For first time, US loses AAA credit rating

For the first time in history, credit rating agency Standard & Poor's has downgraded America's top-notch credit rating, stripping the world's largest economy of its prized AAA status.

'We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA,'' S&P said Friday in a stunning blow to the country, that has enjoyed the top rating for 70 years, and its political leadership".

In July, S&P, one of the three major agencies that assign grades the credit of companies and governments, placed the US rating on 'CreditWatch with negative implications' as the debt ceiling debate devolved into partisan bickering.

To avoid a downgrade, S&P said the US needed to not only raise the debt ceiling, but also develop a 'credible' plan to reduce the federal debt by at least $4 trillion over the next decade.

Earlier this week, Congress instead passed a plan to reduce the debt by at least $2.1 trillion.

In its report Friday, S&P ruled that the US fell short: 'The downgrade reflects our opinion that the ... plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilise the government's medium-term debt dynamics.'

S&P also cited dysfunctional policymaking in Washington as a factor in the downgrade. 'The effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.'

The other rating agencies, Moody's and Fitch, have said they have no immediate plan to downgrade the US credit rating, giving the government more time to make progress on debt reduction.

The split verdict limits the impact of the S&P downgrade, as many consequences would be set off only by a reduction by two agencies, the New York Times said.

However, the lowering of the country's rating could rattle confidence and raise borrowing costs for the government and consumers, impeding the already fragile recovery, it said.

The announcement by S& P came after a week of turmoil on Wall Street not seen since the days of the financial crisis. After plunging around 5 percent Thursday, stocks bounced up and down Friday and closed relatively flat.

Courtesy- http://in.news.yahoo.com/first-time-us-loses-aaa-credit-rating-023927087.html

Per capital income of Inida

Per capital income of India has jumped over two-folds between 2004-05 and 2010-11 to touch Rs 54,835 per annum (Approx 1227.2829 USD), minister of state for statistics and programme implementation Srikant Jena informed Parliament.

Dual rates for diesel

The government may introduce dual rates for diesel — with the price of the fuel higher in cars and commercial power compared with the price for truckers and farmers — to prevent its misuse.

During a parliamentary debate on the price rise, Opposition leaders asked finance minister Pranab Mukherjee if the government would withdraw subsidy benefits on diesel used by premium cars and commercial users such as telecom tower companies, malls and restaurants.

“We can accept your suggestion and work out a mechanism so that the (privileged) sections are not subsidised,” Mukherjee said.

Of the total diesel sold, passenger cars, 8 per cent by power plants, 12 per cent by agriculture and 37 per cent by trucks used 15 per cent.

On Sunday, Mukherjee said the government was keen to free the prices of diesel and cooking gas (LPG) to keep its finances under control.

Diesel is the main transport fuel used by trucks and buses. While petrol rates have recently been linked to market prices, the government gives a subsidy of Rs 6.08 per litre on diesel.

Subsidised diesel is also used in irrigation pumps, agriculture equipment and power generators at malls and telecom towers.

Recently, automakers such as Maruti Suzuki and General Motors and even premium carmakers such as Audi and BMW have introduced diesel variants to meet growing demand from consumers.

Mukherjee’s comments on the dual pricing of diesel affected the Mahindra & Mahindra (M&M) counter, shares of which plummeted 4.45 per cent, or Rs 31.65, to Rs 679.25.

“M&M may be impacted the most if this were to happen as most of its utility vehicles are run on diesel,” an auto analyst said.

However, as per Pawan Goenka, president, automotive and farm equipment sector at M&M, the company would not be affected significantly in terms of demand, as customers were unlikely to shift to petrol vehicles in a hurry.

He, however, admitted that a hike in excise duties on diesel cars might impact sales.

Manage your Insurance Portfolios properly

While many individuals believe they are on a firm wicket about their investments (like mutual funds, fixed deposits, small savings schemes, etc), they are usually tentative about their insurance needs.

For one, insurance has many options often confusing the individual.

