Global Markets - Euro on the ropes after dive in inflation

By Marc Jones

LONDON (Reuters) - The euro tumbled to a two-week low on Friday after a plunge in euro zone inflation left markets suddenly eyeing the possibility of an interest rate cut by the European Central Bank next week.

European shares saw a subdued end to what looked to be a fourth week of gains, but the combination of Thursday's surprise dive in inflation to just 0.7 percent and a revitalised dollar kept the main focus on the fragile euro.

After its biggest fall in six months in the previous session, the shared currency shed a further 0.6 percent to $1.3513, leaving it flirting with its biggest weekly drop since July last year.

"It is clear that there has been a major sentiment change on the euro," said John Hardy, head of FX strategy at Saxo bank in Copenhagen.

"The ECB's single mandate has always been on inflation so this gives Draghi and co further reason to do something at next week's meeting. We see considerable further downside, the likes of euro/dollar back into the old range, down towards $1.30."

A handful of big banks including UBS, RBS and Bank of America/Merrill Lynch revised their calls saying they now expect a rate cut next week and the pressure on the euro increased after banks made their biggest repayment of ECB crisis loans since April.

The move was also amplified as the dollar continued to kick away from a recent nine-month low, boosted by upbeat U.S. data overnight that added to the debate on future Fed stimulus.

U.S. S&P E-mini futures edged up about 0.2 percent, pointing to a slightly higher start on Wall Street, after the S&P 500 Index closed down about 0.4 percent on Thursday but still gained 4.5 percent for the month.

Stock markets across Europe were between flat and down 0.5 percent ahead of the U.S. restart, pegged back by signs of third-quarter weakness at some major European firms.

At the same time, the return of bets on an ECB rate cut saw euro zone government bonds extend this week's gains.

TAPER TALK

Markets' focus remains heavily on U.S. monetary policy and how soon the Federal Reserve will begin tapering back its $85 billion a month support programme, having delayed a move in September.

The ISM survey of manufacturing for October will give investors the latest temperature reading on the state of the U.S. economy after some upbeat PMI data on Thursday.

"If the ISM report is better than expected, it could add to revived tapering expectations, and U.S. yields and the dollar could go up and stocks could go down," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Not all players are convinced that this week's U.S. newsflow heralds a shift in monetary policy expectations, given the disruption caused by last month's Federal shutdown.

"The existence of noise in the October data will likely make it difficult for the Fed to gather enough evidence to start tapering in December," strategists at Barclays said in a note.

CHINA REASSURES

In Asian trading, reassuring signals on China's factory activity offered support to the region's markets, though Tokyo's Nikkei finished at a one-week low as the yen strengthened against the euro.

Among commodities, gold dropped to $1,313 an ounce leaving it at its lowest in nearly two weeks, hurt by sharp losses in the previous session from month-end profit-taking, the strong U.S. economic data and the higher dollar.

Copper got a lift from the China data, rising to $7,282 a tonne and back toward a one-week peak of $7,300 hit on Thursday. But it was not enough to help oil, with Brent falling back to $107.8 a barrel as U.S. crude slid to $95.72.

"There were reports that some of the ports in Libya were reopening and any signs that that oil is coming back online is going to hit the oil price," said Abhishek Deshpande, oil market analyst for Nataxis in London.

"There are also signs of generally lower season demand for oil at the moment as China's refineries go into maintenance."

(Additional reporting by Lisa Twaronite in Tokyo; Editing by Patrick Graham and Susan Fenton)

View the original article here

Global Markets - Euro on the ropes after dive in inflation

By Marc Jones

LONDON (Reuters) - The euro tumbled to a two-week low on Friday after a plunge in euro zone inflation left markets suddenly eyeing the possibility of an interest rate cut by the European Central Bank next week.

European shares saw a subdued end to what looked to be a fourth week of gains, but the combination of Thursday's surprise dive in inflation to just 0.7 percent and a revitalised dollar kept the main focus on the fragile euro.

After its biggest fall in six months in the previous session, the shared currency shed a further 0.6 percent to $1.3513, leaving it flirting with its biggest weekly drop since July last year.

"It is clear that there has been a major sentiment change on the euro," said John Hardy, head of FX strategy at Saxo bank in Copenhagen.

"The ECB's single mandate has always been on inflation so this gives Draghi and co further reason to do something at next week's meeting. We see considerable further downside, the likes of euro/dollar back into the old range, down towards $1.30."

