http://globaleconomicanalysis.blogspot.com/2013/08/panic-flip-flop-moves-by-india-central.html
Wednesday, August 21, 2013 2:43 PM
Panic Flip-Flop Moves by India Central Bank Fail to Halt Currency Plunge
The India Rupee fell to fresh record lows today in spite of panic moves by the Reserve Bank of India.
Rupee 1-Week Chart
Rupee 5-Year Chart
The Rupee is down 5% in a week, 46% in just over two years.
Carry Trade Unwinds
When carry-trade money is pouring in, everything looks fine. Things get messy in a hurry when there is capital flight.
See Mish Video: Troubled Currencies (And There are Lots of Them), Gold, Bernanke, Carry Trades, Bubbles.
Panic Flip-Flop Moves by India Central Bank
The Financial Times reports India gripped by mood of crisis as rupee falls again
Rupee 1-Week Chart
Rupee 5-Year Chart
The Rupee is down 5% in a week, 46% in just over two years.
Carry Trade Unwinds
When carry-trade money is pouring in, everything looks fine. Things get messy in a hurry when there is capital flight.
See Mish Video: Troubled Currencies (And There are Lots of Them), Gold, Bernanke, Carry Trades, Bubbles.
Panic Flip-Flop Moves by India Central Bank
The Financial Times reports India gripped by mood of crisis as rupee falls again
The Indian rupee fell to a new low against the dollar on Wednesday and stocks declined after a central bank promise to inject liquidity into the country’s financial markets provided only temporary relief from a deepening sense of crisis.
Bank shares and bond prices had jumped in the morning after the Reserve Bank of India’s latest intervention, but the euphoria quickly evaporated.
On Tuesday night the RBI announced that it would purchase Rs80bn ($1.2bn) of long-dated government bonds and take other steps to ease pressures on Indian banks, whose valuations have been badly hit by a series of measures introduced to protect the rupee over the past month.
The latest moves partially reversed previous monetary tightening measures and led to accusations from analysts of Indian policy “flip-flops”.
The government and the RBI have issued a series of edicts in recent days designed to reduce the current account deficit and bolster the rupee, including increases in the import duty on gold, the end of duty exemptions for flatscreen televisions brought in by airline passengers and restrictions on outward direct investment by Indian companies and individuals.
Official Denials
Emphasis mine. Amusingly, those capital controls are supposedly not capital controls according to government officials.
For additional comments and "official denials" please see "No Question" of Economic Crisis; Rupee Plunges to Record Low; Gold Coin Imports Banned.
Wanting the Impossible
India is in a wold of hurt. It wants to maintain 6% growth, rein in inflation, stop capital flight, and stop the plunge in the Rupee. That combination is impossible.
Mike "Mish" Shedlock
http://www.zerohedge.com/news/2013-08-21/its-currency-collapses-india-doubles-down-big-brother-surveillance
As Its Currency Collapses, India Doubles Down On Big Brother Surveillance
Submitted by Mike Krieger of Liberty Blitzkrieg blog,
What’s a clueless government trying to micromanage the affairs of over a billion people supposed to do when the wheels start coming off the wagon? If you’re India, you blame the country’s financial and societal woes on the buying of gold and attempt to prevent people from purchasing it. When that doesn’t work, and your currency continues to collapse, then what?
