Financial

focus
January 2014, Volume 4

India Macro Flash

December Wholesale Price Index (WPI) fell to 6.16% from 7.52% and Consumer Variable Rate
Price Index (CPI) to 9.87% from 11.16% (comparison of YoY numbers against previ- Repo 8.00%
ous month print). RBI surprised the markets by hiking the repo rate by 25bps to Reverse Repo 7.00%
8.0% (per Figure 1) due to the persistent nature of core inflation(fig 2). Significantly,
MSF 9.00%
Dr. Urjit Patel Committee report recommends CPI to be considered as the bench-
CRR 4.00%
mark for inflation targeting and objective of below 8% CPI inflation by January 2015
Figure 1

The fiscal deficit reached 5.16 trillion Indian rupees (~$82 billion) during April-December, or 95.2 percent of
the full-year target (Figure 3). Also, the gross savings rate fell further to 30.1% in FY2013 to its lowest level in
nine years (figure 3). On the positive side the HSBC (PMI) for Manufacturing for Jan 2014 was at 51.4, the
highest since March of last year November essentially due to a deceleration in domestic orders (Figure 4).

Figure 2 Figure 3

Figure 4 Figure 5

De-Jargon : Purchasing Managers' Indexes (PMI) are economic indicators derived from monthly surveys of private
sector companies. A PMI of more than 50 represents expansion of the manufacturing sector compared to the previ-
ous month. A reading under 50 represents a contraction, while a reading at 50 indicates no change. Also, a PMI read-
ing higher than 42, over time, is considered the benchmark for economic (GDP) expansion. The different levels be-
tween 42 and 50 speak to the strength of that expansion. If the number falls below 42, recession could be just
around the corner. As with many other indicators, the rate of change from month to month is vita

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 Financial
focus
January 2014, Volume 4

US Macro Flash
Ms. Janet Yellen was confirmed to become the 15th chairman
of the Federal Reserve on 6th Jan 2013.
On 30th Jan 2014, the Fed reduced its asset purchase program
from USD 75 bn/month in the month of January to USD
65bn/month in February (last month Fed had already reduced
the asset purchase programme by USD 10 bn/month). On the
macroeconomic front, Fed noted that the labour market indi-
cators were mixed but showed improvement and needed to
be watched. To counter the adverse impact of QE tapering on
markets, the Fed maintained its strong forward guidance,
noting that it will hold its target interest rate near zero well
beyond unemployment rate below 6.5% if inflation remains
below Fed's longer-run goal of 2%.

Key Currency Trend

Variable 31-Oct-13 30-Nov-13 31-Dec-13 31-Jan-14
USD/INR 61.614 62.418 61.788 62.685
EUR/USD 1.358 1.361 1.378 1.355
USD/ZAR 9.999 10.201 10.551 11.318
USD/THB 31.100 32.070 32.730 33.000

Other Economies
China's official manufacturing PMI for January fell to a 6-month low of 50.5 as against prior print of
51.0. Meanwhile, China's non-manufacturing PMI also declined to 53.4 vs. 54.6 in December . Default
by China Credit Trust of ~$ 500 mn was creating a systemic risk. Investors avoided the same with last
minute negotiation. Concerns about shadow banking in China are now significant . Shadow banking, a
concept coined by the US Federal Reserve, refers to non-banking financial institutions with some
banking functions, but they are not (or less) regulated than a bank.

Eurozone Composite PMI climbed to 52.9 in January from 52.1 the previous month. It was the highest
final reading since June 2011. The PMI showed the now 18-member bloc's recovery was broad-based,
with Germany leading an upswing in periphery members amid signs of a stabilization in France, the
euro area's second-biggest economy.

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