Commodity Trade Mantra

Reserve Bank of India, FOMC, ECB & BoE Policy Meets this week.

Reserve Bank of India

Reserve Bank of India, FOMC, ECB & BoE Policy Meets in this week.

The RBI- Reserve Bank of India may keep Rates unchanged. Equity Markets & the INR – Indian Rupee Likely to be remain under Pressure.

The RBI- Reserve Bank of India will announce its 1st Quarter monetary policy tomorrow on Tuesday, July 31 & is expected to announce no changes to its previous monetary policy & that may trigger upside moves in Gold Prices inIndia. The RBI- Reserve Bank of India today said economic growth in 2012-13 is likely to fall below the revised potential of 7.5% due to a host of global and domestic factors & India’s average inflation outlook has been revised upward to 7.3% for 2012-13. Concerned over falling growth, the Central Bank today asked the government to provide investment stimulus and take aggressive steps, like increasing petroleum prices, to curtail subsidies. Indian inflation is a major challenge for monetary policy even as economic expansion remains weak.India is clearly going through a state of stagflation, wherein prices keep rising despite slowing down growth.

Reserve Bank of India: Monetary policy needs to sustain growth potential, guard against inflation risks.

The INR – Indian Rupee has plunged more than 20% against the US Dollar in the past year as Europe’s debt crisis and India’s trade deficit hurt demand for the currency. It slipped 0.4% to 55.585 per dollar at the close in Mumbai. The BSE India Sensitive Index -Sensex, down about 6% in the past 12 months, climbed 1.8%. India’s Forex reserves had declined by $872.7 million in the previous week. Foreign currency asset, the biggest component of Forex reserves kitty, increased by $565.5 million to $255.10 billion week ended July 20. Amid deteriorating global financial conditions , the Reserve Bank of India today warned that both the Equity Markets as well the already battered Indian Rupee are likely to be under pressure going forward. The RBI said stressed financial condition is likely to continue worldwide due to certain developments like the Libor scandal, money laundering cases by some leading global banks.

Threats to the economy “have been amplified by decelerating global trade and domestic supply constraints,” RBI said today ahead of its rate decision tomorrow. At the same time, “persistent inflation limits the space for monetary policy to revive growth.”

India faces inflation above 7% even with expansion at a nine-year low, curbing RBI’s scope to join a stimulus drive extending from China to Europe. That leaves it with little headroom to cut rates to support growth.

Reserve Bank of India also recognizes the threat of waning GDP growth that needs to be revived by lifting the investors’ confidence. Risks to inflation remain from an unsatisfactory monsoon & increases in MSP even as growth slowdown eases demand pressure. Majority of market participants do not expect any major policy action including change in policy rates or CRR.

Referring to the ongoing eurozone crisis, the report said the longevity of Greece in the European Union and Spanish banking problem pose risks to the financial stability of this region in particular and global financial markets in general. It noted that subdued growth in advanced economies and concerns in the eurozone area have resulted in negative FII inflows to emerging economies. However, the Central bank remains optimistic about positive inflows from FIIs in the second quarter.

Reserve Bank of India– Uncomfortably High Inflation & Weak Monsoon

Fiscal and trade deficits and gridlock in the ruling coalition over proposed steps to liberalize the economy have set back Prime Minister Manmohan Singh’s development agenda, reported Bloomberg. The monsoon is adding to challenges. The rains, pivotal for the incomes of about 235 million farmers as well as food supply, may be 15% to 20% below average in August, according to government estimates. The government forecasts record borrowing of 5.69 trillion rupees ($102 billion) to plug a targeted budget gap of 5.1% of GDP in 2012-2013. The goal is at risk of being missed due to spending on subsidies and a shortfall in revenues, the Reserve Bank said today.

More Central Bank Policy Meets: FOMC, ECB & BoE.

Focus of the market place this week will be the two-day FOMC meeting of the U.S. Federal Reserve, which starts Tuesday and ends early Wednesday afternoon. Also, the ECB -European Central Bank’s policy meeting and press conference are on Thursday. The BoE -Bank of England also meets to discuss its monetary policy on Thursday. Market watchers will be closely scrutinizing these central bank meetings for any fresh clues on the implementation of quantitative easing of monetary policies. In overnight news, it was reported Jean-Claude Juncker, the head of the Euro zone finance ministers, said the EU and ECB will soon take steps to eliminate the potential for a spreading debt contagion in the European Union.

The Gold story in short:

Maintain a cautious approach on Gold until it breaks the $1,652.5 ceiling on the higher side or the $1540 flooring with a show of sustained strength on either side. Indian Gold demand also expected to pick up slowly with the soon coming long festive season which ends in November this year.

Volatility in Gold Prices may remain high for the weak due to the knee-jerk reactions to the announcements of the above mentioned several Central Banks policy meets & also as the Gold Futures market is also in the midst of a rollover from the August Gold Futures to the October / December Gold Futures. Data on CME Group’s Web site shows that August Gold Futures had the most volume on Wednesday but December Gold Futures had the highest open interest, a very important indicator of market expectations for Gold Futures by the year end.

As for Silver Prices, I yet maintain that when ever the rally sets in, it may be the swiftest & the most ferocious one seen till date.

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