• The Reserve Bank of India reduced its repurchase rate from an already low of 5.5% to 5.0%, its fifth cut since October. “We see a significant slowdown in investment,” Sailesh Jha, a senior regional economist at Barclays Capital Plc in Singapore, told Bloomberg. “There is scope for more significant rate cuts.”

• ADP Employer Services said that U.S. private employers cut 697,000 jobs in February, an acceleration of the revised 614,000 jobs lost in January. The figures mark the biggest job loss since the report’s launch in 2001, Reuters reported.

• U.S. auto sales sunk 41% in February, as nearly every vehicle model by the country’s six-largest automakers posted at least a 10% drop in year-over-year sales. “It implies we have not reached the bottom, and pushes that bottom out to some point yet to be determined,” Emily Kolinski Morris, senior U.S. economist for Ford Motor Co. (F), told CNNMoney.com.

• For the first time since December 1991, shares of General Electric Co. (GE) fell below the $6 mark. “The market is beginning to anticipate a downgrade to double-A territory,” Pacific Investment Management Co.’s Bill Gross said in an interview on CNBC. “We believe even with the downgrade, it’s a viable, safe, liquid credit going forward.”

• Oil prices jumped more than 9% yesterday (Wednesday) after plans for further stimulus in China stirred the markets from their slumber and U.S. inventories declined more than expected. Light, sweet crude for April delivery rose $3.73 a barrel to settle at $45.38 on the New York Mercantile Exchange, its highest close in six weeks.

• Merrill Lynch & Co’s (MER) 10 highest-paid employees got a total of $209 million in cash and stock in 2008, up from $201 million in 2007, the Wall Street Journal reported. Merrill’s net loss ballooned to $27.6 billion last year

Source: Global Investment News Briefs Thursday, March 5, 2009

As part of its stimulus plan, the government eased inflation controls and raised the overseas investment limit to $15 billion from $6 billion. India’s federal government also green-lighted state-level initiatives to raise an additional $6.18 billion (300 billion rupees) in the year to March 31 for infrastructure projects such as roads, schools and hospitals.

The government will also offer $4.12 billion (200 billion) rupees to state-run banks and $5.15 billion (250 billion rupees) to non-bank finance companies to raise capital, The Wall Street Journal reported.

To make this possible, India lowered the cash reserve ratio – the proportion of deposits banks are required to set aside as cash – by a half percentage point to 5%, effective Jan. 17.

“It is expected that the reduction in the policy interest rates and the CRR [cash reserve ratio] will further enable banks to provide credit for productive purposes at appropriate interest rates,” the Reserve Bank said in a statement.

Though India isn’t likely to sink into recession, the global financial crisis has no doubt blunted that country’s growth prospects – as its currency, stock market, consumer demand and production have all taken sharp losses in 2008.

“There’s still scope for rate cuts as the economic picture is quite bleak,” K. Ramanathan, who manages the equivalent of $2.2 billion in Indian debt at ING Investment Management in Mumbai, told Bloomberg. “The policy response to the unfolding economic slowdown is quite satisfying.”

Anticipation of the news of the rate cut and stimulus sent India’s benchmark Sensex 30 Index to a two-week high. The country’s benchmark 10-year bond yield dropped to 5.10%, down from 5.39% the day before.

The Sensex fell 52% in 2008, its biggest drop since data became available in 1980, and possibly its largest drop ever.

In the quarter ended Sept. 30, India’s economy grew at a 7.6% pace, better than expected but also its slowest pace in almost four years. The World Economic Forum (WEF) and Confederation of Indian Industry predict India will grow at a rate of 7.4% to 7.8% in the 2008-2009 fiscal year.

A recession is “not going to happen,” said Karim Rahemtulla, a Money Morning guest columnist Karim Rahemtulla who observed firsthand India’s prospects last year when he led an investor’s field trip around the country.

But Rahemtulla was just as quick to credit the Reserve Bank of India for taking action as the global financial crisis spread across the world.

“They have explicitly stated they will aggressively promote fiscal and monetary stimulus to promote growth,” Rahemtulla said.

India’s current fiscal year ends March 31, 2009. This is the fourth time since October the government has lowered its primary interest rate.

“The fundamentals of our economy continue to be strong,” the Reserve Bank said. “Once the crisis is behind us, and calm and confidence are restored in the global markets, economic activity in India would recover sharply. But a period of painful adjustment is inevitable.”

