IMF cautious, not pessimistic on emerging economies

In its latest economic outlook report the IMF was cautious about the perspectives for emerging markets without sliding into pessimism over the impact of US monetary policy on growth.
"Medium-term prospects for emerging market economies are weaker," the IMF said on Tuesday in its semi-annual World Economic Outlook report.
Growth rates in emerging market and developing economies are now down some three percentage points from 2010 levels, mostly due to slowdowns in Brazil, China, and India, the IMF said.
"Projections for 2016 real GDP levels for Brazil, China, and India have been successively reduced by some 8 to 14 percent over the past two years," the organisation said.
The IMF also reduced China's 2013 growth forecast by 0.2 points to 7.6 percent and the 2014 forecast by 0.4 points to 7.3 percent.
India's 2013 growth forecast was cut sharply by 1.8 points to 3.8 percent and the 2014 forecast reduced by 1.1 points to 5.1 percent.
But despite the growth slowdown in the major emerging economies, often referred to as the BRICS, the fund noted that the medium-term forecast was still above that during the decade leading up to the Asian financial crisis in 1997-1998.
The emerging market "slowdowns are hardly unprecedented" said the IMF.
"For some of the BRICS, they are not even unusual," it added, pointing out that the current slowdown is milder than previous ones for China and Brazil, whose 2013 forecast was left unchanged at 2.5 percent and cut 0.7 points to 2.5 percent for 2014.
Closing out the BRICS, the IMF cut its forecast for the Russian economy this year by 1.0 point to 1.5 percent and by 0.3 points to 3.0 percent in 2014. South Africa's growth forecasts were left unchanged at 2.0 percent for 2013 and 2.9 percent in 2014.
Over the longer term, the IMF expects the " drop in growth rates to prove durable in only two economies: China and Russia" for the simple reason their current growth models have nearly run their course.
China's model based on extensive growth has led to overcapacity and diminishing returns, with demographic trends now turning against expansive policies.
The IMF said "without fundamental reform to rebalance the economy toward consumption and stimulate productivity growth through deregulation, growth is likely to slow considerably."
For its part, Russia has "exhausted" its growth model of rising oil prices and using up spare capacity.
Emerging markets 'better prepared' for tightening of US monetary policy:
The IMF was cautious but not alarmist about the impact of the US Federal Reserve's announced intention to begin reducing the amount of monetary stimulus it injects into the US economy from the current level of $85 billion a month.
The announcement wreaked havoc in emerging markets as investors pulled out funds in anticipation of higher US interest rates, hitting emerging world share prices and currency exchange rates.
The IMF reviewed historical data and found "no broad-based deterioration in global economic and financial health occurred at the onset of previous episodes of US monetary policy tightening since 1990."
Moreover, it noted that emerging markets have better policies in place today, with greater exchange rate flexibility and higher foreign exchange reserve buffers.
"They should, thus, be better prepared to weather a tightening in external financing," said the IMF.
AXA Investment Management economist Manolis Davradakis said that by the delaying the start of the so-called tapering of its stimulus the Fed was giving emerging markets "time to introduce structural reforms and address their financial needs" or at least announce such reforms.
Olivier Gayno at HSBC Global Asset Management France said that a tightening of US monetary policy will lead to "slower but more balanced growth" that is less dependent on financial inflows from developed to developing economies.
Furthermore, a slow tightening of US monetary policy is also good news for emerging economies as it is a sign of improvement of the US and global economy, he added.

Australia's Creation of 9,100 jobs.