Secondly, 'insurance awareness' among individuals is very low, which when combined with wrong selling leaves them even more confused.

At a level, managing your insurance portfolio is a relatively straightforward task. It is all about breaking the process down into simpler steps.

Once you have the measure of these steps, you are home. Broadly, managing your insurance portfolio involves four steps:

Identify your needs:

Like with shopping when a well-defined list helps you focus on the task at hand and avoid venturing into unrelated avenues, drawing up an insurance list can have the same effect.

To avoid being swayed by the plethora of insurance options, determine at the outset what you are looking for.

Broadly, the insurance seeker can have one of two needs----

a) Life cover (through a term plan) or

b) Investment combined with life cover (through traditional endowment or a unit linked insurance plan).

Although the latter sounds like the convenient option, we recommend against it.

Going for this option will deprive you of the benefits of selecting the two options i.e. insurance and investment in isolation.

In other words selecting life cover or investment separately is more prudent than selecting a combination of both.

It is advisable to maintain that over the long-term, you will be better off separating these two objectives.

Quantify your needs:

Once you have decided why you need insurance it’s time to answer the question - how much insurance do I need?

Of course, the answer to this question will depend on whether you wish to opt for a life cover or an investment plan.

The reason is that these two questions will have very different answers.

To understand this better let us take the first scenario i.e. you want a life cover. Typically, this will involve planning for all future liabilities and commitments as also setting up a contingency fund.

Those familiar with the jargon know that we are referring to the Human Life Value over here.

On the other hand, if instead of a pure risk cover, you want to opt for an investment plan, then you will first have to identify the investment objective like retirement or child's education for instance.

Once you have done that, then you will have to quantify the investment amount to answer the question - how much money do I want to save for my retirement?

Alternatively - how much money do I want to save for my child's education?

Selecting your insurance advisor:

As we mentioned at the beginning, one reason why insurance has turned out to be more complicated than necessary is because of the quality of insurance advice.

Selling insurance, as you are aware can be very remunerative. Not surprisingly, the advisor is often biased in favor of insurance products that garner the highest commissions.

Therefore, you have to be sure that your insurance advisor is honest and competent.

If you cannot ascertain this easily, insist on references whenever possible.

Check his recommendations by asking for comparisons across insurance companies over various parameters.

Understand why he is recommending one insurance plan over another. In addition, if he is making claims that seem outlandish to you, do not hesitate to either take it down in writing from him or get a confirmation from a company official.

Another problem with insurance advisors is that many of them are mutual fund agents on the side.

While, this by itself does not pose a problem, clients often complain of how their insurance advisor is at times not keen on selling life insurance and invariably makes a pitch for mutual funds.

The solution to this problem lies in identifying your needs. If you have decided to opt for a life cover for instance, make sure your insurance advisor gets the point.

If he still insists on selling other products then it is time to re-evaluate whether he is the right insurance advisor for you.

At times, having sold an insurance policy, the insurance advisor is no longer interested in servicing the same.

References can play a critical role in weeding out such advisors.

Conduct a review regularly:

Like all other long-term activities, you must monitor your insurance portfolio closely to ensure that you are on track to achieve your objectives.

For instance, if you have opted for a life cover (in line with your Human Life Value), then you will have to keep a close eye on your liabilities and financial commitments.

If there is a discernible upward revision, then your existing life cover may not prove sufficient and you may have to consider taking additional cover.

The solution to this problem is to opt for a slightly higher cover at the outset; since pure risk plans are relatively cheap, it will not prove to be expensive.

On the same lines, if you have opted for an investment plan for your child's education for instance, then at periodic intervals (e.g. annually) ensure that your investment plan is on course to achieving the desired result.

 Again, if there is a discernible deviation, it is time to re-evaluate your investment.

By now, hope you have realized that managing your insurance portfolio is not as difficult as it appears.

 Like any other activity it involves taking decisions, implementing them and monitoring the results closely.

Of course, your insurance advisor will play a key role over here, which is why it is important to ensure that he is honest and competent.