India Starts 2009 With More Rate Cuts and Stimuli

Mike is worried by rising inflation rates in the so-called ‘BRIC’ emerging markets: Brazil, Russia, India and China.

India is particularly hard hit. This week the central bank there signaled it would keep raising borrowing costs to mixed reviews.

Indian inflation was driven by the first increase in retail prices of gasoline and diesel this year. The International Herald Tribune reports that,”India joined China, Indonesia, Malaysia and Sri Lanka as a near doubling of oil prices pushed up costs and eroded profits of refiners.”

It’s also worth keeping in mind that BRIC nations have still relatively small economies compared to the US, Europe and Japan.

“If you look at them in real (and not in overly flattering purchasing parity power) terms,” says The Global Guru editor Nicholas Vardy,” the BRIC countries are best compared with large U.S. states in terms of economic heft. China and its population of 1.3 billion generate as much economic wealth as do the 60 million inhabitants of California and Texas. India’s economy is the size of Florida. Brazil’s is the size of New York. And Russia is smaller than Ohio and Illinois combined.”

BRICs Crumble Under Threat of Inflation

By Mike Burnick

The most popular group of fast-growing emerging market countries which includes: Brazil, Russia, India, and China are facing their biggest economic challenge this decade. Like everywhere else on the planet, inflation is picking up in the BRIC economies but it’s much worse over there and central bankers are responding by raising rates and tightening monetary policy.

While these rate hikes may be necessary to fight inflation, tight money policies are usually a very unfriendly environment for stock investors.

India is the latest BRIC under fire. Wholesale price inflation is running at 11%. That’s the highest level in 13 years and climbing. So the Reserve Bank of India responded last week by raising its benchmark lending rate to 8%. Global investors are signaling a vote of “no confidence” in the central bank move, because they sent Indian stocks plunging.

India’s currency, the rupee, is also under attack, having lost 8% of its value against the dollar this year, the worst performance for the rupee since 1993.

India is in the riskiest position among the BRICs when commodities are soaring like this. That’s because India is a net importer of most resources, including 75% of its oil.

It’s possible India’s troubles are perhaps just an early-warning sign of other troubles to come for the BRICs. Inflation in China is running close to 8% in spite of several interest rate increases last year. Inflation just topped 15% in Russia. Brazil, which suffered a painful hyper-inflationary past, recently raised interest rates after inflation crept up to 5.4%.

Seeing this threat on the horizon, stock investors have been busy pulling money out of some BRIC markets. China’s CSI 300 Index is down over 50% from its 2007 high, while India’s Sensex Index has plunged by one-third in value. Share prices in the first two markets of the BRIC alphabet, Brazil and Russia, have so far held up relatively well. This is due in no small part to their favorable trade terms and the fact that both are resource-rich exporters.

All of the BRICs are threatened by the risk of inflation. As an Indian government official put it, “Until inflation slows, this crisis is only going to widen.”

MIKE BURNICK, Senior Editor

P.S. Speaking of inflation, the big Fed rate decision comes this afternoon. We’ll find out whether Bernanke will really “get tough on inflation” as he has claimed in the last few weeks. Keep an eye on the news because there will be some very real profit opportunities once the decision hits the headlines.

Source: BRICs Crumble Under Threat of Inflation

“The recent inflation dynamic is worrying,” Banco de Mexico’s five-member board said in a statement. “The balance of risks for inflation has worsened.”

Consumer prices in Mexico jumped nearly 5% in May from a year earlier, the biggest jump since 2004, according to Bloomberg News. The government has issued a price freeze on tortillas, cooking oils, beans and roughly 150 other items this year to ensure its population is adequately fed.

The decision surprised many analysts as it flouted the country’s president, Felipe Calderon, who has hinted that borrowing costs are already too high. Still, inflation demanded Mexico’s attention as soaring food and energy costs have resulted in what has fast become a worldwide inflation epidemic.

Soaring fuel prices pushed India’s inflation rate to a 13-year high in early June, adding to speculation the central bank may accelerate its own monetary tightenting initiative, Financial Times reported. Inflation reached 11.05% in the 12 months ended June 7, up from 8.75% the previous week, and well above the 9.82% median forecast in a Reuters poll of analysts, the paper reported on its Web site.