Well, you decide to double down on a surveillance state. That’s precisely what the enlightened government bureaucrats at India’s Ministry of Home Affairs (MHA) have decided to do. From The Hindu:
Amid a raging global debate on privacy versus surveillance, monitoring and use of intrusive technologies by governments, the Directorate of Forensic Sciences in the Ministry of Home Affairs (MHA) is set to purchase a range of equipment and software that will allow it to conduct deep search, surveillance and monitoring of voice calls, SMS, email, video, Internet, chat, browsing and Skype sessions on an unprecedented scale.The MHA document of July 12, 2013 also lists software-based tool kits for logical level analysis of GSM and CDMA mobile phones — which will comprehensively cover phones and SIMs used by India’s 860 million subscribers across 2G and 3G networks. This will be capable of extracting the phone’s basic information and SIM card data, including in your phonebook and contact list, call logs, caller group information, organizer, notes, live and deleted SMSs, web browser artifacts, multimedia and email messages with attachments, multimedia image audio and video files and details of installed applications, their data, traffic and sessions log. It will allow access to iPhone backup analysis, including those which are password protected. Blackberry, considered safe by unsuspecting users, will also be fair game, since it will support Blackberry IPD backup analysis, even when password protected.The MHA is also set to acquire software for forensic previewing, for analysis of digital media and smartphones. This can acquire date from various types of storage media including in multi-sessions. It can support Windows, Unix, Linux, Sun, Solaris, Macintosh, Apple’s iOS, Android, Blackberry, HP’s palm OS, Nokia Symbian, Windows Mobile OS, etc. The software will be capable of decrypting volumes, folders and files of suspected media including that which is subject to various types of encryption — including 32 and 64-bit systems.Software is also being ordered for previewing, image mounting, password cracking and forensic analysis of digital media. This would allow recovering folders, expanding compounded files, saved email data bases, extracting artifacts, time line analysis, and registry log analysis. It will allow the government to auto-detect passwords of protected files and their decryption across a range of encryptions.
Don’t worry, all you have to do is yell terrorism and no one will give a shit.
Full article here.
"Flip-Flopping" Indian Central Bank Conducts Mini QE To Support Currency, Fails
First it was China whose affair with "tapering" was short and sweet, and after the banking system nearly chocked in June on the PBOC's telegraphed tightening, the central bank has once again released the spigots with reverse repos galore. Then overnight, fighting a collapsing market, it was India's turn to "flip-flop" on its recent tightening drives, when in an attempt to stop the Rupee's implosion, the central bank announced it would purchase $1.2 billion in long-term bonds, along with other measures, in its first QE-like foray to stabilize markets and more importantly the currency (yes, in India QE is supposed, at least for now, to lead to a strong currency). And while it did manage to prevent another rout to the bond and stock markets, with the 10 Year bond yield falling below 9% and the Bombay Stock exchange bank index jumping more than 5%, the currency initially pushed higher only to tumble to a fresh record low of 64.59 as foreign investors continue to pull out capital.
Such concerns will not be ameliorated by what is now seen as outright confusion by the RBI which is tightening one day, easing the next, and generally unsure what it wants to focus on: inflation, rates, equities, a functioning banking sector or last but not least, the currency.
Alas, it appears that unlike in the US, the central bank can not have its tightening cake (as it is already fighting runaway inflation) and inject liquidity at the same time.
In a statement the RBI explained its new measures, saying: “It is important to address the risks to macroeconomic stability . . . At the same time, it is also important to ensure that the liquidity tightening does not harden longer term yields sharply and adversely impact the flow of credit to the productive sectors of the economy.”
The investing public was certainly not impressed:
However, the latest move followed a series of other minor interventions, including steps to tighten controls on domestic capital controls last week and further open market interventions to support the rupee on Tuesday, leading to doubts about the RBI’s overall approach.“Over in India, flip-flops by policy makers continue,” Rajeev Malik, senior Asia-Pacific economist at brokerage CLSA, wrote in a note. “The latest moves by the RBI are aimed at cleaning up the unintended mess in the bond market from their convoluted and ineffective currency defence. But they still appear unsure of what [growth, rupee, bonds] they want to eventually save.”Other analysts said the measures were likely to be at least partially successful in the RBI’s attempt to correct the unintended consequences of previous tightening measures.“They have been trying to walk a careful balance, with measures aiming to stabilise the currency, but they never really intended it to spill over to long-term yields, which have been shooting up,” says Leif Eskesen, chief economist for India at HSBC“And so they are now trying to ensure that they don’t do anything to hurt growth and curb credit growth . . . and this should to some extent help to contain yields, although there is still a difficult backdrop.”