RBI focus on secure banking

The RBI has proposed several measures to make banking more secure, including a system where a person will be able to block his stolen ATM card through a text message.

It has also proposed a raise in insurance on bank deposits to Rs 5 lakh and a single toll free number for all banks, besides zero liability against loss in ATM and online transactions

Some tax saving secrets you must know

The Income Tax Act 1961 is a voluminous piece of legislation. Taxman Publications’ latest edition of the Act runs into 1,125 pages.

It’s enough to intimidate even the most diligent law student and tax expert, leave alone ordinary taxpayers.

But hidden away in the 300-odd sections and 14 schedules are clauses that can benefit ordinary taxpayers-provided they know how to claim those benefit.

Here are some deductions that can help you save tax over and above the tax saving investments you make during the year.

Use losses in stocks to cut tax

Can you gain from the short-term losses you made on stocks? Yes, says the Income Tax Act.

If you have made any long-term capital gains from sale of property, gold or debt funds, you can set them off against short-term capital losses made on stocks and bring down your tax liability.

Short term capital losses can be set off against both short term capital gains as well as taxable long-term capital gains.

 This can be especially useful for someone who has booked profits on gold ETFs and physical gold this year. Suppose you have sold a property and made a long-term capital gain of Rs 30 lakh after indexation.

At 20%, the tax payable on this long-term capital gain is Rs 6 lakh. However, if you have also sold some junk stocks during the year and made a short-term loss of Rs 3 lakh, you can set this off against the gains from the property.

Then the gain from the property will get reduced to only Rs 27 lakh and the tax payable will be Rs 5.4 lakh.

However, the law makes a distinction here. One cannot set off short-term gains from stocks against long-term capital losses from the other assets.

Long term capital losses can only be set off against taxable long-term capital gains.

How much tax can you save? 

Setting off a short-term loss of Rs 3 lakh against long term gains can help you save Rs 60,000.

Proof required: 

Keep records of your equity trading account statement with details of the transactions that resulted in losses.

Get deduction for rent even without HRA 

House rent can account for as much as 40-50% of the total household expense.

That’s why the house rent allowance is exempt from tax to a certain limit. But what if your salary does not include an HRA component or you are a self-employed professional or businessman?

Under Section 80GG, you can claim deduction of the rent paid even if you don’t get HRA.

Not many people are aware of this deduction. But there are stiff conditions to be met.

The least of the following three can be claimed as deduction: rent paid less 10% of total income; or Rs 2,000 a month; or 25% of total income.

Also, the taxpayer should not be drawing any HRA or any housing benefit.

Besides, he or his spouse or minor child should not own a house in the city where he stays and he should not be claiming tax benefits for some other self-occupied house. Incidentally, if you are living in your parents’ house, you can pay rent to them.

If your parent has no other income or pays a lower tax, this can bring down your tax liability significantly.

However, the rent will be taxable as the income of the parent after a 30% standard deduction.

This means, you can pay a senior citizen parent up to Rs 3.43 lakh a year.

How much tax can you save: 

Given the stiff conditions, one can’t claim more than Rs 2,000 as deduction per month under Sec 80GG. But this can bring down your tax by Rs 7,400 a year in the highest tax bracket.

Proof required: 

Taxpayer has to submit a declaration on form 10-BA that he is paying rent and not receiving HRA.

 Pay lower tax if someone is ill 

The treatment of a chronic illness can be a drain on the finances of a taxpayer.

That’s why the Income tax Act allows a taxpayer to claim a deduction of Rs 40,000 if he has a dependent who suffers from any of the ailments specified under Section 80DDB.

The deduction is higher at Rs 60,000 if the patient is a senior citizen. The diseases include, neurological diseases (including dementia, dystonia musculorum deformans, motor neuron disease, ataxia, chorea, hemiballismus, aphasia and Parkinson’s disease), malignant cancers, full-blown AIDS, chronic kidney failure and haematological disorders (haemophilia and thalassaemia).