Australia's unemployment rate eased to 5.6 percent in September, retreating from a four-year high with the creation of 9,100 jobs in a better-than-expected performance boosted by election-related work.
The seasonally-adjusted jobless rate receded from August's 5.8 percent -- a level not seen since the global financial crisis as Australia's mining-powered economy confronts a peak in resources investment due to slowing commodity prices.
Analysts had expected unemployment to hold steady at 5.8 percent but a fall in the participation rate -- usually interpreted as evidence of jobseekers giving up on looking for work -- and a surge in jobs related to the September 7 election meant the result exceeded expectations.
"The employment numbers last month and this month have been flattered somewhat by the election," said National Australia Bank economist David de Garis.
The Australian dollar bounced from 94.48 US cents to 94.69 US cents after the headline rate beat forecasts, but analysts said the underlying picture was muted and unlikely to drive any move in the record low 2.5 percent interest rate.
"The recent improvement in confidence and stabilisation in labour market conditions is welcome but is still only tentative evidence that economic activity is improving from below-trend rates rather than just stabilising," said economist Justin Fabo from ANZ.
Slowing growth in key export market China and plunging commodity prices have hit Australia's key mining sector, with the central bank warning a decade-long, Asia-driven resources investment boom has peaked.
Australia's new conservative government has vowed to "reboot" the mining sector by slashing corporate taxes, but they face a steep task given China's slowdown and additional commodities supply coming online.
Top mining firms have taken a major hit, with BHP's annual net profit slumping 29.5 percent to US$10.88 billion in the year to June and rival Rio Tinto down 71 percent for the first half at US$1.72 billion.

The Bank of England is expected to leave monetary policy unchanged

The Bank of England is expected to leave monetary policy unchanged on Thursday despite more signs of economic strength, as it sticks to its commitment to keep interest rates on hold while joblessness stays above target.

Most data over the past month has suggested that Britain's stalled recovery is finally getting back in gear, and on Tuesday the International Monetary Fund revised up its economic growth forecast to 1.4 percent this year and 1.9 percent for 2014.

Nonetheless, output remains well below pre-crisis levels, in contrast to other major economies, and the central bank believes the economy has plenty of scope to grow further without generating domestic inflation pressures.

Industrial output fell unexpectedly in August as factories cut production, data showed on Wednesday.

This helps explain why the Monetary Policy Committee pledged in August not to raise interest rates before the unemployment rate falls to 7 percent - something it forecasts will take three years - unless inflation threatens to get out of control.

"They should probably be firmly sat on hold this month, next month and for several months to come," said Alan Clarke, UK economist at Scotiabank.

Clarke, like most other private-sector economists, expects unemployment to fall more quickly than the BoE forecasts, and financial markets think a first rise in interest rates from their record-low 0.5 percent could come as soon as early 2015.

Unemployment currently stands at 7.7 percent, while consumer price inflation of 2.7 percent has exceeded the BoE's 2 percent target since December 2009 and is not forecast to be back on target until late 2015.

More economic stimulus in the form of asset prices now looks unlikely, as the two policymakers who backed it earlier this year, Paul Fisher and David Miles, have said they would prefer to keep it in reserve until the economy weakens.

The main immediate threat on the horizon is the risk that the United States government shutdown escalates into a default on US government debt, something which Fisher said could be extremely serious for markets and the economy.

Govt increases rate of returns on NSS from October 1, 2013

In response to considerable increase in the comparable Government securities for long, medium and short term, the Federal Government has increased the rates of returns on National Savings Schemes for the investment made from October 1,2013.

According to a statement issued by the CDNS here on Wednesday said that the instant revision is made in the backdrop of current market scenario and in accordance with the Government's policy to provide market based competitive rate of return to the investors of National Savings.

The new as well previous profit rates of NSS are as under:-

On Special Savings Certificates (R)/Account the profit rate has been increased from current 8.92 percent per annum (pa) to 10.75 % per annum .

Similarly on regular income certificates the profit rate has been increased from 9.48 % p.a to 11.22 % per annum.

The profit rates on Defence schemes has been increased from 10.36 percent p.a to 11.61 percent per annum.

Likewise on Pensioners Benefit Accounts the profit rates have been enhanced from 12.24 percent p.a to 13.44 % per annum.

Similarly on Behbood Saving Certificates, the profit rates have been enhanced from 12.24 % per annum to 13.44 percent per annum.

On Saving accounts, the profit rates have been increased from 6.00 percent per annum to 7.25 percent per annum.

On Short term saving certificates 3-month, the rate of return has been increased from 8.4 percent per annum to 8.85 % per annum.

Similarly on Short term savings certificates 6-month, the rate of return has been enhanced from 8.50 % per annum to 8.95 % per annum and on Short term saving certificates 12-month, the rate of returns have been increased from 8.55 percent per annum to 9.00 percent per annum.

It is pertinent to mention that the press clipping appeared in various sections of media on 01-10-2013 in respect of enhancement in profit rates of National Savings Schemes was incorrect and the release was not issued by the Central Directorate of National Savings (CDNS).

