India’s central bank has released an unexpected announcement that it will not change the policy interest rate in a bid to support growth. However, as consumer prices continue to rise faster than in any other Asian country, the bank also promised to intervene if inflation does not begin to tail off.
According to a Bloomberg survey, the majority of analysts expected the rate to increase from its current level of 7.75% to 8%. Of 31 analysts surveyed, only five predicted that the rate would remain stable.
The expectation of an increase was perhaps an understandable prediction. Since taking charge just a few months ago, the bank’s current governor Raghuram Rajan has been noted for his increases to interest rates. Overall, he has increased the rate by 50 basis points in his tenure so far as governor of the Reserve Bank.
Rajan described the move as being “on hold” and “waiting for more data.” He expressed the opinion that the current high rate of inflation may be temporary, and said that the bank would not react to every spike in the rate. However, he also issued reassurances that if this spike does not prove temporary when the next round of data is released, the bank will revise their position. He described the bank as “vigilant” in looking out for this possibility, and said that action may take place on off-policy dates, depending on the situation.
With rising prices putting increasing pressure on companies and consumers alike, there is no doubt that inflation in India is too high. However, it is also true to say that growth in the country is very low. This reached a four year low recently, only beginning to pick up again last quarter. This no doubt feeds into Rajan’s decision to emphasise support for growth at present in the hope that inflation will prove temporary.
“Clearly growth is weaker than we would like, inflation is higher than we would like,” said Rajan in a statement. “It would be wonderful if we had the normal situation of extremely high growth and high inflation and extremely low growth and low inflation, in which case policy is very easy.”
The fact that this is not the case has forced the bank to make a decision between aiming their policies at growth or prices. In defending the decision they came to, they pointed to indications that vegetable prices may be about to drop, alongside an increasingly stable exchange rate and the promise of lag effects from previous increases.
In contrast with Panasonic’s recent strong performance, their Korean competitor Samsung have led a general decline in Asian stock values. This is the second day in a row that Asian stocks have seen an overall drop in value, and follows on from the regional benchmark index recently achieving its highest levels since May.
Samsung lost an impressive 1.3%, which is believed to be largely down to the continuing issue regarding infringements on Apple’s patents. Investors are on tenterhooks as a US court approaches a decision on how much money the company will have to pay Apple for infringements on the iPhone’s technology.
In the wider Asian financial market, the MSCI Asia Pacific experienced a fall. It declined to a value of 142.21, representing a drop of 0.4%. The suffering of Samsung was one of the most major contributors to this decline, alongside Australian fossil fuel engineering company WorleyParsons Ltd. The latter experienced a massive 26% drop, setting a record in the process, following an announcement that last month’s profit forecast will not be reached.
On a regional level, Japan announced its largest deficit in trade on record, and the country’s Topix index fell 0.3%. A 0.3% drop also afflicted the Straits Times Index in Singapore. Proportionally larger drops were seen in both Taiwan and South Korea. The Taiwanese Taiex and South Korean Kospi index both fell by 0.7%.
In spite of this general slump, some companies and even national markets are managing to do very well. For instance, Japanese maker of electronic components Micronics Japan announced an expected increase in full-year earnings compared to the previous period. This caused the company’s value to boom by a huge 21%.
Meanwhile, China’s financial market is doing relatively well on multiple levels. This was represented by the Hang Seng China Enterprises Index (HSCEI), which reached its highest level since March. Five days of strong performance were topped with a 0.6% increase. The Shanghai Composite Index also grew by 0.6%. Meanwhile, the Hang Seng Index in Hong Kong increased by 0.2%. Most impressively, Hong Kong’s China Enterprises Index now stands 29% higher than on 25th June this year when it reached a low point, showing remarkable recovery.
This followed the country’s central bank talking in detail about previously announced plans regarding intervention in the currency market. These plans, which went down very well with experts and investors, were coupled with the release of data that paints a very promising picture for China’s economic future.
Japanese electronics giant Panasonic has recently announced some positive revisions to its sales forecasts. With several factors working in the company’s favour, the new forecasts see the expected figures approximately doubled.
In July, they announced forecasts of 50 billion yen in net profits for the 2013-2014 financial year. Some independent analysts were a little more optimistic, with Bloomberg finding they produced an average prediction of 68.9 billion yen. Now, however, Panasonic’s own expected figure has become 100 billion yen, which roughly equates to a billion US dollars.
One of the factors that have worked in the company’s favour is a weakening of the yen’s value. This has been partly driven by foreign exchange (forex) traders. The yen is well-known as one of the most prominent “safe haven” investments for those who trade in currencies. When appetite soars for riskier investments that could potentially yield higher returns – a phenomenon that has been happening recently – the move of investors away from the “safe” yen tends to weaken the currency.
The other main factor causing such a massive boost is the fact that Panasonic has just landed a major battery supply contract. The company will be supplying battery cells for electric vehicle maker Tesla Motors Inc. Panasonic has previously worked with this firm on a limited scale. However, while the last two years saw them ship roughly 200 million battery cells for Tesla, the new contract will see them produce 2 billion in the next four years. The contract is expected to net about US$7 billion for Panasonic in revenue and assets.
The Tesla contract is also good news for Panasonic in that it cements their position within the industry. Panasonic is already the largest supplier of batteries for electric cars, and this contract gives such a significant boost to their position within the industry that they may become unassailably dominant in this area. The move also came amid a general increase in battery sales, which alone would have put the country in a fairly strong position.
Just a year ago, the Osaka-based company was dealing with large losses of approximately 685 billion yen. This announcement therefore represents a complete turnaround for the company in the last twelve months, from massive loss to fast-growing profit. Through the past year, the company’s stock values have soared, rising 89%, as the progressive policies of company president Kazuhiro Tsuga have led the company from strength to strength.