Dependents can include spouse, children, parents and siblings. However, there are a few conditions.

The patient should be wholly or mainly dependent on the taxpayer and should not have separately claimed deduction for the disability.

If the amount spent is reimbursed by the employer or an insurance company, there is no deduction.

If the taxpayer gets a partial reimbursement of the expenses, the balance can be claimed as deduction.

How much tax can you save:

If a dependent is a patient, the taxpayer’s liability comes down by 12,360 in the highest income bracket. If the patient is a senior citizen, the tax is lower by Rs 18,540.

Proof required: 

One needs a certificate of the illness from a specialist in a government hospital.


Claim benefits for your political affiliations

Can you lower your tax if you have political connections? Apparently you can.

Any amount contributed to a recognized political party can be claimed as a deduction under Section 80GGC (80GGB for corporate).

This is a new deduction and was introduced in April 2010. The donation can also be made to the electoral trust which works for the purpose of conducting elections.

Interestingly, unlike other deductions, there is no ceiling on the amount that can be claimed as a deduction. Of course, the deduction is available only if the donation went into the party coffers.

Cash given to individuals doesn’t count. Other donations also get you tax benefits. Under Section 80G, donations to charitable organizations get deduction ranging from 50% to 100%.

It’s a good idea to know how much deduction would be available before you write a cheque.

However, there is a ceiling to the deduction a taxpayer can claim in a year. The quantum of deduction is limited to 10% of the gross total income of the donor.

Also, only cash donations are taken into account. Food, clothes and medicines do not qualify.

How much tax can you save: 

In the highest tax bracket, a donation of Rs 1 lakh to a political party can bring down your tax by Rs 30,900.

Proof required: 

You must have a stamped receipt of the payment from the political party.

Use education loan to lower tax

The rising cost of higher education is forcing people to borrow money to pay the fee of their children’s professional courses.

The taxman is sympathetic and offers a deduction that can lower the cost of the loan. The interest paid on an education loan is fully deductible from taxable income under Section 80E.

Till a few years back, this deduction was available only to the borrower. Now, even a parent or a spouse can avail of it. What’s more, this now includes loans taken for vocational courses.

If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid.

However, loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognised financial institution; loans from employers or individuals do not count.

How much tax can you save: 

If you take a Rs 10 lakh education loan at 10% interest for 8 years, you can save Rs 1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum.

Proof required: 

Loan statement from lender.

Disabilities can be tax savers

There are other signs to suggest that the taxman is not the heartless Scrooge he is often made out to be.

If a taxpayer suffers from a disability, he can claim deduction of Rs 75,000 under Sec 80U.

 If he has a disabled dependent, he can claim the deduction under Sec 80DD.

Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness and deduction is available only if the impairment is at least 40%. If the disability is severe (80% or above), the deduction is Rs 1 lakh a year.

The dependant could include the taxpayer’s spouse, children, parents and even siblings.

Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on him or on the disabled dependent.

However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance, and should not have claimed deduction for the disability under Section 80U separately.

How much tax can you save: 

A deduction of Rs 75,000 can cut tax by Rs 23,175 in the highest tax bracket. In case of severe disability, the tax is lower by Rs 30,900.

Proof required: 

A certificate of disability from a civil surgeon or the chief medical officer of a government hospital.

Take unlimited deduction for your second home loan 

When it comes to buying a second house, the taxman can be very encouraging.

Under Section 24b, one can claim deduction of up to Rs 1.5 lakh a lakh for interest paid on a home loan. But if the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as a deduction.

If you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or a deemed income is charged to tax.

How much tax can you save: 

If you have taken a home loan of Rs 50 lakh at 9.5% for 20 years, your interest payment in the first year will be Rs 4.7 lakh and you can save tax up to Rs 1.09 lakh.

Proof required: 

Loan account statement from your lender 

Claim HRA as well as home loan benefits

But you can claim both house rent allowance (HRA) exemption as well as the tax benefits on the interest paid on a home loan.

