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Indian Economy Review, Turkey Raise Interest Rate et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Sep 16, 2018 12:40 PM 3 min read

Good Evening readers,


This week saw some very significant announcements both on the international and domestic front. Turkey surprised global markets with a significantly higher-than-expected main short-term interest rate hike from 17.5% to 24% - an attempt to contain the emerging market contagion, driven by the US-Sino trade war. Back home, the Finance Minister announced a Five-point plan to combat the rather turbulent economy, bogged down by rising fuel prices and declining Rupee. 


Also this week, Transfin. launched the second episode of its Podcast: Fuel Hike, Last Mile Finance, Video Rising. In the backdrop of the escalating fuel prices, Nikhil made an attempt to understand The Petrol Price Mystery. On the markets front, Sharath questions whether Nifty 50, with its skewed weightings, qualifies as a benchmark indicator for India Inc? Cherry on top is an article assessing what Future is held by Financial Services, by Distinguished Academic Prof John Hull, writer of literally the text book on Options, Futures, and Other Derivatives.


Here's a look at top 6 news of the week:


FM announces five measures to control Current Account Deficit, for Rupee stabilization. Announces that the targeted fiscal deficit of 3.3% of GDP in 2018-19 shall be met, without a cut in the capex on back of rising tax revenues.

PM led Economic Review ongoing. Key measures announced to-date include 1) review/reduction of hedging requirements for infrastructure loans raised from foreign financial institutions 2) shorter duration of foreign loans to manufacturing companies 3) allowing foreign portfolio investors to take bigger exposures to corporate bond issuers 4) removal of withholding tax on Rupee-denominated overseas-issued Masala Bonds 5) allowing Indian banks to underwrite Masala Bonds via foreign branches rather than using foreign underwriters. Lastly, the FM mentioned there will be some controls/curbs on "non essential" imports, which experts believe may include gold and electronic goods.


Financially troubled IL&FS likely to receive INR4,000cr from LIC. PNB places on sale 21 NPAs to recover INR1,320cr.

State-run life insurer likely to subscribe to non-convertible debentures (NCD) and provide temporary relief to IL&FS. Forms part of a larger INR9,000cr NCD programme for current fiscal year. Board meeting to confirm action today. LIC likely to subscribe to INR4,500cr rights issue scheduled to be launched later as well. The Stressed Assets Targeted Resolution Action (SASTRA) Division of the PNB has placed these NPAs on sale to ARCs/NBFCs/other banks/Financial Institutions to recover INR1,320cr. PNB has already recovered INR7,700cr in the first quarter of FY2018-19.


Cabinet approves new procurement policy to ensure MSP and to bring in private procurement players.

State governments to choose from multiple schemes to protect farmers when prices fall below MSP. Madhya Pradesh's ongoing 'Price Deficiency Scheme' used as precedent to protect oilseed farmers. Second option comprises engaging private players for procurement. Third option based on 'Price Support Scheme', where the central agencies themselves procure commodities under MSP.


Turkey's central bank raises interest rate to a higher-than-expected 24%.

Under massive investor pressure and in a bid to control inflation and preserve the tanking Lira, Turkey surprised global markets with a significantly higher-than-expected main short-term interest rate hike from 17.5% to 24%. This should at least partly improve investor confidence in Turkey and other emerging markets and somewhat ease fears of contagion risk within the larger emerging market landscape. 


European Parliament to vote coming Wednesday on a draft copyright directive intended to improve revenue generation for publishers.

New draft to hold technology platforms like Google and Facebook more responsible for copyrighted content and give news publishers the right to negotiate payment for "digital use" by the tech firms of their content. Proposed 200 amendments will set parameters for continued negotiations in the Parliament, EU's executive body and European governments. Countries would have 2 years to implement the law once locked.


Data on investment in factories, railways and other projects in China demonstrate slowest growth in 25 years.

Fixed-asset investment outside rural households rise by 5.3% in January-August period yoy, lowest figure since 1992. Government statistics bureau say investment growth should stabilize in coming months courtesy government's plans to kick-start large projects. Trade war to continue as an overhang. 


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