Currencies Of The Day
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The U.S. dollar was lower versus most major rivals Wednesday, but gained ground against a broadly weaker Japanese yen amid signs investors had moved away from both currencies amid a rise in appetite for riskier assets.
The dollar index (DXY 81.16, -0.31, -0.38%) , which measures the greenback against a trade-weighted basket of six major currencies, slipped to 81.279 from 81.513 in North American trade late Tuesday. The index remains on track to score a 4.4% gain for the quarter and a 1.1% rise for the month of March.
The dollar bought 93.37 yen, up form 92.79 yen versus the Japanese currency late Tuesday, with investors exiting long positions on the final day of Japan's fiscal year.
The euro rose 1% against the Japanese currency to change hands at its highest level since early February at 125.76 yen, while the pound rose 1.3% to fetch 141.56 yen.
A jump in U.S. yields following last week's poorly received U.S. Treasury note auctions were a catalyst for dollar gains versus the yen.
At the same time, data showing massive short positions in the euro and British pound futures made it no surprise to see some short-covering in euro/yen and sterling/yen crosses.
Those gains helped lift the euro and the pound versus the dollar.
The euro (CUR_EURUSD 1.3492, +0.0074, +0.5515%) rose to $1.3472 from $1.3408 late Tuesday. The British pound (CUR_GBPUSD 1.5167, +0.0096, +0.6370%) bought $1.5148, compared with $1.5064.
The euro's inability to break above resistance at $1.3525 versus the dollar has frustrated euro bulls, wrote strategists at UniCredit Bank in Milan. Sentiment surrounding the euro remains "fragile" after this week's sale of a 7-year bond by the Greek government received a lukewarm response.
Meanwhile, the yield premium demanded by investors to hold Greek government bonds over their German counterparts continued to widen, stretching to around 3.4 percentage points Wednesday after narrowing to near 3 percentage points late last week.
The spread widening comes despite the agreement last week by euro-zone leaders on a standby aid plan for Greece that would involve the International Monetary Fund.
Greek and euro-zone officials had hoped that the agreement would reassure investors and help bring down Greek borrowing costs.
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Tags: Currencies, Day, Dollar, Euro, Pound, Yen
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Short Forex Summary - ahead to this week.
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Comments by China's Premier Wen over the weekend that implied CNY appreciation would be a while off, led to a brief bout of AUD buying initially in Asia. This however lacked follow through, as a steady supply above 92.00 pushed the pair to a low of 0.9129. Similarly, EUR was pushed to a low of 1.3726. We then saw both AUD and EUR reverse their downtrend later in the Asian session.
USDJPY traded in a choppy fashion but was largely bound in a range of 40 pips between exporters selling and fixing and model demands. A Moody's article warned that unless the US gets its public finances in order then there would be "downward pressure" on its AAA rating. This saw risk take a turn lower which has pretty much remained for the session.
Another Moody's article saying the UK is a "long way" from anything that would prompt a change to its rating outlook. Cable jumped 30pips from 1.5160 but gave back its gains as risk remained heavy and then disappointing UK house price data saw Cable fall from 1.5195-1.5180. The RBA minutes are released tomorrow.
Barcap research thinks that the bar will likely be set higher for economic data to trigger further rate hikes, thus weighing on AUD.
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Tags: Asia, Money, CNY, AUD, Forex, GBP, USD, EUR
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Asian Market Today
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Asian markets exhibited a mixed trend after an impressive outing yesterday as the dollar swung back and commodities eased slightly. Australian, Chinese and Hong Kong equities ended up while the other markets were mostly mixed on lack of cues from the overnight US markets and absence of major news in the Asian trades.
The sentiments were mostly cautious ahead of a meeting of Greek Prime Minister George Papandreou with US President Barack Obama and Treasury Secretary Timothy. Papandreou has said he is seeking support from the Obama administration to rein in the type of market speculation he blames for driving up Greece's borrowing costs, while traders are also watching whether the Greek prime minister says anything new about his nation's debt troubles.
