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Fed, Nano, and more...

Jan 14, 2008

  • The US Federal Reserve Chairman Ben Bernanke, in a recent speech, outlined the central bank's views of 'substantive additional action as needed to support growth and to provide adequate insurance against downside risks.' He was referring to the need of reducing interest rates further if the conditions so warrant. Bernanke indicated - "Monetary policy has responded proactively to evolving conditions. As you know, the Committee cut its target for the federal funds rate by 50 basis points at its September meeting and by 25 basis points each at the October and December meetings. In total, therefore, we have brought the funds rate down by a percentage point from its level just before financial strains emerged. The Federal Reserve took these actions to help offset the restraint imposed by the tightening of credit conditions and the weakening of the housing market. However, in light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary. The Committee will, of course, be carefully evaluating incoming information bearing on the economic outlook."

    Well, we could then expect a 'substantial' reduction in interest rates in the Fed funds rate when the policymakers meet on January 30th. This shall further bring down the cost of money for US borrowers, and investors and could have a positive impact on money flows into emerging markets like India. The Indian markets however, continue on a volatile track in line with its Asian peers. Increasing signs about the US moving into a recessionary phase and high global crude and food prices are seemingly the macro reasons for this volatility. The result season (which is already underway) shall provide the next trigger for the markets going forward.


  • Rumblings continue on the Nano, the Rs 1 lakh car introduced by Mr. Ratan Tata last week, as environmentalists fear that the 'people's car' will lead to a faster deterioration of the environment. It has been seen that people often criticise something that is making waves everywhere. This has also been the case with Tata Nano. Competitors, safety regulators and environmentalists are busy conjuring up the problems that India will face, when such a car is available (by the second half of this year). Interestingly, as far as competitors are concerned, they have moved on from saying that "this car couldn't be produced" to "this car shouldn't be produced". What a change in thoughts that a puny Nano has brought about! Imagine, the Rs 1 lakh that you would have otherwise used to apply to that 'another' IPO, you could now use to buy a 'C-A-R'! Hail Tata!


  • A leading business daily reports that the telecom regulator, TRAI is considering phasing out the access deficit charges (ADC) levied on mobile service providers. As a matter of fact, ADC is the amount payable by the service provider at the caller's end to the service provider at the receiving end for accessing services rendered by the latter in domestic long distance telephony. This has been the means to subsidise the below cost tariffs, i.e., rental/local call charges. Introduction of an ADC was significant as access is the most expensive yet least remunerative of the overall cost of long distance telephony.

    Currently, the newspaper reports, all private sector operators pay 1.5% of their annual revenues as ADC and Rs 1.6 per minute in incoming international long-distance calls. Zero ADC, when implemented, would then mean lower telecom costs for the service providers. This would then mean still lower tariffs for mobile users. Out of the total amount of Rs 33 bn collected by the government by way of ADC, around 95% goes to Bharat Sanchar Nigam Limited (BSNL) as it operates a similar proportion of rural phones in the country.

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