Does the Manmohan Singh stimulate the Indian Economy ?

India has largest Debt among BRIC Nations

The chart shows the debt to the GDP ratio of the BRIC nations for the current fiscal year.it is the amount of the national debt a country has a percentage of its debt payments ,Higher the ratio, higher is the possibility that the country might default on its debt payments. As seen above, India has the largest debt to GDP ratio among the BRIC nations. Indian economy which is already under pressure of weak GDP, poor IIP and elevated inflation rate, is also weighed down by its increasing government debt. High debt to GDP ratio tends to dampen the credit worthiness of the Indian economy. Viewing its increasing debt, Fitch had cut India's outlook to negative from stable in the last week. If the debt to GDP ratio continues to accelerate further, Indian economy will be exposed to the risk of further downgrades by other major rating agencies. 

Gold and Silver Prices Outlook for June 26-29

Last week gold and silver prices started off with little movement but by Thursday both precious metals tumbled down. The FOMC decision to continue operation twist throughout the rest of 2012 by $267 billion and not to introduce QE3 may have been among the factors to pull down bullion rates. The Fed also revised down the U.S economic outlook which also may have dragged down commodities prices.  Several other U.S related reports came out last week and showed the U.S economy isn’t expanding: Philly Fed index declined in June to its lowest level this year; existing home sales had an upward trend during last week. U.S jobless claims didn’t change much and declined by only 2k last week. This upcoming week there are several publications on the agenda that may affect gold and silver prices. The main events will revolve around U.S news and pending home sales, GDP for Q1 2012, Euro Area Monetary Development, jobless claims, core durable goods and Canada’s GDP by Industry.

Here is a short outlook for June 26^th to June 29^th; this includes a short description accompanied with a fundamental analysis of the main reports, publications, and events that may affect precious metals market.

Gold price plunged during last week by 3.76%; Silver, even more than gold, tumbled down on a weekly scale by 7.01%. Furthermore, during last week the SPDR Gold Shares (GLD) also fell by 3.3% and reached by June 22^nd 152.64.

The Euro declined against the U.S dollar by 0.54% (on a weekly scale); furthermore, other “risk” currencies such as the Australian dollar and Canadian dollar also depreciated against the U.S dollar by 0.11% and 0.28%, respectively. Their sharpest fall came on Thursday. The decline in the Euro/USD and AUD/USD may have been among the factors to pull down gold and silver during last week. If these currencies will continue to trade down, it could further pull bullion rates down.

In conclusion, I speculate precious metals will continue to dwindle during the upcoming week. The developments in Europe regarding the debt crisis in Spain and Greece may affect not only the Euro/USD but also bullion rates. If the Euro will continue to decline this could also pull down bullion. The upcoming reports regarding the U.S including the new and pending home sales, GDP for Q1, core durable goods and jobless claims, could affect not only the USD, but also gold and silver prices: if the U.S reports will continue be negative or won’t meet expectations it could pull up or at least curb the fall of precious metals.

Does the monetary policy works properly to reduce the inflation in UK ?

When the Bank of England changes the official interest rate it is attempting to influence the overall level of expenditure in the economy. When the amount of money spent grows more quickly than the volume of output produced, inflation is the result. In this way, changes in interest rates are used to control inflation.

The Bank of England sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

A reduction in interest rates makes saving less attractive and borrowing more attractive, which stimulates spending. Lower interest rates can affect consumers’ and firms’ cash-flow – a fall in interest rates reduces the income from savings and the interest payments due on loans. Borrowers tend to spend more of any extra money they have than lenders, so the net effect of lower interest rates through this cash-flow channel is to encourage higher spending in aggregate. The opposite occurs when interest rates are increased.

Lower interest rates can boost the prices of assets such as shares and houses. Higher house prices enable existing home owners to extend their mortgages in order to finance higher consumption. Higher share prices raise households’ wealth and can increase their willingness to spend.

Changes in interest rates can also affect the exchange rate. An unexpected rise in the rate of interest in the UK relative to overseas would give investors a higher return on UK assets relative to their foreign-currency equivalents, tending to make sterling assets more attractive. That should raise the value of sterling, reduce the price of imports, and reduce demand for UK goods and services abroad. However, the impact of interest rates on the exchange rate is, unfortunately, seldom that predictable?

Changes in spending feed through into output and, in turn, into employment. That can affect wage costs by changing the relative balance of demand and supply for workers. But it also influences wage bargainers’ expectations of inflation – an important consideration for the eventual settlement. The impact on output and wages feeds through to producers’ costs and prices, and eventually consumer prices.

Some of these influences can work more quickly than others. And the overall effect of monetary policy will be more rapid if it is credible. But, in general, there are time lags before changes in interest rates affect spending and saving decisions, and longer still before they affect consumer prices.

We cannot be precise about the size or timing of all these channels. But the maximum effect on output is estimated to take up to about one year. And the maximum impact of a change in interest rates on consumer price inflation takes up to about two years. So interest rates have to be set based on judgments about what inflation might be – the outlook over the coming few years – not what it is today.