The Australian market ended in positive territory for the eighth successive session on Tuesday, lifted by banks and positive economic data. The benchmark S&P/ASX200 Index added 12.20 points, or 0.25% to close at 4,820, while the All-Ordinaries Index ended at 4,829, representing a gain of 9.70 points, or 0.20%.
On the economic front, results of a survey released by National Australia Bank revealed that its business confidence index came in at 19 for February, up from 15 reported for the previous month. The Bank noted that business confidence and conditions in the country rose for the second consecutive month as trading conditions and profitability improved.
The Japanese stocks slipped with investors selling after the recent flurry of gains amid strength in Japanese Yen. The benchmark Nikkei 225 Index fell 18.27 points, or 0.2%, to 10,567.65. The index had ended with a gain of 217 points or 2.09% at 10,585.9 on Monday.
In Mumbai, weakness in metal, PSU and oil & gas stocks pulled the key benchmark indices to the days low in late trade. However, buying demand in IT stocks helped limit losses. The BSE 30-share Sensex was provisionally down 55.95 points or 0.33% to 17,046.65, off 84.18 points from the day's high and up 15.44 points from the day's low.
In other markets, New Zealand's NZX 50 fell 0.3% and Philippine stocks gained 0.45 while Indonesian shares rose 0.9% and Thailand's SET Index slipped 0.1%.
Yesterday, in the U.S., stocks were unable to find a clear direction on Monday as attention turned to corporate developments in the absence of clues on the broader economy. The major averages finished on opposite sides of the unchanged mark after last week's strong gains. The Dow fell by 13.68 points or 0.1% to close at 10,552, the S&P 500 slid by less than a point to 1,138.50, while the Nasdaq gained 5.86 points or 0.3% to end at 2,332.
In the currency markets, the momentum turned in favor of the US dollar and the greenback hit under 1.3600 in the London trades, in turn pressurizing the risky assets. The currency trades at 1.3573 right now, pulling oil down by more than one dollar. Crude currently trades at $80.79, down $1.08 per barrel for the benchmark futures. Gold has also dropped $7.50 to quote at $1116.50 for the April contract in the electronic trades.
Tags: Asia, Market, Trend, US, Europe
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Odey Closes Asia Fund
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London-based boutique Odey Asset Management has closed its last remaining Asia-focused fund after investors’ misgivings and apathy prevented it from raising enough money.
The firm, owned by established hedge fund manager Crispin Odey, launched the fund at the start of 2008 but at its peak still only managed to garner €9 million - despite out performing its competitors.
Representatives at the boutique believe the failure of its high-profile Japan fund in 2008 had put off many investors from investing in funds which focused purely on Asia.
The Japan portfolio was closed in mid-2008 after it experienced massive investor exodus, shrinking from more than €730 million to only €29 million in just 18 months, after the fund had reported a substantial loss the previous year.
The firm will continue to analyse Asian firms for the purposes of its global fund, however.
The Odey fund becomes the latest in a line of Asia funds to close due to a lack of investment, following on from the closures of funds such as the Melchior Pan Asian Advantage a year ago, and RWC's Asia fund, which was closed in mid-2009.
An Odey spokesperson declined comment on the fund closure.
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Tags: Odey, Investment, Asia, Funds
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China's Strategy:
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Chinese Reserve Managers Notified That Any Non-USG Guaranteed Securities Must Be Divested
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China's large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
It is not clear whether China's motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve's special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China's action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.
Furthermore, demonstrating just how seriously China is approaching a populist-driven adversarial stance with the US, was earlier speculation that instead of unpegging its currency (a move much desired by the US administration in its goal to further weaken the dollar and make China less competitive in the export market), China would reduce its trade balance not by the traditional way of currency inflation, but by the economic textbook footnote approach of raising salaries.
