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February 2012 Economic Issues

The Baltic Dry Index, a measure of shipping costs for dry bulk goods plunged to its lowest level after it touched 647 points on 3 February 2012. The lowest level was nearly 20 points lower than the previous low of 663 points recorded during the 2008 global financial meltdown. In the past 26 years since the Baltic index came into being, the index had never slipped below 650 points.

The current fall recorded on 3 February 2012 in the Baltic raised serious concerns among shipping companies.

The Baltic dry index was noticed to have fallen even in January 2012 though shipping analysts had predicted a recovery for the shipping sector in 2012. Sea-borne traffic was expected to rise 20-25% in 2012 from the 1500 level in 2011. However, the sea borne traffic that plunged by more than 62% in 2012 left analysts clueless about the much-expected recovery.

The Reserve Bank of India partially lifted the curbs on banks’ foreign exchange transactions which it had imposed in December 2011. Several banks, including large lenders such as State Bank of India, ICICI Bank, HDFC Bank and Axis Bank and some public sector institutions were allowed to run higher net overnight open positions (NOP) in foreign exchange. The revised NOP caps are however still way below the earlier limits banks enjoyed before the restrictions were imposed in December 2011.

Banks use the open position limits to carry out proprietary trades or buy and sell dollars to meet requirements of corporate clients. The open position limits differ from lender to lender depending on the size and level of treasury activity. Open positions also help banks meet customer needs.

HSBC Purchasing Managers’ Index — a headline index designed to measure the overall health of the manufacturing sector registered a reading of 57.5 in January 2012 up from 54.2 in December 2011. 

As per survey released on 1 February 2012, India’s manufacturing sector expanded at its fastest pace in eight months in January on the back of a sharp increase in new orders.



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