India’s cbank tightens monetary policy more than expected

July 28, 2010 By Leave a Comment

July 27 (Reuters) – India’s central bank raised interest rates more forcefully than expected on Tuesday in the face of inflation that has held stubbornly above 10 percent for the past five months.

The RBI lifted the repo rate, at which it lends to banks, by 25 basis points to 5.75 percent, which was in line with expectations, but raised the reverse repo rate, at which it absorbs excess cash from the system, by 50 basis points to 4.50 percent.

Economists and investors had expected a 25 basis point increase in the reverse repo rate.

As expected, it left the cash reserve ratio (CRR) for banks at 6.00 percent, amid ongoing tight liquidity in the banking system.

Inflation in India emerged last year in the wake of a poor monsoon that drove up food prices but has spread broadly throughout the economy, spawning protest against a government whose voter base is predominantly poor and rural.

New Delhi’s decision to increase fuel prices is expected to add nearly a percentage point to wholesale price index (WPI) inflation starting in July and led the opposition to call a one-day nationwide strike early this month.

The government is counting on normal summer monsoon rains to results in better crop yields and ease pressure on food prices, and has said inflation should decline to 6 percent by December, a figure private economists put closer to 8 percent. (Reporting by Tony Munroe)

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IMD forecasts normal monsoon rains in 2010

April 24, 2010 By Leave a Comment

India’s summer monsoon is likely to be normal this year, the government said on Friday, allaying fears over an event crucial to the economic fate of the world’s second- most populous nation.

Rainfall is likely to be 98 percent of the long-term average, said the weather office, whose forecast is closely watched by commodities and financial markets as well as the government, which is battling to rein in inflation against a backdrop of intense protests over rising food prices.

“Rainfall for the country as a whole is is likely to be normal,” B.P. Yadav, spokesman for the India Meteorological Office, told reporters, adding that the forecast model had an error margin of 5 percent.

He said the El Nino phenomenon, which disrupts normal weather patterns, was weakening.

The monsoon winds bring 75 to 90 percent of the rainfall in most parts of India, the world’s top edible oils importer and biggest sugar consumer, and are vital for cane, rice and oilseeds crops as 60 percent of cultivated areas depend entirely on the rains for irrigation.

Last year, the government’s forecast of a normal monsoon proved wrong and the country grappled instead with a baking drought caused by its driest monsoon in 37 years.

For a graphic on India’s monsoon forecast vs actual rain see http://graphics.thomsonreuters.com/10/04/IN_MSNFCT0410.gif

For a graphic on the link between India’s rice output monsoon, see http://graphics.thomsonreuters.com/10/04/IN_MSONRC0410.gif

For a graphic on rainfall in years following a drought, see http://graphics.thomsonreuters.com/10/04/IN_DRGHT0410.gif

India’s coalition government, led by the Congress party of Prime Minister Manmohan Singh, cannot afford another poor season that would further fuel food inflation, spur additional interest rate hikes and trim economic growth.

Good rainfall would help India’s farm output rebound after last year’s drought, which triggered a sustained rise in inflation that boosted food prices 17.7 percent in the 12 months to April 10, and fuel prices by 12.5 percent.

(Reporting by Ratnajyoti Dutta; editing by Himani Sarkar and Malini Menon)

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SCENARIOS – Monsoon key to India farm output, trade policy, prices

April 24, 2010 By Leave a Comment

India’s summer monsoon is likely to be normal this year, the government said on Friday, allaying fears over an event crucial to the economic fate of the world’s second-most populous nation.

Earlier, weather scientists from the United States and Britain said normal monsoon rains were likely in India, but a Japanese forecaster had said the seasonal rains would be weak this year.

Success or failure of the annual summer southwest monsoon fixes the fate of the farm-dependent economy. Here are some likely scenarios:

GOOD MONSOON

- Adequate rains during the monsoon season would help sowing of rice, sugarcane, soybean and corn, and boost output.

