Inflation inches up to 11.91%, may force RBI to increase rates

I met RBI Governor Y V Reddy. Governor said there is still pressure on prices. I am in broad agreement with him," Chidambaram told reporters after a Cabinet meeting on Thursday. "So, if these monetary measures take effect, Governor expects some moderation (in inflation) over a period of time," he said.During the week ended 5th July, inflation moved up marginally by 0.02 percent to a 13-year high of 11.91 percent.
In the comparable period last year, the rate of price rise was 4.61 percent.Food items, including pulses, atta, tea, fruits, as also some petroleum products like jet fuel became more expensive during the week under review, according to the wholesale price index released by the government on Thursday.Describing the increase in inflation "very marginal" the Finance Ministry in a statement said "the annual inflation rate for the group of 30 essential commodities has declined to 5.74 from 5.98 percent reported for the week ending June 28, 2008."It further said the prices of essential commodities like food grains, pulses, edible oils, vegetable, dairy products and some other commodities including kerosene, soap and safety matches have more or less stabilised.
The Finance Ministry further said inflation on a week-on-week basis has stabilised.The Ministry said out of 98 primary articles, 13 have shown decline in prices and 57 have shown no increase in prices.
In manufactured category, 281 of total 320 commodities have shown no rise in prices, while prices declined in case of 12 commodities.Marginal increase in inflation is mainly because of higher prices of some of the petroleum products like naphtha which went up by eight percent, light diesel oil by seven percent, aviation turbine fuel by five percent.
However, prices of cooking gas declined by five percent.The continued rise in prices, though marginal, may prompt RBI to further tighten money supply in its quarterly review slated for 29th July, analysts said."To anchor inflation, the RBI may increase CRR by 50 basis points and repo rate by 25 basis points," Crisil Principal Economist D K Joshi told.RBI has already on 24th June increased repo rate (short term lending rate)and CRR (mandatory deposit kept with the RBI) by 0.5 percent each to check price rise.During the week, prices of tea increased by two percent, while masur and moong became expensive by 1 percent eachIn the manufactured goods category, rice bran oil and maida became expensive by two percent each atta, coconut oil and imported edible oil were dearer by one percent each.
Elsewhere, steel ingots became dearer by 21 percent, bright bars by 10 percent, pig iron by 5 percent, bars and rods by 2 percent and steel sheet and plates by 1percent.
As per the revised data inflation rate for the week ended 10th May has been updated to 8.57 percent as against 7.82 percent reported earlier.

Falling rupee creates fresh losses on forex derivatives

India is staring at fresh losses on foreign exchange derivatives, thanks to the sudden, 7-per cent depreciation of the rupee in the quarter ended June 2008, with much of the fall coming in May.
After HCL Technologies announced last week that it will suffer forex losses of $65-75 million for the quarter ended June 30, 2008, the last two days saw three companies taking a hit on forex derivatives. Thursday Bangalore-based biotech company Biocon saw its net profits decline by 72 per cent for the quarter ended June 2008, thanks to a forex loss of Rs 6 crore and a mark-to-market provision of Rs 26 crore for its exposures to forex derivatives.
Wednesday, IT major Tata Consultancy Services (TCS) reported a forex loss of Rs 75.30 crore for the quarter ended June, which partly resulted in its net profits growing slower at 7 per cent year-on-year to Rs 1291 crore.
The sudden depreciation of the rupee resulted in a provision of $12 million (Rs 51.7 crore) on Mindtree's outstanding derivatives instruments,'' the company said in a statement. The losses are a result of the rupee bets going wrong. When the rupee was appreciating, many exporters rushed to cover and sold their dollar receivables forward. With the rupee depreciating 7 per cent, the exporters face losses on these contracts. "The losses are because of hedges taken earlier. An exporter may have sold his dollars at Rs 40, while the rupee is trading at Rs 43.07. IT companies have long-term contracts, and some have sold their receivables forward to prevent potential losses from an appreciating rupee.

So, exporters sold their receivables forward as they wanted to protect themselves. Exporters had suffered when the rupee appreciated 12 per cent from Rs 44 to Rs 39. When the rupee was appreciating, software companies hedged their receivables, though it varies widely across companies. "People wanted certainty, and have traded it off with future upside that they might have made from the depreciation of rupee,'' said the CFO of an IT firm. Analysts say typically, Infosys hedges three months of receivables, TCS has taken cover for $3-4 billion, amounting to 50-70 per cent of its sales and mid-size IT companies such as Mindtree have covered 50 per cent of their receivables.

UPDATE 1-Japan forex reserves $1.002 trln at end-June

TOKYO, July 7 (Reuters) - Japan's foreign reserves hit $1.002
trillion at the end of June, logging the first rise in three
months thanks in part to investment returns and the euro's rise
versus the dollar that inflated the value of euro-denominated
bonds in the stockpile, the Ministry of Finance said. [JPRES=ECI]

 Higher gold prices also helped lift Japan's reserves -- the
world's second largest after China's -- back above $1 trillion,
but still shy of the record high of $1.016 trillion at the end of
March, a ministry official said on Monday.

 The euro  edged up to $1.5754 at the end of June from
$1.5559 at the end of May, while the benchmark gold price rose to
$930.25 an ounce at the end of June from $885.75 the month
before.

 The ministry, which is in charge of Japan's currency policy,
does not disclose the currency breakdown of Japan's reserves, but
most is in U.S. dollars as past intervention has taken the form
of dollar buying.

 Japan's foreign reserves ballooned after massive yen-selling
interventions in 2003 and early 2004 as Tokyo tried to stem a
rapid rise in the yen from derailing a fragile economic recovery.

 Tokyo has kept out of the market since then, but the income
on the reserves has crept up steadily.

 The massive reserves have stirred a debate among Japanese
lawmakers about whether Japan should follow countries like China
into launching a sovereign wealth fund to invest some of the cash
pile. But the finance ministry remains cautious about the idea.

 The ministry started operating a new section within its
foreign exchange markets division on Friday that will focus on
managing Japan's massive foreign exchange reserves. [ID:nT343958]

 But ministry officials have said the launch of the new
section does not mean Japan will start investing the stockpile
more actively into risky assets to seek higher returns.

FOREX-Dollar falls amid signs of softening labor market

Dollar falls on signs of weakness in labor markets

* ADP report shows higher than expected job losses in U.S.

* Markets anticipate ECB rate hike to 4.25 pct

(Recasts, adds comments, changes byline)

By Vivianne Rodrigues

NEW YORK, July 2 (Reuters) - The dollar fell against the euro on Wednesday after a report showed the U.S. private sector shed more jobs than expected in June, which may diminish the likelihood of a rate increase by the Federal Reserve.

In contrast, investors bought the euro ahead of an expected interest rate hike by the European Central Bank on Thursday. The ECB is widely seen raising its key lending rate by 25 basis points to 4.25 percent and President Jean-Claude Trichet's news conference after the meeting may indicate further increases.

Higher benchmark rates in Europe will boost the return of euro-denominated assets and weigh on the greenback.