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A Look at The Week’s Economic Events

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We take a look at two global economic updates or interesting key developments that happened recently. First up, we take a look at the possible interest rate hike to stem inflation in India. Next, we’ll examine the issue of unrelenting Thai protests which seems to be taking a toll on Thailand’s economy.

India’s Stock Market sank on High inflation woes

Indian stocks fell, with the benchmark gauge having its steepest weekly loss in a month, as faster-than-estimated inflation sparked expectations the central bank will raise interest rates in the coming week.

Consumer prices rose 11.24% in November from a year earlier, compared with the 10% gain analysts had predicted. Most economists in a Bloomberg survey now expect Reserve Bank of India Governor Raghuram Rajan to increase the benchmark repurchase rate to 8% from 7.75% in a decision due Dec. 18.

“The data is creating flutter in the market, and its influence will be seen as to what the RBI governor will say next week,” Gaurang Shah, assistant vice president at Geojit BNP Paribas Financial Services Ltd., said on Bloomberg TV India today. “A 25 basis point rate increase is on the cards, but anything more will see more downside.”

Rajan has raised the main interest rate twice since he moved to the central bank in September to combat rising prices. “We are very uncomfortable with the current level of inflation,’’ Rajan told reporters in Kolkata yesterday after the CPI data were released. “We are aware of the weak economy, but we also have to take into account inflationary pressures.”

The Sensex had previously rose to a record on Dec. 9 after India’s main opposition party, Bharatiya Janata Party (BJP) won the state elections, giving it momentum to end the ruling Congress party’s decade-long rule in polls due by May 2014 and install Narendra Modi as prime minister.

The reason for investors to rejoice is clear. People look at Modi as the hero in times of distress to set things right in India again as he has been credited with achieving annual economic growth of 10% and raised power capacity more than fivefold in his home state of Gujarat since becoming chief minister in 2001.

India stock market plays such as Lyxor MSIndia10US$ (SGX: G1N) and Religare Health Trust (SGX: RF1U) may be considerably affected as continued high interest rate hikes and inflation may stall any potential stock market advance.

Thai PM, Yingluck Shinawatra dissolved parliament

In response to the long-standing protests, Thai Prime Minister Yingluck Shinawatra has dissolved the parliament and called for fresh elections to defuse anti-government demonstrations which are now in their 2nd month in Bangkok.

However, despite her push for elections on 2 Feb 2014, the protestants look set to boycott the elections as they continued their push to install an unelected council to help rid Thailand of the political influence of her brother, Thaksin Shinawatra, whose allies have won every election since his ouster in a 2006 coup.

“The protests will likely undermine investor confidence and detract from an already fragile growth outlook for 2014, a credit negative for the sovereign,” Moody’s Investors Service said in a note this week. “Prolonged or escalating protests will adversely affect foreign investment and tourism, and exacerbate delayed public infrastructure investment, which will weigh on Thailand’s future growth in 2014 and beyond.”

In addition, Thailand’s tourism authorities say that its travel industry is already feeling the effects of the unrest –tourist bookings are reduced by about 20%, and further reiterated that the industry will not recover as long as doubts regarding the country’s safety and stability remain.

The benchmark SET Index (SET) of stocks slumped 5% last month, likely attributed to the withdrawal of a net US$1.5 billion from local equities by foreign investors last month, the most among 10 Asian markets tracked by Bloomberg. If the incumbent unrest continues to persist over a long duration, it may be detrimental to companies with Thai operations such as  Thai Beverage Public Company (SGX: Y92).

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