Month: February 2013

Indian Budget 2013-14 Quick Highlights

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Here are some quick pointers from common man’s perspective for Budget 2013-14. I have added my thoughts in italics.

Income Tax:

  • No revision in income tax tax rates. The tax slab remains the same as of last year. Click here to view the Tax slabs for FY 2013-14 (same as FY 2012-13).
  • Education cess to continue.
  • Tax credit of Rs 2,000 for income up to Rs 5 lakh. 
  • Surcharge of 10% on Rs 1 crore plus income earners. Raised surcharge for only one financial year. Fact: Only 42,800 people with taxable income over Rs 1 crore in India.
  • The much awaited DTC (Direct Tax Code) remains work in progress.

RGESS (Rajiv Gandhi Equity Savings Scheme):

  • RGESS will be liberalized & the investor will be allowed to invest in mutual funds.
  • The investor will be able to do this for a period of 3 successive years.
  • The limit for investors wanting to invest in RGESS raised from Rs 10 lakh to Rs 12 lakh.

This is good move and would be safer for new investors.

Housing:

  • People taking a home loan in 2013-14 for an amount up to Rs 25 lakh will be allowed an additional deduction of Rs 1 lakh. Hopefully would give push to affordable housing.
  • Immovable Property transaction: TDS of 1% to be levied on transactions above Rs 50 lakh. Government is trying to curb black mney generation in property deals.

Banking:

  • India’s first women’s Public sector bank to be set up. Woman’s bank license to be in place by Oct, 2013
  • All PSU banks branches to have ATMs by March, 2014
  • KYC of banks will be sufficient to acquire insurance policies

Tax Free Bonds:

  • Tax Free Bonds – Will allow some organisations to raise funds strictly based on need.

Inflation Indexed Bonds:

  • In consultation with RBI, the FM proposes to introduce inflation indexed bonds or certificates.
  • The details will be announced later.

This is good move and hopefully would benefit retail investors and reduce investment in Gold to an extent.

Stock Markets:

  • Pension funds will be allowed to invest in ETFs. This would give a boost to stock markets and also give higher returns to pension funds.
  • STT (Securities Transaction Tax) rates cut on equity futures to 0.01% from 0.017%

Duties and Indirect Taxes:

  • One time amnesty scheme for service tax defaulters due from 2007
  • Higher customs duty on set top boxes from 5% to 10%
  • Excise duty on SUVs raised from 27% to 30%. Will not apply to SUVs registered as taxis
  • Customs duty unchanged for non agri products
  • Extend tax benefit to electrical vehicles
  • Increase in import duty on high end motor vehicles from 75% to 100%; and on motor cycles from 60% to 75%
  • Service tax to be levied on all air conditioned restaurants
  • Excise duty raised by18% for cigarettes
  • For phones priced at more than Rs 2,000, the duty is increased to 6%
  • To exempt vocational courses, testing services from Service Tax
  • Gold duty free limit raised to Rs 50,000 for men and to Rs 1 lakh for women travellers

Others:

  • To launch two new industrial cities in Gujarat and Maharashtra
  • Indian Institute of Biotechnology will be set up at Ranchi
  • To expand private FM radio to 294 cities

Zambia’s Central Bank News

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Zambia’s central bank held its policy rate steady at 9.25 percent, saying in a brief statement that it had  noted the moderation in inflationary risks to inflation in March “mainly due to continued improvement in the supply of maize to millers by the Food Reserve Agency coupled with the expected increase in fish supply follow the lifting of annual fishing ban.”
The Bank of Zambia, which raised its policy rate by 25 basis points in 2012, also said a stable supply of vegetables was expected to moderate inflationary pressures.
“This is in spite of some inflationary risks associated with the cost push pressures arising from lagged pass-through effects of the deprecation of the Kwacha,” the bank said in a statement.
The kwacha was rebased on January 1 and the central bank has been selling dollars in recent months to support the local currency.
Zambia’s inflation rate eased to 7.0 percent in January from 7.3 percent in December

    www.CentralBankNews.info

Zambia holds rate steady, sees inflation risks moderating – Central Bank News.