Many organizations do not allow employees to claim both benefits. Their logic is that HRA is exempt if you are paying rent and home loan benefits apply only for a self-occupied house.

You can’t be doing both at the same time. But this is a gray area in the Income Tax Act. In legal terms, silence signifies approval. 

In other words, the Act need not expressly allow something. The lack of express disallowance also signifies intention of approval.

So given this, HRA and interest on home loan are two separate provisions and claiming one of them as a deduction does not influence the other.

The taxpayer may own any number of flats, either in the same city that he works in or anywhere else in the whole of India or for that matter abroad, however that in no way influences the HRA deduction that he is entitled to.

There are many such examples in the tax laws. Let’s take for instance, Section 80C (PPF, NSC, ELSS etc.) and Section 80D (medical insurance premium).

Everyone will agree that both Section 80C and Section 80D can be separately claimed. But does it expressly say so anywhere.

How much tax can you save: 

In the highest tax bracket, a deduction for Rs 1.5 lakh will bring down your tax by Rs 46,350.

Proof required: 

Loan account statement from your lender.

Disclaimer- This article is based on by various facts both online and offline. One should consult his/her tax consultant prior to make any decision.

The blog www.your.sweetmoney.blogspot.com will not be held responsible for any wrong decision taken by the reader.

Small savings

Finance minister Pranab Mukherjee today remained non-committal on reviewing the interest rates on central government sponsored small savings deposits.

The finance minister, who was here to inaugurate a three-day management development programme of MDI, Murshidabad, did not comment when he was asked if the government would review the interest rates on small savings, which were last revised in 2003.

Following the recommendations of the Thirteenth Finance Commission, the finance ministry had in July 2010 constituted a seven-member committee led by Reserve Bank deputy governor Shyamala Gopinath to review the administration of the National Small Savings Fund.

The committee submitted its report more than a month ago with suggestions to increase interest rates on post office savings deposits to 4 per cent. 

The report said interest rates on other small saving deposits should be linked to yields on government securities of similar maturity with some positive spread.

Had the finance ministry implemented the panel recommendations, interest rates on small savings would have increased to 8.5-9 per cent, and a lot of small investors particularly in the rural areas would have benefited.

Banks raising loan rates

A clutch of banks today raised their lending rates by hefty 50-75 basis points in response to the Reserve Bank of India (RBI) increasing the repo rate by half a percentage point earlier this week.

Both Bank of Baroda (BoB) and Allahabad Bank has raised the base rate by 50 basis points to 10.75 per cent and the benchmark prime lending rate (BPLR) by a similar margin to 15 per cent.

Punjab National Bank (PNB) raised its base rate and BPLR by a steeper 75 basis points to 10.75 per cent and 14.25 per cent, respectively.

Mumbai-based Central Bank of India also raised its base rate by 75 basis points to 10.75 per cent, while IDBI Bank raised its BPLR by the same margin to 15.25 per cent.

The interest rate hikes have been undertaken keeping in view the measures announced by the RBI, inflation and liquidity scenario.

On Thursday, Canara Bank and Bank of India raised their minimum lending rates by 50 and 75 basis points, respectively. The new rates will come into effect from August 1.

However, the RBI’s 50-basis-point increase in the repo rate has also brought good news to savers. PNB today said it would raise deposit rates by 75 basis points in select maturity buckets from August 1.

BoB hiked interest rates on term deposits by 50 basis points in maturity buckets of 7 to 14 days, 15 to 45 days, 46 to 90 days and 91 to 180 days to 4.75 per cent in the first 3 maturity points and 7 per cent in the 91 to 180 day maturity period.

The Central Bank of India raised its deposit rates by 40 basis points in the short term.

Possibility of more downfalls from the recent level on weak Asian stocks

The Indian stock market may extend three-day 3.5% losses on weak Asian stocks. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a fall of 58 points at the opening bell. Asian stocks fell on Friday, 29 July 2011, as the US debt impasse kept broad market sentiment in check, with Japan also suffered from weak earnings and profit outlooks.