A handful of big banks including UBS, RBS and Bank of America/Merrill Lynch revised their calls saying they now expect a rate cut next week and the pressure on the euro increased after banks made their biggest repayment of ECB crisis loans since April.

The move was also amplified as the dollar continued to kick away from a recent nine-month low, boosted by upbeat U.S. data overnight that added to the debate on future Fed stimulus.

U.S. S&P E-mini futures edged up about 0.2 percent, pointing to a slightly higher start on Wall Street, after the S&P 500 Index closed down about 0.4 percent on Thursday but still gained 4.5 percent for the month.

Stock markets across Europe were between flat and down 0.5 percent ahead of the U.S. restart, pegged back by signs of third-quarter weakness at some major European firms.

At the same time, the return of bets on an ECB rate cut saw euro zone government bonds extend this week's gains.

TAPER TALK

Markets' focus remains heavily on U.S. monetary policy and how soon the Federal Reserve will begin tapering back its $85 billion a month support programme, having delayed a move in September.

The ISM survey of manufacturing for October will give investors the latest temperature reading on the state of the U.S. economy after some upbeat PMI data on Thursday.

"If the ISM report is better than expected, it could add to revived tapering expectations, and U.S. yields and the dollar could go up and stocks could go down," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Not all players are convinced that this week's U.S. newsflow heralds a shift in monetary policy expectations, given the disruption caused by last month's Federal shutdown.

"The existence of noise in the October data will likely make it difficult for the Fed to gather enough evidence to start tapering in December," strategists at Barclays said in a note.

CHINA REASSURES

In Asian trading, reassuring signals on China's factory activity offered support to the region's markets, though Tokyo's Nikkei finished at a one-week low as the yen strengthened against the euro.

Among commodities, gold dropped to $1,313 an ounce leaving it at its lowest in nearly two weeks, hurt by sharp losses in the previous session from month-end profit-taking, the strong U.S. economic data and the higher dollar.

Copper got a lift from the China data, rising to $7,282 a tonne and back toward a one-week peak of $7,300 hit on Thursday. But it was not enough to help oil, with Brent falling back to $107.8 a barrel as U.S. crude slid to $95.72.

"There were reports that some of the ports in Libya were reopening and any signs that that oil is coming back online is going to hit the oil price," said Abhishek Deshpande, oil market analyst for Nataxis in London.

"There are also signs of generally lower season demand for oil at the moment as China's refineries go into maintenance."

(Additional reporting by Lisa Twaronite in Tokyo; Editing by Patrick Graham and Susan Fenton)

View the original article here

Wall St edges up after weak inflation data

NEW YORK (Reuters) - U.S. stocks edged up at the open on Tuesday after data showed a dip in producer prices last month, which should support continuing an easy monetary policy by the Federal Reserve.

The Dow Jones industrial average rose 37.66 points or 0.24 percent, to 15,606.59, the S&P 500 gained 4.63 points or 0.26 percent, to 1,766.74 and the Nasdaq Composite added 14.457 points or 0.37 percent, to 3,954.585.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

View the original article here

RBI hikes rate to tame inflation; loans to get costlier

Mumbai, Oct 29 (IANS) The Reserve Bank of India (RBI) Tuesday hiked a key policy interest rate by 0.25 percent in less than two months to contain inflation, but eased some rupee support measures. The move would make home, auto and other loans costlier.

In its second quarter review of the monetary policy for 2013-14, the RBI hiked repo rate by 25 basis points or 0.25 percent to 7.75 percent. Repurchase or repo rate is the rate of interest that banks pay when they borrow money from the central bank to meet their short-term funds requirement.

This is the second increase in the policy rate in less than two months. The central bank hiked the repo rate by 0.25 percent in its previous review announced Sep 20.

Rate sensitive stocks rallied following the RBI's rate decision, leading to 359 points jump in the benchmark Sensex of the Bombay Stock Exchange. Snapping five sessions of losses, Sensex ended the day at 20,929.01 points, just 75 points away from its record closing high of 21,004 points hit in 2008.

Taking a cue from the stability in the currency markets, the RBI rolled back some of the measures put in place to support the rupee. The Marginal Standing Facility (MSF) rate is reduced by 0.25 percent to 8.75 percent. The move will ease liquidity in the banking system. MSF is a window for banks to borrow from the RBI.