Jamaica’s Central Bank News

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Jamaica’s central bank cut its policy rate by 50 basis points to 5.75 percent, effective Feb. 25, saying the move was in light of the “generally weak economic conditions” and the government’s recent approval of debt reduction measures.
“These factors will have a dampening effect on inflationary impulses,” the Bank of Jamaica said in a statement from Feb. 22.
The cut in the policy rate – the rate payable on the Bank of Jamaica’s 30-day Certificates of Deposit –  is in line with the reduction in the rate on government securities on the National Debt Exchange.
    “These actions have occurred against the background of a staff level agreement between the Government and the International Monetary Fund on a medium- term economic programme,” the central bank said.
    Earlier this month the IMF and Jamaica reached a staff-level agreement on a $175 million economic reform program aimed at cutting Jamaica’s “unsustainable debt burden, which has undermined confidence and elevated risks to economic stability,” the IMF said on Feb. 15.
    The IMF’s executive board will take a final decision on the agreement by the end of March, subject to the Jamaican government carrying out some of the agreed measures, including a debt exchange that involves private investors, fiscal tightening and structural reform.

    “Over the last three decades, the Jamaican economy has experienced very low economic growth, declining productivity, and reduced international competitiveness,” the IMF said, adding the high cost of servicing debt has limited the government’s ability to provide services that are needed to achieve sustained rates of growth.
Jamaica’s Gross Domestic Product rose by 0.2 percent in the third quarter from the second quarter for annual contraction of 0.2 percent, the same rate as in the second quarter.
In its latest quarterly monetary policy report, the Bank of Jamaica estimated that the economy contracted by up to 1.0 percent in the fourth quarter due to the impact of Hurricane Sandy, the postponement of some projects and weak global and domestic demand.
For the first quarter of 2013, the central bank forecasts an expansion of the economy by 0.0-1.0 percent following four consecutive quarters of decline. For the 2012/13 fiscal year, which ends March 30, the central bank forecasts Jamaica’s GDP at minus 0.5 to plus 0.5 percent.
Jamaica’s inflation rate rose to 8.4 percent in January from 8.02 percent in December and the bank forecast inflation in the first quarter of 2013 of 2-3 percent. For the 2012/13 fiscal year, inflation is forecast in a range of 7.5-9.5 percent, a level the bank described as in its “desired range.”
Last month Fitch Ratings lowered Jamaica’s credit outlook to negative, saying the sustained erosion of its international liquidity position had reduced the government’s capacity to manage external and fiscal pressures.
    Jamaica’s net international reserves fell by $131.7 million to $125.6 million with gross reserves at $980.8 million at the end of December, representing 13.2 weeks of imports, according to the central bank.

Jamaica cuts rate 50 bps as government cuts deficit – Central Bank News.

Hungary’s Central Bank News

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Hungary’s central bank, which earlier today cut its base rate for the seventh time in a row, said it would consider cutting rates further if the outlook for inflation remains in line with its 3.0 percent target and the improvement in financial market sentiment is sustained.
The forward guidance by the National Bank of Hungary is exactly the same as in previous months. Since August 2012, the central bank has cut rates by 175 basis points with the rate now at 5.25 percent.
“In the Monetary Council’s judgement, the economic data becoming available in the past month suggest that weak demand continues to exert a strong disinflationary impact on prices, and therefore companies will have limited ability to pass on higher production costs into prices,” the bank said.
In addition, favorable financial market conditions may lead to a sustained fall in Hungarian asset prices which means that the bank’s inflation target can be met with looser monetary conditions.
Hungary’s economy contracted by more than expected in the fourth quarter of 2012, the bank said, adding that it expects growth to resume this year, helped by better exports.
“However, external, and domestic demand factors in particular, point to only modest growth in the period ahead,” the bank added.
Hungary’s Gross Domestic Product contracted by 0.9 percent in the fourth quarter from the third, the fourth quarterly contraction in a row, for an annual drop of 2.7 percent, up from the third quarter’s annual decline of 1.5 percent.
        Last month the International Monetary Fund said in its annual review that Hungary’s economy was estimated to have shrunk by 1.5 percent in 2012 following a 1.7 percent expansion in 2011.