FIIs bought shares worth a net Rs. 64.66 crore on Thursday, 28 July 2011, as per provisional data from the stock exchanges. Domestic institutional investors (DIIs) bought shares worth Rs. 409.34 crore on that day.

Key benchmark indices sank to their lowest closing levels in five weeks on Thursday, 28 July 2011 on fears that higher interest rates will hurt corporate profit growth. The BSE Sensex was down 222.73 points or 1.21% to settle at 18,209.52, its lowest closing level since 23 June 2011.

ONGC's net profit rose 11.83% to Rs. 4094.90 crore on 18.7% rise in sales revenue to Rs.16268 crore in Q1 June 2011 over Q1 June 2010.

A sharp surge in the company's subsidy sharing burden restricted profit growth at the state-run oil exploration major. ONGC's subsidy burden swelled 118.4% to Rs. 12046 crore in Q1 June 2011 over Q1 June 2010. The result was announced after trading hours on Thursday, 28 July 2011.

ACC's consolidated net profit fell 6.11% to Rs. 328.12 crore on 17.17% rise in sales turnover to Rs. 2538.97 crore in Q2 June 2011 over Q2 June 2010. The result announced after trading hours on Thursday, 28 July 2011.

ACC said while market conditions are presently subdued, the overall cement demand will pick up post monsoon and ACC is well placed to benefit from this expected increase in demand in the coming months.

HCL Technologies announced after market hours on Thursday that it has been chosen by the Blue Cross and Blue Shield Association (BCBSA) to be part of a national purchasing arrangement for the ICD-10 transition.

Through this arrangement, HCL's products and service capabilities will be available to the 39 independent Blue Cross and Blue Shield companies across the country.

Investors' focus continues on Q1 corporate earnings. Investors are focusing on the post-Q1 June 2011 result management commentary to gauge the future earnings outlook at a time when Indian firms are witnessing cost pressures amid rising interest rates and staff costs.

Among prominent companies, ICICI Bank, Power Finance Corporation, Bhushan Steel, Idea Cellular and TVS Motor unveil Q1 results today, 29 July 2011.

Sun TV announces Q1 results on 1 August 2011. Power Grid Corporation unveils Q1 results on 2 August 2011. Bharti Airtel and United Spirits unveil Q1 results on 3 August 2011. Adani Power, Mundra Port And Special Economic Zone and Indian Hotels announce Q1 results on 4 August 2011. Cipla and IL&FS Transportation Networks are set to announce Q1 results on 5 August 2011.

M&M announces Q1 results on 8 August 2011. ABB, Tata Communications, Mahindra Satyam and GMR Infrastructure announce quarterly results on 9 August 2011.

Tata Power and Rural Electrification Corporation unveil Q1 results on 10 August 2011. Tata Motors and Castrol India unveil quarterly results on 11 August 2011. Hindalco and Coal India unveil Q1 results on 12 August 2011. Aditya Birla Nuvo unveils Q1 results on 13 August 2011.

The stock market regulator Securities and Exchange Board of India (Sebi) on Thursday made sweeping changes to the takeover code, including raising the threshold that triggers an open offer to 25% from 15%.

Sebi also changed the minimum open offer size, saying that when a company acquires at least 25% of another listed company, it must make a mandatory open offer for another 26%. Under current regulations, a company needs to make a mandatory offer for only an additional 20% stake.

Partly accepting the recommendations of a Sebi-appointed panel on the matter, Sebi also decided to abolish the non- compete fees that acquirers generally pay to the sellers in merger and acquisition deals.

The government on Thursday approved draft legislation to create an anti-corruption ombudsman, an office that has come to define the debate over what India needs to do to try to stamp out graft. 

For the past several months, a handful of anti-corruption campaigners have been negotiating with the government over the creation of the office and the extent of the power of the Lokpal, or ombudsman.

The government's proposed legislation would give the office the power to probe graft in the upper echelons of India's bureaucracy, in Parliament and in ministries, but would exempt the office of the serving prime minister and the judiciary.

