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Asian stocks sink on economic concerns

Nov 7, 2008

European central banks slash rates
Asian markets are trading in the red currently. Major losses are being seen in the benchmark indices of Japan (down 4.4%), Hong Kong (1.8%) and Singapore (2.3%). These markets seem to have fallen in line with the weak performance of the US and European markets yesterday. While the US Dow Jones index closed almost 5% down, European indices traded weak within a range of 4% to 9%. Weakness in European stocks yesterday followed the spree of interest rate cuts announced by three key central banks in the region. While the European Central Bank (ECB) lowered its benchmark lending rate by 0.5% (to 3.25%), the Bank of England reduced it by 1.5% (to 3%). The central bank of Switzerland followed suit, lowering its lending rate by 0.5% (to 2%). What is more, these central banks have not ruled out a further reduction in interest rates on concerns of a deeper economic slump.

Selling pressure across Asian markets today is also on the back of some weak earning numbers reported by large corporations like Toyota. The Japanese automaker, for instance, halved its annual profit forecast yesterday. The company now expects its profits to fall almost 68% YoY during the current year.

Indian banks see liquidity problems easing
"There is no problem of liquidity at this point of time", said the chairman of India's largest bank, State Bank of India in a press meet yesterday. However he further added that there will be some pressure on liquidity next month on account of the busy season and the fact that government borrowings typically increase during this time of the year.

SBI announced a 0.75% reduction in its lending rates, which will be effective from 10th of November. The bank's management does not see the rate of growth in credit off-take slowing down during the second half of the year, as it expects the government and central bank to inject substantial cash into the financial system. SBI is one of the many public sector banks that have reduced their lending rates, after being arm twisted by the finance ministry to do so. The other banks that have reduced their lending rates by 0.75% include Bank of Baroda, Bank of India, Corporation Bank, Canara Bank, oriental Bank of Commerce, Allahabad Bank, Union Bank and Punjab National Bank.

The impact of reduction in lending rates will also be seen in the deposit rates, which are expected to come down as well. This is ironical considering that while domestic savers will have their deposit rates slashed, the government and central bank are leaving no stones unturned to attract non-resident deposits by way of increasing interest rates on their accounts. This they are doing to attract foreign capital to stop the run on the Indian rupee, which has depreciated by over 21% against the US dollar in this current calendar year 2008.

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