"With the reduction of the MSF rate and the increase in the repo rate in this review, the process of re-aligning the interest rate corridor to normal monetary policy operations is now complete," RBI Governor Raghuram G. Rajan said in the policy statement.

The RBI generally maintained a 100 basis points gap between repo and MSF rate. But this gap was altered recently to support the battered rupee. With the changes now the gap is back to the usual 100 basis points.

Rajan said the policy stance and measures in the review were intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.

Annual wholesale price index-based inflation jumped to a seven-month-high of 6.46 percent in September, while consumer price index-based inflation was recorded at 9.84 percent, largely due to higher food and fuel prices.

Rajan, who took charge as the RBI governor Sep 4, said both wholesale and consumer price inflation are likely to remain elevated in the months ahead, warranting an appropriate policy response.

"The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics," he said.

Rajan's statement gives indication that the RBI would hike rates again if inflation remained high.

"The message from RBI is clear, as long as inflation is around, asking for a rate cut would remain a wish list," said Rana Kapoor, president of industry body Assocham.

Kapoor, who is also managing director of Yes Bank, said: "All efforts must be made through coordinated efforts by the centre, states and the RBI to fight price rise so that the economy can be brought back to the growth trajectory."

The RBI has cut economic growth forecast for the current financial year to 5 percent from its earlier projection of 5.5 percent.

"While industrial activity has weakened, strengthening export growth, signs of revival in some services along with the expected pick-up in agriculture could increase the real GDP growth from 4.4 percent in the first quarter to a central estimate of 5 percent for the year as a whole," Rajan said.

Reacting to the RBI move, the Confederation of Indian Industry (CII) said the hike in repo rate has come as a disappointment to industry especially as the investment climate continues to be weak and growth outlook remains muted.

"The RBI could have refrained from effecting a hike in repo rate as industry is already reeling under pressures of high cost of capital and low availability in a tight liquidity situation," CII said.

View the original article here

RBI hikes rate to tame inflation; loans to get costlier

Mumbai, Oct 29 (IANS) The Reserve Bank of India (RBI) Tuesday hiked a key policy interest rate by 0.25 percent in less than two months to contain inflation, but eased some rupee support measures. The move would make home, auto and other loans costlier.

In its second quarter review of the monetary policy for 2013-14, the RBI hiked repo rate by 25 basis points or 0.25 percent to 7.75 percent. Repurchase or repo rate is the rate of interest that banks pay when they borrow money from the central bank to meet their short-term funds requirement.

This is the second increase in the policy rate in less than two months. The central bank hiked the repo rate by 0.25 percent in its previous review announced Sep 20.

Rate sensitive stocks rallied following the RBI's rate decision, leading to 359 points jump in the benchmark Sensex of the Bombay Stock Exchange. Snapping five sessions of losses, Sensex ended the day at 20,929.01 points, just 75 points away from its record closing high of 21,004 points hit in 2008.

Taking a cue from the stability in the currency markets, the RBI rolled back some of the measures put in place to support the rupee. The Marginal Standing Facility (MSF) rate is reduced by 0.25 percent to 8.75 percent. The move will ease liquidity in the banking system. MSF is a window for banks to borrow from the RBI.

"With the reduction of the MSF rate and the increase in the repo rate in this review, the process of re-aligning the interest rate corridor to normal monetary policy operations is now complete," RBI Governor Raghuram G. Rajan said in the policy statement.

The RBI generally maintained a 100 basis points gap between repo and MSF rate. But this gap was altered recently to support the battered rupee. With the changes now the gap is back to the usual 100 basis points.

Rajan said the policy stance and measures in the review were intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.

Annual wholesale price index-based inflation jumped to a seven-month-high of 6.46 percent in September, while consumer price index-based inflation was recorded at 9.84 percent, largely due to higher food and fuel prices.

Rajan, who took charge as the RBI governor Sep 4, said both wholesale and consumer price inflation are likely to remain elevated in the months ahead, warranting an appropriate policy response.

"The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics," he said.

Rajan's statement gives indication that the RBI would hike rates again if inflation remained high.

"The message from RBI is clear, as long as inflation is around, asking for a rate cut would remain a wish list," said Rana Kapoor, president of industry body Assocham.