Higher labor costs would cut Chinese export competitiveness while boosting domestic spending power and sustaining economic growth, according to the bank. Premier Wen Jiabao's government has been pressed by U.S. and European officials to end a 19- month yuan peg to the dollar to help diminish trade and investment imbalances that contributed to the credit crisis.
"Wage increases are a better option because they largely benefit Chinese workers," Tao Dong, a Credit Suisse economist in Hong Kong who has covered the Chinese and Asian economies for more than 15 years, said in an interview yesterday. "Currency appreciation will only result in Chinese exporters losing out to competitors in countries such as Malaysia and Mexico."
The strategy may limit gains in the yuan to 3 percent this year, according to Tao. This month's 13 percent increase in minimum wage in eastern China's Jiangsu province indicates that higher pay will play an important role in officials’ efforts to rebalance growth in the fastest-growing major economy, Tao said.
The wage decision "argues against a large one-off yuan revaluation," Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong, wrote in a note this week.
One thing is certain - China will now focus on doing precisely the opposite of what America would urge Chinese authorities to do, in order to establish itself as the focal point of negotiating leverage and increasingly humiliate the Obama regime. If this involves selling USTs or corporates (both fixed income and equities) so be it. This is further confirmed by carefully worded disclosure in today's copy of China Securities Journal:
The China Securities Journal, a government-backed daily, accused the U.S. in a tough-worded front page editorial of playing the "exchange rate card."
It said that, just as China didn't interfere with Federal Reserve purchases of U.S. Treasuries, "the U.S. has no right to interfere in China's exchange rate policy."
"Whether or not to appreciate is our own business," the newspaper said.
"Whether it will appreciate, when and by how much is an integral part of China's monetary policy."
Tags: China, Risk, Securities, Divest, Financial, Polit...
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Daily Currency Briefing: 27 Jan 2010
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EUR-USD: Even an ifo index well above expectations was unable to support EUR yesterday. Have markets thus stopped paying attention to European economic data? We would consider this interpretation to be incorrect. The lack of reaction to yesterday's ifo demonstrates simply that a positive result is not enough to dispel concerns about the consolidation of state finances in some Eurozone countries. We continue to assume that that negative economic news from the Eurozone weakens the euro. We therefore consider the concerns voiced by ECB member Ewald Nowotny to be unfounded. He voiced concerns about the economic development in the Eurozone yesterday should EUR appreciate again. In Nowotny's view the level the euro was currently trading at was acceptable.
There is no important US or Eurozone economic data on the agenda today. Also the question about Ben Bernanke's second term in office is becoming increasingly insignificant as 13 Republican senators have signalled that they will vote for him, while only 6 Democrats have refused to support him. As trading on the Asian stock markets is inconsistent today, much points towards a sideways move in EUR-USD today. The EUR remains weakened though and the Portuguese budget presented last night is hardly suitable to dispel concerns about national finances in the Eurozone. We would therefore not be surprised if EUR-USD made another attempt towards 1.40.
JPY: In Japan tensions between the government and the central bank are mounting. After the Japanese Minister of Finance Naoto Kan publicly demanded in parliament yesterday that the central bank do more to fight deflation while the latter was holding its meeting, the bank members showed their irritation. Central bank governor Masaaki Shirakawa's comments were more than clear enough: The central bank takes independent decisions about its monetary policy and concentrates on fulfilling its mandate rather than supporting the government. The issue at stake is the purchase of further government bonds. The central bank does not want to be seen to be financing government spending based on borrowing. This makes the government's dilemma increasingly obvious. On the one hand it wants to support the economy further on the other hand there is the crushingly high level of debt. Kan said this morning that a rise in yields would have considerable effects on the ability to service debt and it would therefore be important to keep them on the current low level. Moreover it wants to present a medium term budget plan in June so as to ensure market confidence, without going into details about the plan though. The rating agency Standard & Poor´s reacted to the tense situation of the state finances yesterday by lowering the outlook to negative.