    The IMF also said that further rate cuts by Hungary’s central bank should be “considered very cautiously” as rate cuts are unlikely to have a material impact on aggregate demand, given the difficult operational environment for banks, and the foreign currency exposure of private and public balance sheets remains significant so any sizable currency depreciation could be destabilizing.
    Hungary’s headline inflation rate slowed more than expected in January, the bank said, attributing the decline to a wide range of goods and services, along with a marked slowdown in underlying inflation which may reflect the “stronger-than-expected disinflationary impact of weak domestic demand.”
    The inflation rate fell to 3.7 percent in January, down from December’s 5.0 percent but still above the central bank’s 3.0 percent target. Hungary’s inflation rate jumped last year due to higher indirect taxes, which triggered price hikes, a depreciation of the forint plus higher food prices from bad weather.
     The central bank said global risk appetite had remained strong over the past month, but the contrast between improved investor sentiment and the modest outlook for global growth remains a risk, a warning the bank also issued last month.
    The success of Hungary’s foreign currency-denominated bond issue had also reduced financing risks for the country and cooperation with the European Commission and the International Monetary Fund “might contribute to a further reduction in financing costs,” the bank said.
 

 

Hungary to cut rates again if inflation remains on target – Central Bank News.

Virtual Cards-For safer online shopping

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While doing online shopping, our main concern is the safety about the data we share, like our credit/debit cards details. Answer to this concern is “Virtual Cards”. Today in India few Banks offer such cards in different name.

Virtual credit card is also called e-card, is mainly created for for your online purchase. So you can’t use this card for your offline purchase. Let us see it’s features.

  • Compare to your credit/debit card online shopping is safer. Because using this virtual credit card, you are not sharing your underlying credit/debit card details to merchant.
  • Card is valid only for limited period, which is usually in terms of hours.
  • Card creation is only from authorized user.
  • Card can be created from small amount like Rs.100 to Rs.50,000.
  • Customers having internet banking can easily create this card.
  • You are not sharing your Bank Acnt. No., mobile no., email address while doing purchasing with your vendors or merchant.
  • It is only used one time. It can’t be reused again.
  • You can create virtual card limit yourself.
  • Amount will be debited from your credit/debit card once the successful transaction from your virtual card.
  • You can create any number of virtual cards subject to the amount availability in your underlying account.
  • Suppose you created virtual card for Rs.5,000 and you used for Rs.2,500 then as I said above this card is only used once. So you can’t use this card once again. But the remaining amount will be credited back to your underlying card.
  • This is usually a free service. But better to check your concerned bank before creating.
  • You can’t withdraw cash from this card.

Banks offer such e-cards are SBI-Virtual Card, ICICI VCC, HDFC NetSafe,  and Kotak netc@rd.

 

Virtual Cards-For safer online shopping | BasuNivesh.

9 Economic Facts That Will Make Your Head Spin

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US Economy View

showmethemoneytbone

Half the population of the U.S. has slipped into poverty or is barely making enough to get by.

How much will you need for medical expenses in retirement? What does it cost to keep 2.5 million Americans behind bars? Here are a few facts and figures that might surprise you.

1. Recovery for the rich, recession for the rest.

Economic recovery is in rather limited supply, it seems. Research by economist Emmanuel Saez shows that the top 1 percent has enjoyed income growth of over 11 percent since the official end of the recession. The other 99 percent hasn’t fared so well, seeing a 0.4 percent decline in income…

CONTINUE READING HERE!

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Global Central Bank Monetary Policy Week in Review – Feb. 23, 2013

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Last week four central banks took monetary policy decisions with two banks (Turkey and Colombia) taking further steps to ease their stance while the other two (Thailand and Namibia) kept rates on hold, illustrating how monetary policy on a global scale remains accomodative despite fresh signs that the cycle of loose policy is nearing its end.