On the macroeconomic front, food prices rose in the week ended 16 July 2011 due to costlier vegetables and fruits, the latest data showed. The wholesale price index for food articles rose 0.8% to 193.3 from 191.7 in the previous week, data from the Ministry of Commerce and Industry showed Thursday.

The index has risen three out of four weeks ending July 16. Data also showed the index for primary articles, which includes food and non-food articles, was little changed at 198 in the week ended July 16, compared with 197.7 a week earlier.

The Reserve Bank of India (RBI) raised its key lending rates by 50 basis points at a policy review on Tuesday, 26 July 2011, to tame high inflation. The RBI has raised its end March 2012 inflation target to 7% as against the previous estimate of 6%, saying inflation has been higher than its expectations.

It kept its economic growth forecast of 8% for this fiscal year. The RBI revised downwards non-food bank credit growth projection to 18% for the year ending March 2012 (FY 2012) from 19% earlier.

Although the impact of past monetary policy actions is still getting transmitted, considering the overall growth and inflation scenario, there is a need to persevere with the anti-inflationary stance, the RBI said. 

Going forward, the monetary policy stance will depend on the evolving inflation trajectory, which, in turn, will be determined by trends in domestic growth and global commodity prices, the RBI said. A change in stance will be motivated by signs of a sustainable downturn in inflation, it added.

The uncertain global macro-economic environment poses a challenge for the domestic economy from the perspective of financing the current account deficit, RBI said. In this context, the composition of capital flows remains a concern. In recent months, some shift in composition of capital flows towards foreign direct investment (FDI) has been observed.

This trend needs to be reinforced through policy actions to improve the quality of financing of the current account deficit, RBI said.

Finance Minister Pranab Mukherjee on Wednesday, 27 July 2011, said food inflation at 8% around the current level, is not acceptable. He added that the government would take steps to support the RBI's battle against stubbornly high inflation, which is likely to see further rate rises. 

I don't think we have reached the end of tunnel, Mukherjee said referring to the RBI's rate tightening cycle. Appropriate measures will be taken, Mukherjee said, referring to government support of the central bank's policy action, without giving specifics.

Mukherjee said the government would keep its spending in check to meet its deficit target but did not give details. We are looking at ways to compress expenditure. There is revenue buoyancy and together I think they will help us in reaching fiscal deficit target, he said.

RBI Deputy Governor Subir Gokarn on Wednesday said the decision to go for a 50 basis point increase in the policy rate, instead of the baby steps of 25 basis points that the RBI mostly has taken, was influenced by strong demand in the economy, which was partially unaffected by the interest-rate moves. The government's high spending was also fueling demand pressures, he said on a conference call with analysts.

Gokarn said the downside risks to growth from the rate increases would be fairly bounded and that a milder hike could have been perceived as inadequate. We thought that the stronger action was essentially consistent with the new stance that we had signaled in May, he added.

Asian stocks fell on Friday, 29 July 2011, as the US debt impasse kept broad market sentiment in check, with Japan also suffered from weak earnings and profit outlooks. Stock losses deepened in several markets after Thursday's voting on a Republican bill to lift the US debt ceiling was cancelled.

Only days remained before the August 2 deadline, when the US government is expected to run out of money to pay all of its bills. The key benchmark indices in South Korea, Singapore, Indonesia, Hong Kong, China, Japan, and Taiwan fell by between 0. 2% to 1.26%.

Japan's jobless rate ticked higher in June and industrial output was softer than expected, while consumer prices rose less than forecast, according to data released Friday.

Weak earnings pulled US stocks lower on Thursday, 28 July 2011. The latest data showed first-time applications for unemployment benefits declined 24,000 to 298,000 last week, marking the first time in four months that the number came in below 400,000. 

The National Association of Realtors's count of Americans signing contracts to purchase homes climbed for a second month in June, although the trade group also said a growing number of would-be buyers have been canceling contracts ahead of closings.