Suddenly the world is learning that Bernanke's one-size-fits-all response to every monetary (and fiscal) crisis may not be just what the doctor ordered, especially for those nations which do not have a reserve currency privilege. Which, of course, should Bernanke and his successor continue on the same path, will be a privilege that will soon be taken away from the US as well.
As for India, the following chart also from the FT, should put things in perspective:
India Central Bank has been all over the map on gold too .....
Indian gold imports set to resume after 4-week halt as export rule is
clarified
Submitted by cpowell on Mon, 2013-08-19 19:20. Section: Daily Dispatches
By Siddesh Mayenkar and A. Ananthalakshmi
Reuters
Monday, August 19, 2013
Reuters
Monday, August 19, 2013
MUMBAI -- Indian traders said they will start importing gold again over the next week or so after the central bank clarified a new rule that brought the flow of the precious metal into the world's top gold consumer to a standstill at the end of July. A resumption of imports would ease tight domestic supply and prices ahead of a festival and wedding season that kicks off next month. Indian imports would also support benchmark international gold prices, which hit a two-month high on Monday.
For the complete story:
India to slash duties on scrap and raw gold imports
Submitted by cpowell on Sat, 2006-08-19 16:10. Section: Daily Dispatches
By Sangita Shah
Financial Express, Mumbai
Friday, August 18, 2006
Financial Express, Mumbai
Friday, August 18, 2006
The government is soon likely to relax scrap and raw gold import norms, paving the way for greater and cheaper imports of the precious metal into the world's largest gold- consuming country.
Sources close to the Reserve Bank of India stated that the concerns regarding raw gold, which will be imported by classifying it under brass imports, have been resolved. "The government is likely to announce reduction in import duty on raw gold to bring it on par with pure gold," the industry veteran added.
Currently, the import duty on pure gold is 1.5 percent, while it is more than three times that at 5 percent on raw gold imports. This has discouraged refiners from setting up shop in India.
On the other hand, India has imported an average 500 tonnes of pure gold annually for the past 10 years. However, if the import duty is brought on par with raw gold, India may see a few gold refineries being set up that meet international standards.
Currently, India does not have a single London Bullion Market Association (LBMA) approved refinery. LBMA requirements for assaying standards and bar quality are strict, and only those large bars produced in their approved refineries are acceptable in the London market as "good delivery."
"India has a huge potential to make a viable business proposition for setting up a gold refinery if the import duty on raw gold is slashed," said Manan Desai, Citibank Corp.'s chief operating officer for the Middle East and Indian subcontinent.
India mulls leasing of IMF-bought gold
The Indian government is deliberating whether or not to lease the 200 tonnes of gold it bought from the International Monetary Fund in the international market to earn dollars.
The Reserve Bank of India (RBI) purchased the gold from the IMF for an estimated price of around $6.70 billion in 2009, and under the IMF’s limited gold sales programme.
"The deal was misinterpreted by many at that time, that it could further inflate the gold price, when the price was already at a ruling high. India’s purchase of gold was a reserve management strategy,'' a banking official told Mineweb. He added that globally, central banks were showing an increased interest in diversifying their holdings, to protect against a slumping dollar.
This story was posted on the mineweb.com Internet site earlier this morning...and I happened on it just before I hit the 'send' button on today's column.
Is A Foundering India About To Flood The Gold Market With 200 Tons Of "Leased" Gold
The truth behind the saying "never let a crisis go to waste" transcends both time and space, and it most certainly has no problem crossing the border into India, which over the past weeks has found itself in full monetary crisis, and whose currency is plunging to fresh record lows on a daily basis forcing its central bank to scramble with both tightening and QE at the same time. And if the influential Hindu Business Line, is correct, India's crisis is about to become someone's opportunity. Potentially for that someone which over the past two months has found themselves in a huge physical gold shortage as the now constantly negative GOFOrates confirm. Because according to Royal Bank of India sources cited by the HBL, India is now considering leasing out the 200 tonnes of gold it bought from the International Monetary Fund in 2009.