    Ultra-low interest rates in advanced economies continues to push funds toward higher yielding yet safe currencies, such as Turkey and Thailand, with Turkey’s central bank drawing on its arsenal to prevent capital inflows from boosting its currency and domestic assets while the economy is weak.
    But the main focus of last week was the Federal Reserve’s minutes from its January meeting that showcased the intensifying debate over how and when the Fed should exit from quantitative easing.
    While there is no doubt of the Fed’s commitment to easy money and questions over the economic impact of its latest asset purchase program, global financial markets are hyper-sensitive to any sign the program is coming to an end.
    The strong reaction of markets for the second month in a row to a debate over when to rein in quantitative easing illustrates the intense pressure on the Fed to choose its exit route carefully so it doesn’t destroy markets’ and consumers’ fragile confidence and derail the economic recovery.
    China’s move to drain funds from markets for the first time in eight months also served to remind financial markets of just how accomodative global monetary policy is – and has been for the last five years – and how the global shift to a more neutral policy is likely to be a recurring theme.
  Through the first eight weeks of this year, 77 percent of this year’s 69 policy decisions among the 90 central banks followed by Central Bank News have favored unchanged rates compared with 19 percent of decisions favoring rate cuts. This ratio is steady from last week.
    While the overall global economy remains sluggish, the contrast between Colombia and Thailand shows how growth in Asia is continuing to pick up speed while the slowdown in most of South America has yet to ease its grip.
    Colombia’s central bank cut its key rate for the sixth time since it embarked on an easing cycle last July and is concerned that low inflationary expectations could become entrenched amid a weakening economy, a sign that further rate cuts are likely.
    The Bank of Thailand is facing the opposite situation with its economy growing faster than expected and growing inflationary pressures. It is among the handful of Asian central banks that may raise rates later this year to curtail inflation from a combination of strong domestic demand, growing exports and capital inflow that is pushing up its currency and adding further fuel to asset prices.
    Turkey’s creative and flexible monetary policy was once again on display this week as the bank tries to find the right balance between stimulating economic growth yet discouraging hot money from flowing into the country to take advantage of the relatively high interest rates.
    While the Central Bank of the Republic of Turkey eased its policy stance by cutting short-term rates, it combined this with a “measured tightening” of reserve requirements – a macro-prudential measure – to limit capital inflows and excessive bank lending. Meanwhile, the benchmark interest rate, seen as a more heavy-handed tool, was left unchanged.
    The immediate effect was that the Turkish lira fell, showing that its nimble and multi-pronged policy is still paying off.
 LAST WEEK’S (WEEK 8) MONETARY POLICY DECISIONS:
COUNTRY MSCI     NEW RATE         OLD RATE        1 YEAR AGO
TURKEY EM 5.50% 5.50% 5.75%
THAILAND EM 2.75% 2.75% 3.00%
NAMIBIA 5.50% 5.50% 6.00%
COLOMBIA EM 3.75% 4.00% 5.25%
    NEXT WEEK (week 9) features only four scheduled central bank meetings, including Angola, Israel, Hungary and Trinidad & Tobago.
    Other events that financial markets will closely follow include Italy’s general election on Sunday and Monday and Federal Reserve Chairman Ben Bernanke’s scheduled testimony on Tuesday and Wednesday to the Senate Banking Committee.
COUNTRY MSCI          MEETING              RATE        1 YEAR AGO
ANGOLA 25-Feb 10.00% 10.25%
ISRAEL DM 25-Feb 1.75% 2.50%
HUNGARY EM 26-Feb 5.50% 7.00%
TRINIDAD & TOBAGO 28-Feb 2.75% 3.00%

Monetary Policy Week in Review – Feb. 23, 2013: Global policy still loose as 2 of 4 ease, but shift to neutral nearing – Central Bank News.

Gold updates

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When It Comes to Gold, Stick to the Facts

February 19, 2013

Gold dipped below $1,600 last week, falling to a six-month low, much to the chagrin of gold investors. I find the timing of the correction peculiar, given the G20 Finance Ministers Meeting taking place over the weekend. There’s been a growing debate over Japan’s move to devalue its currency to stimulate growth, with reaction from the G-7 leaders stating that “domestic economic policies must not be used to target currencies,” reports Reuters.

While the G-7 tried to legitimize the currency debasement with this statement, in reality, investors seem to be able to see through to the real motivations.

The main reason the mainstream media gave for the correction in the yellow metal is hedge funds’ selling of gold late last year. According to quarterly filings, Hedge Fund Manager George Soros sold half of his holdings in the SPDR Gold Trust ETF (GLD) in the fourth quarter of 2012. Bloomberg attributed the sell as a move that may “bolster speculation that gold’s 12-year bull-run is coming to the end.” However, Soros may have liquidated his gold holdings because he identified a significant short-term opportunity in the currency markets.

