able to facilitate an acquisition of these assets”. The hotels include New York’s Plaza and Grosvenor House in London.

Mirach’s Sharma had said he was backed by a group of U.S. and U.K. investors for the deal, whom he declined to name, and said they were the source of funds supposedly placed in the Bank of America account.

Sahara chairman Roy, who during his heyday socialized with presidents and film stars, has been held at a New Delhi jail since March on contempt charges, after he failed to comply with a court order to repay investors in a bond scheme that was later ruled to be illegal. Roy is being held on $ 1.6 billion bail, the largest ever in India.

On Thursday, following the Reuters story, Sahara said in a statement that it had found out that the Bank of America letter, submitted by Mirach to the Supreme Court as proof that it had set aside “sufficient funds” for the transaction, was forged.

Sahara said it had asked its lawyer in London to visit the Bank of America branch in Los Angeles and verify it: “We have now received the report … it was a forged letter,” the company wrote in a statement.

Sahara did not specifically confirm deal talks had now been called off and said it would take initiate civil and criminal legal proceedings against Mirach and its officials in India and in the United States for “reckless conduct.”

As a result of talks with Mirach, Sahara said, it had missed out on other, alternative deals in the last three or four months.

Reuters had reported that a manager at a Bank of America branch in Florida said he didn’t write an email, sent in his name to Sahara, which purported to verify the existence of a billion-dollar bank account in Mirach’s name.

After Reuters asked the bank to look into the account, spokeswoman Jumana Bauwens issued a statement saying: “Bank of America isn’t involved in the transaction.”

Mirach’s Sharma had earlier admitted to stealing a database from a former employer. There are also two pending lawsuits against him alleging he forged a letter and produced fake documents to obtain a loan. He said he has learnt from his past mistakes.

Thursday’s twist is a setback to efforts to secure release for Roy. Indian regulators say his $ 1.6 billion bail reflects the cost of the illegal bond scheme that helped put him in jail — a total estimated to be as much as $ 7 billion.