Kapoor, who is also managing director of Yes Bank, said: "All efforts must be made through coordinated efforts by the centre, states and the RBI to fight price rise so that the economy can be brought back to the growth trajectory."

The RBI has cut economic growth forecast for the current financial year to 5 percent from its earlier projection of 5.5 percent.

"While industrial activity has weakened, strengthening export growth, signs of revival in some services along with the expected pick-up in agriculture could increase the real GDP growth from 4.4 percent in the first quarter to a central estimate of 5 percent for the year as a whole," Rajan said.

Reacting to the RBI move, the Confederation of Indian Industry (CII) said the hike in repo rate has come as a disappointment to industry especially as the investment climate continues to be weak and growth outlook remains muted.

"The RBI could have refrained from effecting a hike in repo rate as industry is already reeling under pressures of high cost of capital and low availability in a tight liquidity situation," CII said.

View the original article here

RBI raises repo rate as inflation weighs; rupee support eased

By Suvashree Dey Choudhury and Tony Munroe

MUMBAI (Reuters) - The Reserve Bank of India raised interest rates for the second time in as many months on Tuesday, warning that inflation is likely to remain elevated despite sluggish growth, and rolled back an emergency measure put in place in July to support the rupee.

Facing some of the fiercest price pressures in Asia, the RBI lifted its policy repo rate by 25 basis points (bps) to 7.75 percent, in line with expectations in a Reuters poll.

"Overall WPI (wholesale price index) inflation is expected to remain higher than current levels through most of the remaining part of the year, warranting an appropriate policy response," RBI Governor Raghuram Rajan said. He later said the RBI's next rate move would not necessarily be upwards.

While some RBI watchers say he may not yet be finished tightening, markets took comfort that Rajan's tone wasn't more hawkish and bond yields saw their biggest drop in three weeks.

"You should not see the fight against inflation as anti-growth. It is going to be the best medicine for sustainable growth going forward," Rajan told a media briefing.

In last week's Reuters poll, the median expectation was for no further policy moves in upcoming reviews.

With the rupee having stabilised after a steep May-August slide, the RBI also lowered its Marginal Standing Facility (MSF) rate by a further 25 bps to 8.75 percent, as expected, which eases liquidity in the banking system by lowering the cost of borrowing for lenders.

Rajan, a high-profile former chief economist at the International Monetary Fund, took office in early September and stunned markets in his first monetary policy review just weeks later by raising interest rates to combat price pressures dogging Asia's third-largest economy.

"Today's move was a follow-through of the hawkish September policy guidance, as high and persistent inflation is seen as an impediment to the medium-term growth outlook," said Radhika Rao, economist at DBS in Singapore.

India's benchmark 10-year bond yield dropped as much as 12 bps to 8.54 percent, as traders were relieved that the rate hike was accompanied by an MSF cut. The rupee erased all losses to gain on the day to 61.31/32 per dollar while stocks rose nearly 2 percent.

"Yields dropped because he has shown equal concern about growth and said that RBI doesn't want only to focus on inflation," said Harish Agarwal, a fixed income trader with First Rand Bank.

For graphic on India WPI, rates, industrial output, click http://link.reuters.com/deq95s

For graphic on India economy, click http://link.reuters.com/fuh42v

For Reuters policy web page, click http://in.reuters.com/subjects/rbi-policy-review

Video: RBI's rate hikes: Room for more?: http://link.reuters.com/kyd34v

FOOD FIGHT

India's annual food inflation accelerated to 18.4 percent in September, its highest since mid-2010, pushed up by prices of vegetables including onions and stirring public discontent ahead of national elections which must be held by next May.

However, the economy grew at just 4.4 percent in the June quarter, its slowest since early 2009. The 5 percent growth rate recorded in the last fiscal year through March was the weakest in a decade.

The RBI expects the economy to grow 5 percent again in the current fiscal year that ends in March, below its earlier forecast of around 5.5 percent but still above many private-sector forecasts.

"The pass-through of rupee depreciation into prices of manufactured products is acting, along with elevated food and fuel inflation, to offset possible disinflationary effects of low growth," Rajan said in his policy statement.

The headline wholesale price index unexpectedly hit a seven-month high in September of 6.46 percent as food prices surged -- well above the RBI's perceived comfort level of around 5 percent -- while the consumer price index jumped an annual 9.84 percent.

The RBI said on Tuesday CPI inflation would remain above 9 percent in coming months "absent policy action."