I have said many times that government policies are precursors to change, and late last year, Japan’s new leader, Prime Minister Shinzō Abe, openly indicated his intention to drive down the currency to make the economy more competitive and increase inflation. As a result of Japan’s policy changes, the yen weakened, driving up the price of gold in Japan’s local currency.

In other words, a gold investor in Japan was likely ecstatic with his gold trade over the past few months.

Take a look at the comparison of gold’s return in different currencies. The chart below compares the percentage change of gold in the Japanese yen to the metal’s percentage change in U.S. dollar terms over the last six months. From the middle of August 2012 until about November, gold prices in both currencies closely followed each other.

However, as a result of changes in government policies, over the six-month period, gold rose nearly 19 percent in yen, while only increasing less than one percent in U.S. dollar terms.

Currency Swing had Huge Effect on Gold

George Soros seemed to anticipate the effect that Japan’s government policies would likely have on the velocity of money. This turned out to be a brilliant move, as “wagering against the yen has emerged as the hottest trade on Wall Street over the past three months,” says the Wall Street Journal. The newspaper reported that Soros gained “almost $1 billion on the trade since November,” during a time the yen declined nearly 20 percent in four months.

I admire Soros for his ability to identify significant effects that government policies have on markets as easily as recognizing when ice turns to water. More importantly, he quickly acts on these emerging events.

This isn’t his first big win in foreign markets. In 1992, based on British government policy changes, Soros shorted British pounds and bought German marks, earning $1.8 billion for his fund.

Just like recognizing how new equilibriums can alter the dynamics of an environment, government policies can significantly change the velocity of money. Global investors watch for these trends to know where to invest in commodities and markets, find new opportunities and adjust for risk.

I discussed the potential motivation behind Soros’ trade with CNBC’s Simon Hobbs on Friday. I explained how gold’s correction was reaching an extreme, indicating a potential buying opportunity. You can see on our oscillator model how gold has dropped nearly 2 standard deviations on a year-over-year basis. An event like this has happened only about 2 percent of the time over the last 10 years. Following these extreme lows, gold has historically increased as much as 15 percent over the next year.

Gold Price at an Extreme

See the CNBC interview here

 

Back in June 2012, I told CNBC the same thing: Gold had reached an extreme low, and only a few months later, the metal climbed nearly 10 percent.

During short-term gold corrections, it’s much more important to focus on the facts, including the fact that gold is increasingly viewed as a currency. Rather than buying real estate, lumber or diamonds, central banks around the world are buying gold. According to the World Gold Council (WGC), over 2012, central bank demand totaled 534 tons, a level we have not seen in nearly 50 years.

Central Bank Gold-Buying Reaches 48-Year High

Emerging market central banks have been adding gold to their reserves, including Mexico, Brazil, the Philippines, South Korea and Russia. Over the past decade, Russia has accumulated a total of 958 tons of gold, making its gold reserves the eighth largest of all central banks, says the WGC.

Another fact about gold is the persistence of the Love Trade. As you can see below, jewelry demand declined slightly, about 3 percent in 2012, and more than half of this demand came from India and China, the countries with a cultural affinity toward gold. India’s gold purchases declined 12 percent due to an import tax and a weak rupee. However, even though the gold price experienced a significant increase in local currency, India’s demand is “all the more remarkable and serves to emphasise the importance of gold to Indian consumers,” says the WGC.

Notably, India had a better-than-expected fourth quarter, and retained its rank as the largest gold market in the world.

Gold Demand Declined 4 Percent

In China, there was a slowdown in GDP in the first half of the year, which weighed on gold purchases. For the year, the WGC indicated that there was only a slight increase in demand over the previous year.

In 2013, the WGC expects both markets to remain strong, forecasting growth rates of about 10 to 15 percent. I believe as GDPs in Chindia rise, so will their gold demand. And as long as the precious metal is attractive to both the fear trade and the love trade, hold tight to gold, with a 5 to 10 percent weighting in gold and gold stocks, and rebalancing annually.

When It Comes to Gold, Stick to the Facts – U.S. Global Investors.