Earlier this month, the Reserve Bank of India announced a surprise rate increase of its own, pushing its key lending rate up 25 basis points to a full 8%. The bank also raised its cash reserve ratio – the amount of cash banks must keep on hand – by 25 basis points to 8.25% as recently as April 29.

In China, consumer prices rose 7.7% in May after inflation reached a 12-year high of 8.7% in February. China’s producer price index rose 8.2% in May, the highest in more than three years.

The problem isn’t any better in mature markets either. Eurozone inflation hit a 16-year high in May, as costs pushed inflation up 0.6% to an annualized rate of 3.7%. High commodity costs fueled the increase, as food costs jumped 6.4% in May up from 6% in April. Energy prices soared 13.7% year-over-year on the back of record high oil, up from a 10.8% increase the month prior.

In the United States, the producer price index (PPI) jumped 1.4% in May, the largest increase since November. Over the last 12 months, producer prices have increased 7.2% compared to the 6.5% increase in April.

“Just about everywhere prices are rising and they are doing so at a strong pace,” said Joel Naroff, president and chief economist at Naroff Economic Advisors. “While the pathway from intermediate and crude goods price increases to consumer prices is quite unclear, it is never good news to see the extensive nature of price increases that were contained in this report.”

After nine months of cutting interest rates and lending freely to financial firms hoping to ease the credit crunch pain, U.S. Federal Reserve Chairman Ben S. Bernanke is signaling a new willingness to reverse course and battle inflation.

“The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,” Bernanke said earlier this week. “The Federal Open Market Committee (FOMC) will strongly resist an erosion of longer-term inflation expectations.”

The FOMC is scheduled to meet June 24 and 25. It is widely expected that it will vote to hold rates steady.

Source: Mexico Joins the Global Battle Against Inflation with Surprise Rate Cut

The rate of inflation for the week ended May 15 is expected to be 8.02%, the highest level since September 2004, according to Bloomberg News.

“The current high level of inflation is totally unacceptable, especially in terms of impact on inflationary expectations,” Reserve Bank of India (RBI) Governor Yaga Venugopal Reddy told reporters last week.

Authorities have tried their best to rein inflation in without compromising economic growth. The central bank has left its key interest unchanged but has tightened cash conditions by raising its cash reserve ratio – the amount of cash banks must keep on hand – by 25 basis points to 8.25% as recently as April 29.

The government has stepped in over the past two months to reduce import duties, ban futures trading, halt the export of cement, rice, wheat, and edible oil, and implored steelmakers and cement companies to cut prices.

However, such measures have proved largely ineffective as commodity prices continue to soar. Oil, which climbed to a new record over $135 a barrel last week, is particularly problematic, as state oil firms currently sell fuel at hugely discounted rates.

Selling fuel at such steep discounts cost state-run refiners about $43 billion for the year ended March 31, Serangulam V. Narasimhan, finance director at Indian Oil Corp. Ltd., said May 9. The companies lost roughly $18 billion the year before.

The government in February raised gasoline and diesel prices for the first time in nearly two years in an effort to reduce refiners’ losses, but the increase has achieved little. Another “price hike is inevitable,” although the “specific quantity of the price increase” was still being worked out, Petroleum Secretary M.S. Srinivasan told the AFP.

“We expect a decision in three-to-four days time,” Srinivasan said.

The Press Trust of India reported, without naming sources, that the petroleum ministry was seeking a 10-rupee-a-liter increase in petrol prices and a five-rupee-a-liter hike in diesel prices.

Based on current pump prices in New Delhi, this would represent a 22% increase for petrol and 16% on diesel, according to AFP.

India isn’t the only developing nation fending off inflation. Consumer prices in China jumped 10.3% in April from a year earlier. Inflation has soared throughout Eastern Europe, rising 17.5% in Latvia, 11.4% in Estonia and a staggering 30.2% in the Ukraine, according to Bloomberg News data.

“Inflation, now in double digits in many countries, is the region’s most pressing current problem,” the European Bank for Reconstruction and Development said in a recent economic outlook report. “If left unaddressed, inflation could risk price-wage spirals, exchange rate re-alignments, or could force a belated and sharp response by monetary policy.”

Source: India and Other Emerging Economies Continue to Struggle With Inflation