All this contributes to a situation in which one would expect the JPY to come under considerable pressure. But not even the news about S&P's downgrading of the outlook was suited to put pressure on JPY. Obviously markets are not yet considering the situation in Japan to be critical. It is often pointed out that the Japanese households have high savings rates and that the country is an important creditor of the USA. As a unit the country therefore seems quite solid. In our opinion markets are on the wrong track if they follow this view. The surplus in the current account admittedly means that the country is not facing any financing problems. But how is the Japanese state going to access private funds if it is no longer solvent itself. The households and companies are unlikely to surrender their money voluntarily. It will be of little use that Japanese bonds are mainly being held by Japanese citizens. Unless households and companies were to be expropriated the state has no access to the surplus in these areas. So what remains is a national budget that is highly in deficit. Unless markets share this point of view the lower end in USD-JPY is supported above all by the possibility of official intervention. Without rate rises in the US there is however no momentum for a rise of the currency pair. We therefore expect to see a sideways move around 90 in USD-JPY over the coming months.
Emerging Market Währungen
TRY: The Turkish central bank has raised its inflation outlook for this and next year considerably. It expects a rate of inflation of 6.9% rather than a rate below 5%. In the minutes of its meeting of 14th January it is making it clear that rates might have to be raised more quickly than initially projected should inflation data be higher than expected over the coming months. On the whole this is good news for the lira.
PLN: Is the Polish budget data so bad that the government does not want to publish it? This question is increasingly imposing itself as no data was published again yesterday. We expect Poland to have missed its budget target last year. Even though only 89.9% of the projected deficit had been exhausted by the end of November, past experience shows that the deficit is always particularly high in December. It probably suits Warsaw very well that the Greek difficulties are no longer being discussed with the same urgency. Unless the data is very bad we do not foresee any major effects on the FX markets. As expected the Polish central bank left key rates unchanged at 3.50% yesterday. Even though inflation rose slightly recently the central bank still expects it to remain in the band between 1.5% and 3.5%. The next MPC meeting on 24th February is unlikely to bring a rate change either, it might however bring a more lively debate among the then completely renewed MPC.
ZAR: The South African Reserve Bank under its new governor Gill Marcus left key rates unchanged again at 7.00% yesterday. As the decision had been generally expected the rand's exchange rates followed general market sentiment, which is currently not very favourable for EMEA currencies. Consumer prices, on the agenda for today, are unlikely to support the rand either. They are expected to have risen by 6.4% yoy thus underlining once again that inflation remains stubborn.
Tags: Daily, Currency, Briefing, 2010
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Asia Economy Update: All Fares Well...
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Asian stocks rose, driving the MSCI Asia Pacific Index to a 15-month high, as a weaker yen boosted Japanese exporters and the Federal Reserve said the U.S. economy improved.
Sony Corp., which gets 23 percent of its sales in the U.S., surged 6 percent in Tokyo, and Honda Motor Co. added 4.2 percent. Li & Fung Ltd., the biggest supplier of clothes and toys to Wal- Mart Stores Inc., rose 5.7 percent in Hong Kong as the Fed's Beige Book showed the economy expanded or improved “modestly” across the U.S. from October to mid-November. Kawasaki Kisen Kaisha Ltd., Japan's third-largest shipping line, advanced 6.5 percent on higher freight rates.
The MSCI Asia Pacific Index rose 1.7 percent to 121.87 as of 7:32 p.m. in Tokyo, the highest level since Sept. 1, 2008. It has gained 7.1 percent this week, set for its steepest weekly gain since the period ended May 8. The gauge climbed 73 percent from a more than five-year low on March 9 on signs government stimulus measures are reviving global growth.
“Things are normalizing,” said Prasad Patkar, who helps manage about $1.7 billion at Platypus Asset Management in Sydney. “The U.S. recovery might be more subdued than elsewhere, but it's still a recovery. As long as there are no systemic shocks, there is no underlying, fundamental reason for things to start going backwards.”