129,213 reconditioned vehicles imported in last five years: MoCTI

In Pakistan a total of 129,213 reconditioned vehicles had been imported in the country during the last five years, Ministry of Commerce and Textile Industry (MoCTI) says.

The foreign exchange equalling to Rs 68,081.803 million had been incurred on the imports of the reconditioned vehicle in the last five years.

As many as 4,585 reconditioned buses, coaches and wagons incurring foreign exchange of Rs 4,915.944 million, 122,352 cars and jeeps incurring foreign exchange of Rs 60,721.73 million, 2,276 Trucks incurring foreign exchange of Rs 2,444.129 million had been imported in the country from July 2008 to June 2013.
As many as 360 buses, coaches and wagons incurring foreign exchange worth Rs 309.555 million, 4,551 cars and jeeps incurring foreign exchange of Rs 2,221.52 million, and 482 Trucks incurring foreign exchange of Rs 377.308 million have been imported in the country in FY 2008-09.
A total of 682 buses, coaches and wagons incurring foreign exchange of Rs 688.815 million 5,630 cars and jeeps valuing foreign exchange equivalent to Rs 3,095.52 million and 538 trucks valuing foreign exchange equaling to Rs 505.977 million have been imported in the country during the financial year 2009-10.
As many as 749 buses coaches and wagons valuing Rs 907.854 million, 10,761 cars and jeeps valuing Rs 5,441.19 million and 461 trucks valuing Rs 583.249 million have been imported in the country during the financial year 2010-11.
Yet other 1,469 buses, coaches and wagons valuing 1,529.36 million, 55,993 cars and jeeps valuing Rs 26,632.70 million and 360 trucks valuing Rs 453.757 million have been imported in the country during financial year 2011AFP
As many as 1,325 buses, coaches and wagons valuing Rs 1,480.36 million, 45,417 cars and jeeps valuing Rs 23,330.80 million and 435 trucks valuing Rs 523.838 million have been imported in the country in FY 2012-13.
The reconditioned vehicles were imported as Personal Baggage or on Transfer of Residence or as Gift.

The SBP has linked minimum deposit rate on PLS saving accounts with the interest rate corridor-floor (repo rate)

The State Bank of Pakistan’s decision to link the minimum profit rate on saving account with repo rate will impact some 25-30 percent deposits and an additional cost of some Rs 10 billion annually to the banking industry, according to an analysis report prepared by Topline Securities.

In a major development, the SBP on Friday has made profit rate on saving account variable so that depositors of savings account, constituting 37 percent of total deposits, could enjoy benefit of rising interest rates.

The SBP has linked minimum deposit rate on PLS saving accounts with the interest rate corridor-floor (Repo rate). Effective from October 1, 2013, banks are now liable to pay at least 50bps below SBP repo rate (which is 7 percent now) which will effectively increase minimum return on saving deposits by 50bps to 6.5 percent.

“In future, whenever policy rate (reverse repo rate) is adjusted, this minimum return on savings deposits will also increase or decrease in that direction, assuming corridor to remain same,” the Topline report said. This also restricts banks margin in rising interest rate environment, it added.

According to the report, the move is another attempt by the SBP to provide adequate compensation to depositors and control declining Pak rupee. However, from a different angle it seems that the SBP is piling pressure on banks to change their current focus from investing in risk-free government papers to high yield advances to jump-start private sector credit off-take.

 

“We estimate that out of the overall deposits in Pakistan of Rs7.2 trillion (US$68bn) around 37 percent (that are Rs2.7 trillion) are saving deposits,” said analyst at Topline Securities.

Within these saving deposits, around 70-80 percent are earning 6 percent minimum return on average balance. However, these ratios vary from bank to bank as large banks have higher proportion of savings deposits at minimum return while this ratio is little lower for smaller banks, he added.

“To calculate additional costs to the banks, we assume that 25-30 percent of their total deposits are expected to be impacted by 50bps increase in minimum deposit rate. This will cost an additional Rs9-11 billion a year to banks assuming deposit structure to remain same and banks will not pass on the impact to their borrowers,” Representative said.

SECP allows companies to issue bonus shares against the redemption reserve

The Securities and Exchange Commission of Pakistan (SECP) has allowed companies to utilize capital redemption reserve to issue fully paid bonus shares. The companies can, however, issue the said bonus shares subsequent to redemption of preference shares under Section 85 of the 1984 Companies Ordinance. A notification to this effect is being issued in this regard.