- A good monsoon would also be a boost for the Congress-led government in its efforts to ease food inflation, which has become a lightning rod for the opposition political parties.

- Good rains could also mean the central bank may not have to further tighten monetary policy to rein in inflationary expectations.

- High temperatures during the pre-monsoon period are considered to be helpful for the early sowing of rice, soybeans and lentils.

- Higher rains in rice-producing belts of south, central and eastern India, and oilseed-growing central and western regions would augur well for domestic supplies.

- If monsoon rains come early, it would reduce the demand for supplementary irrigation needed for the cotton crop during peak summer season, saving energy and input costs.

- A good harvest would raise supply and reduce food inflation that soared to 17 percent in March.

- Well distributed rains during the four-month monsoon season would help the government to lift various trade curbs imposed in the recent years to rein in high food prices.

- Good rainfall would encourage the government to ease export curbs on wheat and rice, tax sugar imports, and impose import taxes on crude varieties of vegetable oils.

- Good monsoon rains and the related increase in farm incomes can stoke gold demand in the world’s biggest consumer.

- If the rainy season extends beyond September, it could hit iron ore exports from India, the world’s third biggest supplier of the steel making material. Iron ore fines exports are usually halted during monsoon rains as they absorb water.

- Higher demand for goods and services can boost economic growth.

BAD MONSOON

- A monsoon failure would lead to higher imports of sugar and cooking oils. Last year’s worst monsoon over three decades made India a large importer of the sweetener, pushing New York raws to hit a 29-year high in February. Lower oilseed output helped the country to regain top slot of cooking oil buyer from China, after a gap of six years.

- The government would find it difficult to manage high prices in essential food items. This would strengthen opposition parties and may trigger widespread protests.

- Higher inflation could force the central bank to further tighten rates, possibly endangering the economic recovery and making the government’s record borrowing program more difficult to manage.

Trade curbs on grain would continue. Hopes of wheat exports amid bulging stocks and record output would be dashed. They are expecting the government to relax curbs on wheat exports after the monsoon season is over.

- A monsoon failure for second straight year would severely hit output prospects for winter crops like wheat and rapeseed due to moisture stress and poor water reservoir levels.

- Scanty rains would result in depleting water reservoirs, hitting generation of hydro power and irrigation of winter crops.

- Monsoon failure would likely make the government revisit its fiscal deficit targets as scanty rains would raise the subsidy bill on diesel, which is used to pump water from wells for irrigation.

- A negative outlook for goods and services could dampen equity market sentiment, mainly of companies which sell products in rural areas, including consumer goods and automobiles.

(Reporting by Ratnajyoti Dutta; Editing by Malini Menon, Himani Sarkar)

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IMD sees normal monsoon rains; analysts cautious

April 24, 2010 By Leave a Comment

Summer monsoon in India is likely to be normal this year, the government said on Friday, allaying fears over an event crucial to the economic fate of the world’s second-most populous nation.

Rainfall is likely to be 98 percent of the long-term average, said the weather office, whose forecast is closely watched by commodities and financial markets as well as the government, which is battling to rein in inflation against a backdrop of intense protests over rising food prices.

“Rainfall for the country as a whole is likely to be normal,” B.P. Yadav, spokesman for the India Meteorological Office, told reporters, adding that the forecast model had an error margin of 5 percent.

Last year’s forecast for a normal monsoon was followed by India’s worst drought in 37 years, and analysts said that while Friday’s outlook was reassuring it was too early to celebrate given inaccurate predictions in the past and the importance of rainfall distribution.

“A forecast of normal monsoon will help allay the anxiety about the drop in food production and the resultant high levels of food price inflation we witnessed last year,” said Gaurav Kapur, senior economist at Royal Bank of Scotland in Mumbai.

“However, spatial distribution of the monsoon will also be critical as the year progresses,” he said.

Rainfall would be boosted by weakening of the El Nino phenomenon, which disrupts normal weather patterns, and the heat wave prevailing in northern India, Ajit Tyagi, director general of the India Meteorological Department, told reporters.