Japan's Nikkei 225 Stock Average climbed 3.8 percent, its steepest gain since May 7 and the biggest advance in the Asia- Pacific region today. Mitsubishi Motors Corp. soared 14 percent on speculation PSA Peugeot Citroen may buy a stake in the carmaker.
Kospi, Hang Seng
South Korea's Kospi Index climbed 1.5 percent and Hong Kong's Hang Seng Index rose 1.2 percent. In China, the Shanghai Composite Index lost 0.2 percent. Futures on the U.S. Standard & Poor's 500 Index added 0.6 percent. The gauge increased for a third day yesterday after the Fed's comments.
Japan's exporters rose after the yen weakened against all 16 of its major counterparts and traded as low as 87.92 against the dollar today, the lowest level since Nov. 25. The yen retreated for a third day against the euro. That boosts the value of overseas earnings at Japanese companies when converted into their home currency.
Sony, an electronics maker, rose 6 percent to 2,475 yen. Pioneer Corp., a maker of car-navigation systems and audio equipment, added 5.9 percent to 268 yen. Honda, which is Japan's second-biggest carmaker and gets 42 percent of its revenue from North America, climbed 4.2 percent to 2,985 yen. Nissan Motor Co. rose 6.8 percent to 706 yen.
Lowest Return
The yen climbed to a 14-year high against the dollar last week and has averaged 93.89 this year, the strongest since currencies began trading freely in 1971. That has weighed on the Topix, making its 3.4 percent gain in 2009 the lowest return among the world's 40 largest stock markets.
“The current level of the yen is creating a sense of security among investors,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc., which manages the equivalent of $9.1 billion. “It's a good opportunity for foreign companies to buy Japanese shares.”
Exporters also rose on optimism demand for their products will rise in the U.S. Eight regions “indicated some pickup in activity or improvement in conditions,” while the other four said conditions were little changed or mixed, the Fed said in its Beige Book survey. Policy makers last month repeated their pledge to keep interest rates low for an “extended period” to reduce unemployment.
Li & Fung rose 5.7 percent to HK$34.55, the second-biggest gain on Hong Kong's Hang Seng Index. James Hardie Industries NV, the top seller of home siding in the U.S., gained 3.2 percent to A$8.50 in Sydney.
‘Sense Of Security’
In Seoul, LG Electronics Inc. surged 8.2 percent to 112,500 won. The company, Asia's second-largest handset maker, gets 32 percent its revenue from North America.
“The Beige Book confirmed that the economy is on an upward trend, spreading a sense of security,” said Mitsushige Akino, who oversees the equivalent of $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “People are expecting fundamentals to improve.”
Some mining companies surged as copper futures in Shanghai advanced for a fourth day to the highest level in 15 months on optimism demand for the metal used in construction and automobiles will improve as the global economy recovers.
BHP Billiton Ltd., the world's largest mining company, rose 1.3 percent to A$42.47 in Sydney, the highest level since July 2, 2008. PanAust Ltd., owner of the second-largest copper mine in Laos, climbed 4.5 percent to 58.5 Australian cents. Jiangxi Copper Co. added 0.8 percent to HK$20.25 in Hong Kong.
Dubai Losses
The MSCI Asia Pacific Index's gain this week has come amid optimism the region's companies will be sheltered from losses related to Dubai World, which last week sought to restructure its debt. Dubai World is seeking to delay payments on less than half its liabilities, easing the potential damage to banks recovering from $1.7 trillion of losses and writedowns from the global crisis.
“The biggest contributor to the severe contraction last year was the fact that credit markets froze,” said Platypus’ Patkar. “It now looks as though things have returned to normal.”
The MSCI Asia Pacific Index's rally from its March low has outpaced gains of 64 percent by the S&P 500 and 56 percent for Europe's Dow Jones Stoxx 600 Index. Stocks in the MSCI benchmark are valued at 22 times estimated earnings, compared with 18 times for the S&P and 16 times for the Stoxx 600.