The aforesaid decision was taken in light of the practical difficulties faced by companies regarding utilization of the redemption reserve. Essentially, Section 85 of the ordinance provides for redemption of preference shares by a company and lays down certain provisions for such redemption.

These provisions include the creation of a redemption reserve fund by transferring from profits, a sum equal to amount applied in redeeming of the preference shares. The amount in respect of such reserve, however, keeps on appearing in the financial statement of the company after complete redemption of preference shares. The subject ordinance is silent about the subsequent treatment of such reserve.

After detailed deliberations by the Enforcement Department, including the study of different international jurisdictions and associated provisions, the SECP has allowed this treatment. The subsequent treatment of the capital redemption reserve fund is expressly defined in the corporate laws of international jurisdictions such as the 1956 Indian Companies Act, the 2005 Companies Act of the UK and the 1991 Companies Ordinance of Hong Kong, but the 1984 Companies Ordinance is silent about such treatment. The new treatment will allow the companies to utilize the reserve and increase the capital base of the companies.

CPI-based monthly inflation down by 0.29pc in September

The country's Consumer Price Index (CPI) based inflation rate for the month of September 2013 decreased by 0.29 percent over the previous month (August 2013).

On year-on-year basis, the inflation during September 2013 increased by 7.39 percent as compared to the same month of last year, said Arif Mehmood Cheema, Director General, Pakistan Bureau of Statistics (PBS), while addressing a press briefing here on Monday.

The Wholesale Price Index (WPI) and Sensitive Prices Index (SPI) in September 2013 increased by 0.71 percent and 0.07 percent when compared to August 2013.

On month-on-month basis, the food items that witnessed increase in the prices during September 2013 over August 2013 included eggs (13.2 percent), fresh vegetables (4.79 percent), potatoes (4.53 percent), bakery and confectionery (2.98 percent), wheat (2.93 percent), wheat flour (2.* percent), readymade food (2.48 percent), wheat products (2.37 percent), milk powder (2.03 percent), and gur (1.69 percent).

The food items that witnessed decrease in the prices during September 2013 over August 2013 included chicken (24.5 percent), tomatoes (23.6 percent), onions (15.63 percent), fresh fruits (15.48 percent), pulse gram (3.2 percent), gram whole (2.29 percent), pulse moong (1.22 percent), gram flour (1.19 percent), beverages (0.8 percent), spices (0.72 percent), sugar (0.33 percent) and vegetable ghee (0.12 percent).

The non-food items that witnessed increase during the month included water supply (3.02 percent), motor fuel (2.93 percent), kerosene oil (2.92 percent), doctor clinic fee (2.52 percent), personal equipments (2.42 percent), firewood whole (1.9 percent) and transport services (1.71 percent).

On year on year basis the food items that witnessed increase in their prices during September, 2013 over same month of last year included tomatoes (29.36 percent), onions (26.13 percent), tea (25.97 percent), wheat (24.31 percent), wheat flour (23.56 percent), gur (23.16 percent), wheat products (17.68 percent), potatoes (14.95 percent), cigarettes (14.58 percent), cereals (12.79 percent), chicken (12.56 percent), beans (12.42 percent) and rice (12.3 percent).

The food items that witnessed decrease during the period under review included pulse gram (31.06 percent), gram flour (26.91 percent), gram whole (22.62 percent), spices (19.19 percent), fresh fruits (7.08 percent), vegetable ghee (5.03 percent), pulse mash (3.44 percent), cooking oil (2.22 percent) and mustard oil (1.71 percent).

The non food items which increased in September 2013 as compared to September 2012 included postal services (25.93 percent), footwear (18.56 percent), woolen readymade garments (18.05 percent), text books (15.92 percent), cotton cloth (15.72 percent), tailoring (15.46 percent), dopatta (14.28 percent), cosmetics (14.16 percent) and cleaning and laundry (13.76 percent).

During the month of September 2013 over September 2012, the trimmed core inflation has been observed as 7.6 percent while it was 10.4 percent during September 2012 over September 2011.

On the other hand, the non-food and non-energy core inflation has been observed as 8.7 percent, while it was 10.4 percent during September 2012 over September 2011.