Why RBI's decision is not an anti- depressant...

For some reason, the RBI's rate  cut (by 50 basis points)  triggers anxiety rather than reassurance. Japan's decades long experience proves that low interest rates do not drive investment; it is the confidence in an economy that pulls it through.

1. The rate cut is in an economy which has seen withdrawals by FIIs. Where there has been a flight to quality.
2. FIIs pulled out over Rs.  17,000 crore from Indian equities during August 2015. This was the highest in a month since 2008. 
3. One cannot by logic reduce interest rates when capital goes out.  Unless the Central bank believes that this Indian growth story is taking a severe knock.
4. Savings ratio has been falling to about 30 %. The incidence of the rate slash is on the saver. Savings are now at a discount.  That means that  the long term project funding is likely to take a drubbing.  The investments India  needs are gargantuan. 
5. Mammoth infrastructure building alone can create jobs through multiplier effects. Monetary policy will not create jobs directly. 
6. If you keep interest rates low, saving attrition rather than saving accretion takes place.
7. The immediate beneficiaries of a rate cut are likely to be consumer durable industry and the real estate industry. Consumer durables are expenditure items which do not lead to asset accumulation. To that extent, we see the liabilities of the household sector moving up to finance conspicuous consumption. Personal finances will see a hit in the medium term.
8. The real estate prices which by the Governor's prior statement, stand inflated might see a marginal fall.  On a prior occasion, the Governor had advised builders to first bring down prices and clear the stock ; cheaper home loans will now keep real estate rates high. The home builders have been reluctant to pass on lower costing benefits to prospective home owners. RBI has rewarded the same group through  cheap loans. This is indicative of a  mis-allocation between demand and supply in the housing sector. Where prices should have been lower, monetary policy has sweetened the borrower demand. 
9. The industry lobby which has been lobbying has gained at the expense of the savers who have no lobbies.  
10. Or is it that the RBI sees a severe economic winter coming and is preparing for it in advance?

The views expressed here are academic in nature and without any risk or responsibility. The blog recommends no investment. 

Greece : Property prices and rentals falling...

Bank of Greece  has   released data on commercial property which reveals the contracting business affecting property prices and rentals.

Office price index 

According to provisional data the cumulative drop in the prices (in nominal terms) of prime office premises in the country as a whole averaged 31.6% in the first half of 2014, compared with the first half of 2010. 

  

Office rent index 

According to provisional data, in the country as a whole, the cumulative decrease in prime office rents (in nominal terms) averaged 26.9% in the first half of 2014 compared with the first half of 2010, 

In the first half of 2014, prime office rents declined in the country as a whole by 10.7% in relation to the first half of 2013. 

 The considerable acceleration of the rate of decline in office rents in the first half of 2014 is possibly associated with more intense efforts of tenants to renegotiate active leases as well as with the further shrinking of business activity, which leads to increased supply of competitive spaces. 

 
 
Retail price index
 
According to provisional data, in the country as a whole, the cumulative drop in prime retail prices (in nominal terms) averaged 28.8% in the first half of 2014 compared with the first half of 2010. 

Retail rent index

The cumulative decrease in prime retail rents, in Greece as a whole, in the first half of 2014 averaged 31.0% compared with the first half of 2010 (provisional data).

Source: Bank of Greece 

Without any risk or responsibility

Talking down the Euro ...

The lone ranger Draghi is struggling to make Europe more competitive.So the currency , conveniently slipped  on his comments. The  other positive news arising out of slippage is the renewed fall in oil prices. With Chinese data unhelpful, Aussie and Kiwi had slipped too. These seem reflecting fundamentals.

The small bit of news that Singapore real estate is falling should trigger some concern. Australian, European and Middle Eastern (= Dubai) real estate could also be expected to retreat as the asset managers sell to protect values. LTV margins would also be under stress and real estate might see a  move south.

Views without risk and responsibility. 

Singapore real estate woes...

With the Chinese slowness, and the alignment of the 'Singai' economy to the Chinese one, the fall in property prices may be on expected lines.  There is a possibility that Australian property prices may also be under pressure as Chinese real estate investment is active there too. The alignment with China is likely to affect the  Singporeans quite a bit.

Views without risk and responsibility

London losing steam as a financial centre?

For decades, London, with its time zone positioning had a natural advantage as the World's largest volume driven financial centre. New York and Tokyo followed tamely for years. Thatcher's big bang helped re-inforce the London Lead. So much so that London became a centre for Islamic Finance too!

With the rise of Asia and the innovativeness of the Americans and the tottering of Europe, things have changed. The Chinese have post Kissinger days, been more at home in USA  than than in imperial England. Chinese students go by hordes to USA. The  rich Arabs have diversified to continental Europe  from France to Germany to Spain. London's key banks have also been affected by recession woes and LIBOR  fixing scandals and even probable legal violations (in USA) . The Pound is no more an alternative currency, forget a safe haven. Cable (GBP/Dollar) is virtually history.

With the growth of Dubai, Arab funds might see a return nearer home;  with Singapore's proximity to China ; with ECB  in Frankfurt, with the colonies no more to fund regal splendour; with its universities badly behind in revenues and perhaps research, with Scottish threats, imperious London's real estate and real finances may  soon be under pressure.