D.K. Joshi, principal economist at Crisil Ltd in Mumbai, said future rate moves would depend on inflation readings.

"If inflation surprises on the lower side, then you should see RBI holding. Otherwise, with this inflation trajectory, I think they will raise rates," he said.

The rupee slumped to record lows in August, at one point sliding some 20 percent for the year, on concerns about India's gaping current account and fiscal deficits, and as global investors dumped emerging market assets for fear the U.S. Federal Reserve was set to start tapering its massive stimulus programme.

To halt the slide, the RBI had jacked up the MSF rate by 200 bps in July. It rolled back 75 bps of that at its September 20 review and another 50 bps earlier this month.

Tuesday's cut returns the gap between the repo and MSF rates to the usual 100 basis points.

(Additional reporting by Swati Bhat, Neha Dasgupta, Himank Sharma and Subhadip Sircar; Editing by Kim Coghill)

View the original article here

RBI seen hiking rates again in Oct to cement hawkish inflation stance - Reuters poll

By Sumanta Dey

BANGALORE (Reuters) - The Reserve Bank of India will likely raise its lending rate further on Tuesday, cementing its inflation-fighting credentials despite the country's sputtering economic growth, a Reuters poll showed.

Twenty-nine of 41 economists polled this week expected the central bank will increase the policy repo rate by 25 basis points (bps) to 7.75 percent when it meets on Oct 29.

The median consensus also showed the marginal standing facility, an overnight borrowing rate, would be cut by an equal measure, narrowing the gap between the two lending rates to 100 basis points, which has long been the default setting.

RBI Governor Raghuram Rajan said last month he intended to continue withdrawing liquidity tightening steps put in place this summer to stabilise the slumping Indian rupee. Those measures included a 200 basis point increase in the MSF rate in July.

The MSF rate was cut by 50 basis points to 9.0 percent on October 7 as the rupee clawed back some ground after hitting record lows in August.

"Rajan has been fairly hawkish on inflation and he has also gone to the extent of saying that even if tackling inflation comes at a short-term trade off with growth, he would go for it," said Upasna Bhardwaj, an economist at ING Vysya Bank.

"His school of thought also says that tackling inflation should be the primary mandate of a central bank."

The RBI surprised markets last month by increasing interest rates to 7.50 percent, acknowledging inflation pressures and establishing the central bank's resolve in fighting it, even at the expense of slower growth.

Indeed, India's economic growth will remain under pressure well into next year owing to weak domestic and global demand, while headline inflation will remain elevated, a separate Reuters poll showed this week.

Wholesale price inflation ticked higher to 6.46 percent in September, well above the RBI's commonly perceived comfort level of 5 percent.

Most of the increase was attributed to soaring food prices. Still, economists said Rajan will likely tackle it by raising interest rates, rather than wait for prices to cool after a good monsoon this year.

If the RBI raises the repo rate next week, economists do not expect another increase through March 2015, providing inflation shows some signs of moderating.

"At the moment we expect a pause (after next week's anticipated rate rise), but if the inflation situation changes we will have to revisit that view," said Upasna Bhardwaj, an economist at ING Vysya Bank in Mumbai.

"I would not rule out a change in policy rates going forward. For now we think inflation will continue to inch up and then decline a little because food inflation will come down and also because of exchange rate stability."

The poll also showed the RBI is unlikely to change the cash reserve ratio (CRR) at its meeting, holding it at 4.0 percent.

Commercial banks in India have called for the central bank to reduce the reserve requirement with an aim to abolish it, arguing that the cash earns no interest and is unproductive.

But the reserve provides a key liquidity management tool for the central bank and it has so far only reduced the CRR in measured steps.

"The fact that banks are clamouring for it makes it all the more reason for the central bank not to do it," said Robert Prior-Wandesforde, director of Asia economics at Credit Suisse.

"The CRR, by Indian standards, is very little. It is the lowest it's been for a very long time. I don't think Rajan is ready yet to signal a more accommodative stance by reducing it."

Twelve economists in the poll predicted the RBI will stay put and not hike the repo rate at its Tuesday review, saying the uptick in inflation last month was due to higher food prices, which they expect will ease gradually.