“Obviously, it is a good forecast. There is low probability of rainfall going below normal as of now. El Nino is in a declining phase, and it is approaching a neutral state.”

RAINFALL DISTRIBUTION

The monsoon winds bring 75 to 90 percent of the rainfall in most parts of India, the world’s top edible oils importer and biggest sugar consumer, and are vital for cane, rice and oilseeds crops as 60 percent of cultivated areas depend entirely on the rains for irrigation.

Yadav said the weather office would update its forecast every month from June, when the four-month monsoon season begins.

Last year, the government’s forecast of a normal monsoon proved wrong and India grappled instead with a baking drought that drove up food prices and disrupted electricity output.

“The long-trend forecast is notoriously unreliable and I wouldn’t put too much importance to it,” said Sujan Hajra, chief economist at Anand Rathi Securities.

For a graphic on India’s monsoon forecast vs actual rain see: http://graphics.thomsonreuters.com/10/04/IN_MSNFCT0410.gif

For a graphic on the link between India’s rice output monsoon, see http://graphics.thomsonreuters.com/10/04/IN_MSONRC0410.gif

For a graphic on rainfall in years following a drought, see http://graphics.thomsonreuters.com/10/04/IN_DRGHT0410.gif

India’s coalition government, led by the Congress party of Prime Minister Manmohan Singh, cannot afford another poor season that would further fuel food inflation, spur additional interest rate hikes and trim economic growth.

FARM OUTPUT

Good rainfall would help India’s farm output rebound after last year’s drought, which triggered a sustained rise in inflation that boosted food prices 17.7 percent in the 12 months to April 10, and fuel prices by 12.5 percent.

India is the world’s biggest sugar consumer. The outlook for the global market seemed gloomy ahead of the forecast, with New York raw sugar futures ending near a week’s low on Thursday.

Last year’s drought forced India to import a record 5 million tonnes of sugar and become the world’s top edible oil importer, replacing China, and also drove the government to consider imports of rice, a staple food for many citizens.

Prakash Naiknavare, managing director at Maharashtra State Cooperative Sugar Factories Federation, said India’s imports may halt.

“If monsoon remains normal, then certainly we will see a jump in sugar production… In 2010/11 we are estimating production of 22.5 million tonnes. In that scenario we don’t need imports,” he said.

Good rainfall would also boost purchasing power in villages, where two-thirds of the billion-plus Indians reside, raising demand for gold in the world’s top consumer.

“Monsoon is crucial for gold demand… Our is a farm-based economy good harvest helps gold buying in rural areas,” said Suresh Hundia, President, Bombay Bullion Association.

New York raw sugar futures were down 0.37 percent at 16.01 cents at 1345 GMT.

“This (forecast) will have a bearish impact on sugar prices and we may see weaker sugar prices today or tomorrow even though the news was largely discounted as we have had talks of a normal monsoon forecast,” said Emmanuel Jayet, head of agricultural commodities research at Societe Generale in Paris.

Good monsoon rains would also ease pressure on the central bank to further raise interest rates, analysts say.

On Tuesday, the Reserve Bank of India raised its key policy rates by 25 basis points each, a step that was in line with market expectations.

The summer monsoon rains traverse the subcontinent from its southern tip to the Himalayan north during the months of June to September.

(Additional reorting by Rajendra Jadhav, Sourav Mishra and Siddesh Mayenkar in MUMBAI and Naveen Thukal in SINGAPORE; Writing by Himangshu Watts; editing by Himani Sarkar and Ian Jones)

((himangshu.watts@thomsonreuters.com; +91 98108 20466; Reuters Messaging: himangshu.watts.reuters.com@reuters.net))

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700 years of monsoons mapped

April 24, 2010 By Leave a Comment

By analysing tree-ring data from more than 300 sites in Asia, researchers could piece together a year-by-year history of the region’s monsoon rains as far back as 1300 AD.