Shipping Lines
Kawasaki Kisen advanced 6.5 percent to 263 yen. The Baltic Dry Index, a measure of rates for shipping commodities, rose 2.1 percent yesterday, its first gain in nine sessions. Nippon Yusen K.K., Japan's largest shipping line, added 2 percent to 259 yen. Mitsui O.S.K. Lines Ltd. gained 4.2 percent to 497 yen.
Mitsubishi Motors jumped 14 percent to 135 yen after a trading halt was lifted, the steepest increase in the Nikkei 225. Paris-based Peugeot said it has begun talks with Mitsubishi on a “strategic partnership.” The Japanese automaker said an equity tie-up with Peugeot is one of several options it's considering.
In Singapore, Parkway Holdings Ltd., Asia's biggest hospital operator, added 5.4 percent to S$2.95 after Deutsche Bank AG raised its rating on the stock to “buy” from “hold,” citing a recovery in demand for health-care services.
Green Cross Corp., a developer of vaccines, rose 2.8 percent to 129,000 won in Seoul after Shinhan Investment Corp. upgraded the stock to “buy” from “hold.”
Tags: Japan, Tokyo, Asia, Stocks, Rise
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Asia Ahead in Global Financial Crisis
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Asia is set to lead the world out of the global financial crisis in spite of the slow recovery in the US and Europe, according to the latest forecasts by the Asian Development Bank.
In a dramatic contrast to its view in March, when it slashed 2009 growth forecasts for Asia, excluding Japan, from 7.2 per cent to 3.4 per cent, the ADB on Tuesday said the region would grow more strongly than expected both this year and in 2010.
The bank said in a major new report that developing Asia would grow by 3.9 per cent in 2009, with the projection for next year increased to 6.4 per cent from 6 per cent.
However, Mr Lee said that governments should not take the improved outlook for granted, warning that a sustained improvement would require a recovery in western economies and continued fiscal and monetary stimulus in Asia.
“The improved regional outlook should not make Asian economies complacent. A protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region's ongoing recovery,” he said.
The bank also called for structural changes to increase domestic consumption, improve labour mobility and reduce the region's over-reliance on exports to the west.
The report says that China is likely to record growth of 8.2 per cent this year, with a surge in bank lending and fixed asset investment pushing growth 1.2 percentage points higher than its forecast in March.
It says the recovery will be sustained next year, with China's growth rate rising to 8.9 per cent so long as there is a moderate recovery in the international economy and a continuation of the fiscal stimulus introduced by Beijing this year.
The report says that Chinese growth accelerated to 7.9 per cent in the second quarter of 2009 from 6.1 per cent in the first quarter. Most of the improvement was driven by investment, which contributed 6.2 percentage points of overall first half growth of 7.1 per cent.
For East Asia as a whole, the ADB upgraded its forecast to 4.4 per cent from 3.6 per cent in March, mainly because of the strength of the Chinese recovery. It forecasts a shallower contraction than previously expected in South Korea, but a sharper than forecast slowdown in Hong Kong and Taiwan.
India is forecast to grow by 6 per cent this year, up from a prediction of 5 per cent in March, in spite of stunted agricultural output and weak exports. The ADB forecasts growth of 7 per cent for 2010, up from 6.5 per cent in March.
“The government's strong fiscal stimulus, complementing the Reserve Bank of India's aggressive monetary policy easing, has successfully brought last year's economic slowdown to an end,” said Mr Lee.
The report warns, however, that growing state and federal budget deficits in India are not sustainable in the long run, although it judges that growth led by public spending remains appropriate while the global economy is weak.
Growth in South East Asia is projected to slow to 0.1 per cent this year – slower than the ADB's 0.7 per cent forecast in March – because recovery in Indonesia and Vietnam has failed to offset deteriorating prospects for Malaysia, Thailand and smaller economies such as Cambodia.
Tags: Asia, Recession, Global, Crisis, Recovery
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