Bloomberg: India, China Face Fallout as U.S. Cuts Interest Rates
India and China may be forced to further restrict bank lending as declining U.S. interest rates prompt investors to pump record cash into the world’s two fastest-growing economies.
Chinese and Indian shares have added $882 billion since the U.S. reduced rates on Sept. 18, almost a third of the $3 trillion gain in their combined market capitalization this year.
Morgan Stanley GEF: Indian Monetary Policy: Don’t Expect Immediate Cut in Policy Rate
Weakening property demand is also reflected in the low growth of just 3% YoY in mortgage disbursement of the three large players (ICICI Bank, HDFC and LIC Housing). These three lending companies combined account for about 42% of the all-India mortgage loan portfolio.
. . . the RBI has also highlighted its concerns regarding the potential risk of sharp inflation in China getting transmitted to its trading partners.
. . . lending rates have peaked and are likely to decline going forward. The RBI’s measures aim only to prevent a sharper fall in lending rates.
Economic Times: Tough steps to check foreign inflows likely
RBI, which has bought over $61 billion from the open market since January, has had to sterilise a lot of liquidity (local currency) released into the system. It loses about 3% on such sterilisation effort — the difference between what it earns on deploying reserves mainly in the US treasury and the interest it pays in the domestic marketfor sucking out liquidity by issuing government securities. The idea is possibly to pass on some of the sterilisation cost to the ECB borrower.
Since many corporates are vying for a limited ECB quota, the more needy may be willing to pay extra in an auction to access foreign borrowings.
