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Confused Fed, costly chemicals and more

Jun 27, 2008

US Fed maintains status quo
While rising inflation forced the Reserve Bank of India (RBI) to hike the repo rate and the CRR, the US Fed has kept interest rates unchanged at 2% for the time being. Readers would do well to note that the subprime meltdown had prompted the Fed to resort to a series of interest rate cuts that began in September 2007. While rising inflation has stopped the Fed from cutting interest rates further, concerns over a slowing US economy has prevented it from raising rates either; hence no change has been effected in the rates. As per the International Herald Tribune, Fed chief Bernanke has quoted, "Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased." The European Central Bank, on the other hand, has signaled a hike in interest rates to rein inflation. This could prove to be a dampener to the US as the interest rate differential between Europe and the US would increase, weakening the dollar and increasing the value of goods imported into the US. Testing times for the US indeed!

  • Also read- Fed Reserve's quandary

    Dow ready for a 25% leap
    No, this isn't the famed US stock market benchmark we are referring to. Instead, it's the biggest chemical maker, Dow Chemicals, in the US and its decision to raise prices by up to 25% in July. This is believed to be the largest ever price hike undertaken by the company in its long history. Infact, it has joined a growing list of companies that are finding it difficult to absorb higher costs arising from higher raw material and energy prices. Recently, global miner, Rio Tinto and Chinese steelmaker Baosteel, entered into an agreement whereby the former will supply iron ore at a price that has been revised upwards by 97%. This will most likely be the benchmark for other similar deals as well. The latest round of price hikes highlights the problem that the world is facing currently on the inflation front. So far, the developed world was shielded from inflation on account of shifting work to low cost countries like India and China. But now, even these countries are facing higher inflation and are finding it difficult not to pass on cost increases. Furthermore, rising income levels here are putting additional pressure on prices. Looks like it will require some bold steps by central banks across the world in order for this menace to be tamed.

    Sugary sales
    India, the world's second-biggest sugar producer, is expected to export a record 4.2 m tonnes of sugar in the current crop year, exceeding earlier estimates of 3.5 m tonnes. Interestingly, India's sugar exports had never crossed the 2 m tonnes mark prior to this year. In fact, it will now surpass Australia, the world's third largest sugar exporter. It is also making strides in the export of raw (unrefined) sugar, which alone are expected to be 2.3 m tonnes this year. It entered the raw sugar export market in 2007 by selling to Dubai's Al Khaleej, the world's largest refinery, which has now switched to India from top producer Brazil.

  • Also read- Is the Sugar Sector turning sweet?


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