The new database, called the Monsoon Asia Drought Atlas, is important because the summer monsoon, which affects half of the world’s population, is little understood by climate modellers.

In fact, the models are poor enough that they don’t even agree on whether global climate change will strengthen the Asian monsoon or weaken it, said tree-ring expert Edward Cook, who is director of the Tree-Ring Laboratory at Columbia University .

“That gives you an idea of just how difficult the problem is,” Nature quoted him as saying.

The problem is that the good weather records that are necessary for validating climate models don’t exist for much of Asia before about 1950, said Cook.

Filling this gap, is one of the reasons his team compiled the drought atlas, he said.

The data were compiled from tree-ring chronologies showing the year-to-year growth of ancient trees at 327 sites.

Although these sites are, by necessity, clustered in regions where there are old trees, the rest of the map can be filled in by statistical analyses, explained Cook.

These analyses used tree-ring data from recent years, comparing them to existing weather data to find correlations with the older data and so extrapolate to the regions for which no such records were available.

In addition to mapping annual rainfall across thousands of kilometres of Asia, encompassing the Indian, east Asian and Australian monsoon areas, the team also correlated rainfall patterns with nearly 150 years of sea-surface-temperature recordings throughout the Pacific and Atlantic oceans.

This reveals how distant ocean conditions might affect Asian weather – again, useful for refining climate models, said Eugene Wahl, a palaeoclimatologist.

Wahl noted that Cook’s data give climate modellers a wealth of new information.

“It gives you something to start with, and that”s really important,” he said.

And by extending climate records back in time, the Asian tree-ring data, like similar studies in North America, have revealed past droughts that were much longer and more severe than anything these regions have had to deal with in modern times.

This “opens the possibility of understanding what nature can throw at us. That”s a big deal,” said Wahl.

The first analysis of the monsoon atlas has been published in Science1.

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700 years of monsoons mapped

April 24, 2010 By Leave a Comment

By analysing tree-ring data from more than 300 sites in Asia, researchers could piece together a year-by-year history of the region’s monsoon rains as far back as 1300 AD.

The new database, called the Monsoon Asia Drought Atlas, is important because the summer monsoon, which affects half of the world’s population, is little understood by climate modellers.

In fact, the models are poor enough that they don’t even agree on whether global climate change will strengthen the Asian monsoon or weaken it, said tree-ring expert Edward Cook, who is director of the Tree-Ring Laboratory at Columbia University .

“That gives you an idea of just how difficult the problem is,” Nature quoted him as saying.

The problem is that the good weather records that are necessary for validating climate models don’t exist for much of Asia before about 1950, said Cook.

Filling this gap, is one of the reasons his team compiled the drought atlas, he said.

The data were compiled from tree-ring chronologies showing the year-to-year growth of ancient trees at 327 sites.

Although these sites are, by necessity, clustered in regions where there are old trees, the rest of the map can be filled in by statistical analyses, explained Cook.

These analyses used tree-ring data from recent years, comparing them to existing weather data to find correlations with the older data and so extrapolate to the regions for which no such records were available.

In addition to mapping annual rainfall across thousands of kilometres of Asia, encompassing the Indian, east Asian and Australian monsoon areas, the team also correlated rainfall patterns with nearly 150 years of sea-surface-temperature recordings throughout the Pacific and Atlantic oceans.

This reveals how distant ocean conditions might affect Asian weather – again, useful for refining climate models, said Eugene Wahl, a palaeoclimatologist.

Wahl noted that Cook’s data give climate modellers a wealth of new information.

“It gives you something to start with, and that”s really important,” he said.

And by extending climate records back in time, the Asian tree-ring data, like similar studies in North America, have revealed past droughts that were much longer and more severe than anything these regions have had to deal with in modern times.

This “opens the possibility of understanding what nature can throw at us. That”s a big deal,” said Wahl.

The first analysis of the monsoon atlas has been published in Science1.

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