(Polling by Ashrith Doddi and Hari Kishan; Editing by Kim Coghill)

View the original article here

China central bank fuels fears of inflation clampdown

By Pete Sweeney and Koh Gui Qing

BEIJING/SHANGHAI (Reuters) - China's central bank added fuel to fears on Thursday it was clamping down on inflation risks as it allowed cash to drain from the financial system for a second straight week, sparking a jump in short-term rates.

The move by the People's Bank of China (PBOC) happened as Beijing stepped up its efforts to counter surging property prices in the capital in an attempt to calm rising discontent over the city's record-high home prices.

China also widened the funding options for local governments and property companies by giving them access to the interbank bond market to finance affordable housing, a priority of Chinese leaders, sources told IFR, a Thomson Reuters publication.

Housing data this week has raised fresh concerns about property bubbles in some major cities, which could add to consumer inflation - already at a seven-month high - and add to criticism that home prices are increasingly out of reach of ordinary Chinese.

Zhu Haibin, chief China economist at JP Morgan in Hong Kong, argued the tighter conditions were overdue. A pick-up in the economy had probably reassured the central bank it could raise rates without damaging growth.

"That will increase the determination of the PBOC for credit normalisation, for credit tapering. The policy in the last few years overall has been very loose, with credit growth way higher than nominal GDP," Zhu said.

The central bank, which sparked a market panic in June by engineering a cash crunch, refrained from taking part on Thursday in scheduled money market operations for the third consecutive time. It has drained more than 157 billion yuan from money markets since the week of September 30.

In response, China's seven-day repurchase rate - a benchmark for short-term funds - jumped by nearly a full percentage point to 5 percent at the open on Thursday.

SHARES FALL

Asia shares fell as investors feared tighter monetary conditions could weigh on China's economic growth.

"Cash demand is going to be high in October because people have to pay taxes and banks have to park reserves with the central bank," said Hong Hao, chief strategist at Bank of Communications International Securities In Hong Kong.

Analysts said one aim of the central bank was to drain excess cash in the financial system that could aggravate the rise in property prices.

Chinese banks made 787 billion yuan in new loans in September, higher than a forecast 650 billion yuan. Bank lending to the property sector picked up in the third quarter compared with the second.

Yuan has also poured into the economy as a side effect of massive intervention by the central bank to curb the strength of a rally in the local currency, which hit a record high on Thursday.

Still, signs that China's giant manufacturing sector is reviving will give the central bank confidence it can push rates higher without endangering economic growth, analysts said.

Economic growth in the July-September quarter was the strongest this year and a preliminary purchasing managers' index for October gave the first insight into how the economy is doing this quarter.

It showed strong new orders drove the fastest expansion in the manufacturing sector in seven months.

BEIJING MOVES

Data this week showed China's house prices in September rose 9.1 percent from a year earlier, the sharpest rise since January 2011. House prices in the country's largest cities rose much faster than the national average. They were up 16 percent in Beijing, 17 percent in Shanghai and about 20 percent in the southern cities of Guangzhou and Shenzhen.

The figures provided the latest scare for a government that aims for economic and social stability. It has waged a four-year campaign to try to cool the housing market by restricting purchases, raising the level of down payments and curtailing bank lending to the real estate sector.

Accounting for 16 percent of China's $8.5 trillion economy, the property sector is a crucial growth driver and fuels economic activity in a host of other industries.

But the potential for social unrest due to unequal access to housing has led many to worry that soaring property prices could threaten the country's stability.

To ease public concern that home prices are increasingly unaffordable, the capital vowed to supply 70,000 new homes for middle income families and to punish property speculators.

"We are making this move to further balance the supply of homes, support demand for owner-occupied apartments and stabilise market sentiment," the Beijing housing commission said in a statement on its website.

Other measures included taking houses from speculators if they are found to have skirted controls barring residents from owning more than two homes.

Separately, sources said authorities will allow a wider range of local governments and property developers greater access to funding markets.

The National Association of Financial Market Institutional Investors, which regulates the interbank bond market under the supervision of the central bank, announced the decision during an internal meeting on Tuesday, said one source.

NAFMII has barred property companies from the interbank bond market since 2008 as part of China's efforts to contain property prices. It has also blocked most local government funding vehicles from issuing since December, amid concerns about a build-up of debt in the sector. Only China's four biggest cities - Beijing, Shanghai, Tianjin and Chongqing - and the provincial capitals were exempt from those restrictions.

The move will allow funding vehicles from the next tier of cities, below provincial capitals but above county level, to return to the interbank market, the sources said.