For India, this may be the nuclear option: its central bank, starved for dollars, is considering every initiative to procure short-term dollar liquidity to fund massive USD-denominated investor withdrawals out of the country, which as hammering the Indian Rupee, and which if unmet, threatens the entire financial system in the country.
Indeed, as the HBL reports that the gold will be leased in the international market for dollars so as to shore up the sagging rupee, which plunged below Rs 64 against the US dollar in Tuesday’s trade. A final decision may be taken next month, Finance Ministry sources said.
The move can fetch around $23 billion, David Gornall, Chairman of the London Bullion Market Association, has estimated.This marks a tidy increase in the Reserve Bank of India’s investment. In November 2009, the RBI purchased 200 tonnes of gold from the IMF, under the Fund’s limited gold sales programme, for $6.7 billion, cash.
$23 billion for a $6.7 billion investment: not a bad return. And why not do it: after all it's not like India actually has possession of the gold, which most likely is located somewhere deep beneath the New York Fed. Ot is that the JPMorgan office at 1 CMP?
According to RBI sources, this gold was never brought into the country. It was just a book transfer.Speaking at the India International Gold Convention in Jaipur last week, Gornall had said the RBI can organise a gold-dollar swap without divesting its holding or incurring any further interest charges.“By swapping gold for a payable currency, you can benefit by having access to dollars for a period of your choice, while remaining a long-term holder of the gold, as the swap is a transfer of asset for a limited period. You will have bullion bank counter-party risk but this is successfully managed at the RBI, which has the strictest lending criteria of any central bank in the world,” Gornall had argued.Finance Ministry officials agree.
Remember when Bernanke said gold is not money? He was right: for India, it is more.
Talking about the leasing arrangement, a Ministry official said that since gold was the most liquid of assets, it can be readily leased, and returned by the lessee to the lessor any time.Further, a lease transaction means the RBI’s gold holding will not come down even as it unlocks the asset’s value.
What is left unsaid here is that there is a flipside to the $23 billion for $6.7 billion quid-pro-quo. The leased gold may just stay with the lessee should the Indian crisis accelerate, and should it find itself unable to stabilize the situation in the near term, leading to a full USD-exodus, one which wipes out the country's entire exchange reserves. Currently, India has foreign exchange reserves of around $278 billion. Which is great if India had no other USD cash needs, however, being a net importer, thsi amount would be sufficient to fund the import bill for about six months. In other words, the country's regime can get emergency liquidity, however if it doesn't stabilize its monetary situation in half a year, then all bets are off, and the warrants attached to India's gold in the FRBNY gold vault will quietly be reattached to some other entity.
Finally, and as reported here extensively, India has recently set off on an unprecedented series of capital controls when it comes to its domestic gold market, desperate to prevent a negative current account where citizens convert a rapidly devaluing Rupee into gold, a dynamic which will have only accelerated as the INR has plunged to records over the past week. What message will the RBI send to its people if it itself is forced to rely on gold as the final backstop to its operations is very much clear. What is unclear is what happens as ever more paper currency is converted in yellow metal in India, exacerbating the current account deficit, and resulting in a Catch 22 where the central bank needs more and more sources of liquidity to offset the outflow of currency.
The good news, if any, is that at least someone will satisfy a craving for 200 tons of physical, which can than be repackaged in the form of the paper gold market into an infinity of paper claims on the underlying gold, to which nobody really holds title except the actual custodian of the physical.
Perhaps most amusing about the above episode is that when India's Economic Affairs Secretary, Arvind Mayaram, was sought for commentary he said there is no proposal to lease the purchased gold. His comments came in a text message. We will check back with him in a week or two.
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