For sometime, to contain inflation, RBI has been increasing its short term interest rates. But, the banker feels, RBI can't push the short-term interest rates beyond a point as it will provide a good arbitrage opportunities.
As foreign funds enter the markets, they are required to be converted into rupee to invest in India. The huge inflow of dollar makes US currency cheaper in the market, resulting in appreciation of rupee. But, in the process no extra rupee gets infused in the system. To avoid such appreciation of rupee, RBI buys the large forexes . But in this case, the rupee gets infused in system, leading to increase in liquidity. Increased liquidity leads to softening of interest rates, which, in turn, become inflationary.
Read more: Re rise & inflation: RBI faces dilemma - The Times of India http://timesofindia.indiatimes.com/business/india-business/Re-rise-inflation-RBI-faces-dilemma/articleshow/6757305.cms#ixzz12U5MkdD9
Consumer sentiment dropped in October, according to an index released Friday, showing the U.S. consumer is still wary with the U.S. jobs market weak. Economists were surprised because U.S. stocks rallied in September, which often boosts confidence due to the wealth effect. But the unemployment rate is hovering at nearly 10%, symptomatic of a slow-growing economy that has convinced consumers to save rather than spend.
U.S. stocks lost early gains Friday morning, led by the financial sector following disappointing results at General Electric’s financial unit while weakening consumer sentiment also weighed...“When these Michigan consumer sentiment numbers came out as a disappointment, the market started to fade back,” said Terry Morris, co-portfolio manager at National Penn Investors Trust Co. http://www.marketwatch.com/story/us-stocks-rise-as-bernanke-gives-nod-to-easing-2010-10-15?siteid=yhoof
Indian markets ended sharply lower near psychological resistance levels Friday, as investors booked profits on concerns of global economic recovery. According to analysts, investors were also garnering funds for the Coal India IPO.
At open, indices extended overnight losses due to lack of support from Asian peers. The decline was led by IT stocks after Infosys Technologies announced second quarter results and noted challenges in global economic environment and volatility in currency markets.
National Stock Exchange’s Nifty closed at 6,062.65, down 114.70 points or 1.86 per cent. The index touched low of 6,050.35 and high of 6,200.60 in today’s trade.
“Nifty is likely to take support around 5,800 next week. In case, it bounces back, we advise some profit booking. One need to be stock specific at current levels,” said Sandeep Wagle, Founder & MD, Aptart Technical Advisory Services.
Headline inflation rose marginally in September as the already expensive food items became costlier, prompting C Rangarajan , an influential voice in the government , to urge action from the central bank. The annual rate of inflation based on the revamped wholesale price index based rose to 8.62% in September from 8.51% in August, data released on Friday showed. The sticky inflation could force the Reserve Bank of India to lift rates again this year despite a weak 5.6% industrial growth in August raising concerns about the loss of growth momentum.