(Additional reporting by Dominic Lau in Tokyo, Aileen Wang and Jonathan Standing in Beijing, Clement Tan in Hong Kong and Chen Yixin in Shanghai; Writing by Neil Fullick; Editing by Alex Richardson)

View the original article here

China inflation at seven-month, limits room for easing despite export tumble

By Kevin Yao and Xiaoyi Shao

BEIJING (Reuters) - China's annual consumer inflation rate rose to a seven-month high of 3.1 percent in September as poor weather drove up food prices, limiting the scope for the central bank to manoeuvre to support the economy even as exports showed a surprise decline.

But few analysts expect a further sharp rise in inflation or policy tightening in coming months as the world's second-largest economy still faces a weak global environment and Beijing tries to tap the brake on credit-fuelled investment.

The inflation rate was higher than a median forecast of 2.9 percent in a Reuters poll and August's 2.6 percent, but was still below the official target of 3.5 percent for 2013.

"We expect CPI inflation to rise further in Q4 and see rising risks that it may rise above 3.5 percent for some months in 2014," said Zhiwei Zhang, China economist at Nomura in Hong Kong.

"The rise of CPI inflation leaves little room for policy easing as the benchmark deposit rate is only 3 percent."

Upbeat September credit data released later on Monday signalled that the central bank may have already eased up its control on bank lending following a liquidity crunch in June, which analysts warn could fan property bubbles and long-term inflation risks.

Month-on-month, consumer prices rose 0.8 percent, the National Bureau of Statistics said, bigger than a rise of 0.5 percent expected by economists.

Food prices gained 1.5 percent in September from August due to droughts and floods in some areas, pushing up the CPI by 0.51 percentage points, Yu Qiumei, a senior statistician at the bureau, said in a statement.

In annual terms, food prices jumped 6.1 percent.

"September CPI inflation gained more momentum on seasonal factors and a low base effect from last year," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

"But we think the inflation situation is still under well control and will not be a concern this year, especially when the economy is struggling with over-capacity problems."

China's exports dropped 0.3 percent in September from a year earlier, against expectations of a 6 percent rise, data showed on Saturday, a disappointing break to a recent run of indicators that had signalled the economy may be regaining momentum. ID:nL4N0I202X]

The decline in exports also raised questions about the strength of the global economic recovery, though solid import data for the same month helped offset some concerns.

GRAPHIC:

Inflation & food inflation: http://link.reuters.com/waf95s

Trade: http://link.reuters.com/ked55s

PREVIEW:

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

FACTORY-GATE DEFLATION EASES

Factory-gate deflation eased further in September, although in annual terms prices still recorded a 19th consecutive fall, highlighting the pressures facing Chinese companies.

Producer prices fell 1.3 percent from a year earlier, a smaller fall than the 1.4 percent expected by the market and the 1.6 percent drop in August.

However, there was some relief to manufacturers struggling to cope with profit-eating price declines, as producer prices rose 0.2 percent from August.

After slowing in nine of the past 10 quarters, the economy looks to have stabilised since mid-year after Beijing acted to head off a sharper downturn with increased spending on public housing construction, railways and tax cuts for smaller firms.

Chinese banks made 787 billion yuan worth of new yuan loans in September, higher than a forecast of 650 billion yuan and more than the previous month's 711.3 billion yuan.

Total social financing (TSF), a broad measure of liquidity in the economy, was at 1.4 trillion yuan in September versus August's 1.57 trillion yuan - which nearly doubled from July's level.

"The September new yuan loan figures were much higher than market expectations, indicating that the central bank has kept liquidity conditions relatively loose to bolster the economic recovery," said Li at Shenyin & Wanguo.

Beijing wants to keep the economy on an even keel in the run-up to a top-level government meeting on economic reforms in November, analysts said.

Annual economic growth is forecast to have accelerated to 7.8 percent in the third quarter from 7.5 percent in the second quarter, but the recovery could fizzle towards the year-end, a Reuters poll showed.

Third-quarter GDP growth data, along with industrial output, fixed-asset investment and retail sales, is due on Friday.

Beijing has a growth target of 7.5 percent for 2013, which would be the weakest rate in more than 20 years, and has repeatedly said it would accept slower growth as it tries to wean the economy off dependence on investment and exports in favour of domestic consumption.

"The economy faces some downward pressures, especially by looking at the export data. Full-year GDP growth could be 7.6 percent," said Zhou Hao, China economist at ANZ in Shanghai. (China Economics Team; Editing by John Mair & Kim Coghill)

View the original article here

Low growth, high inflation likely to persist in India

By Rajesh Kumar Singh

NEW DELHI (Reuters) - Economic data on Monday will likely offer further evidence of high inflation and weak growth, complicating the RBI's mission of cooling prices without worsening the slowdown and adding to the government's difficulties as it heads into an election season.

Asia's third-largest economy has been caught in a situation which some analysts define as akin to stagflation for the past three quarters -- with economic growth stuck below 5 percent and prices rising at a fast clip.

Inflation numbers due later on Monday will likely show the same trend.

According to a Reuters poll, wholesale prices probably rose 6 percent in September, slightly below a six-month high of 6.1 percent in August. Consumer inflation, also due on Monday, is expected to have quickened to 9.60 percent last month from 9.52 percent in August, the poll showed.

The government will release the data on wholesale prices around 12:00 p.m. Consumer price data is due at 5:30 p.m.

The inflation data comes on the heels of Friday's disappointing industrial output numbers. Output grew a much-slower-than expected 0.6 percent in August, compared with an upwardly revised 2.75 percent expansion in July, hurt by weak investment and consumer demand.

The government is hopeful the economy will start to recover by the end of the year on higher farm output and exports. But the latest industrial production data has dampened that hope.

Output grew just 0.1 percent between April and August, the first five months of the fiscal year 2013/14.

That will be a worry for Prime Minister Manmohan Singh's Congress party as it campaigns for five state elections starting in November, a warm up for national elections due by next May. The opposition Bharatiya Janata Party has gained momentum in recent months thanks in part to the weak economic performance of Singh, a veteran economist and reformer.

"India is likely to face low growth and high inflation for some time," said Daniel Martin, Asia Economist at Capital Economics in Singapore, who expects the Reserve Bank of India (RBI) to increase its repo rate by another 25 basis points later this month.

"A higher repo rate will hold up the economic recovery. It is a difficult situation for the central bank."

Economic growth has averaged 4.6 percent between the fourth quarter of 2012 and the second quarter of 2013. Headline inflation, measured by wholesale prices, averaged around 7 percent in the same period -- way above the central bank's perceived comfort level of 5 percent.

INFLATIONARY WORRIES

Worries over high inflation led new RBI chief Raghuram Rajan to surprise markets in his policy review last month with an interest rate hike. Economists are now split over whether Rajan will hike rates again at the next review on October 29.

If inflation data does come in line with expectations, the odds for another hike at the October review will only increase.

Even though India is stumbling through its worst economic crisis since 1991, Rajan has clearly signaled he would focus on price stability, which he sees as a necessary condition for lifting economic growth from a decade low.

Inflation is expected to come down in coming months as a slowing economy is likely to keep demand-driven price pressures in check and as this summer's strong monsoon rains may eventually cool food prices.

Yet, price risks persist. Adjustments in domestic prices of subsidised fuel and other imported items following a sharp depreciation of the rupee are still incomplete.

Although the rupee gained 5 percent last month, it is still down around 10 percent this year against the dollar, meaning higher import costs for items such as oil, fertilizer, pulses and edible oil in rupee terms.

The rupee hit record lows in late August, pressured by the country's gaping current account deficit and a general exodus of global investors from emerging market assets.

RECOVERY IN SIGHT?

In its bid to revive the economy ahead of polls, Singh's government has decided to inject capital into banks so they can offer cheaper loans for purchases of items such as bikes, fridges, washing machines and televisions.

The move is aimed at boosting production in the consumer durables sector, which has failed to register growth since last November.

A pick-up in merchandise exports, aided by a recovery in global economy along with the rupee depreciation, has bolstered the government's hopes for an economic rebound in the quarter to end-December.

Singh is also counting on the prospect of strong farm output for an economic boost. The sector is expected to post annual growth of about 5 percent this fiscal year, which should lift rural incomes and increase demand for goods and services.

"Strong exports and a rebounding farm sector will only help at the margins," said Martin of Capital Economics. "India's recovery largely depends on a revival in investments."

(Reporting by Rajesh Kumar Singh; Editing by Sanjeev Miglani & Kim Coghill)

View the original article here