PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

28 July 2010

1 India Increased The Key Policy Rate For The Fourth

Time This Year

2 US Consumer Confidence Fell In July But House Prices

In Major Cities Picked Up Yoy In May

3 Euroland’s Money Supply Inched Up In June

Tracking The World Economy...

Today’s Highlight

India Increased The Key Policy Rate For The Fourth Time This Year

The Reserve Bank of India raised the key repurchase rate by 25 basis points to 5.75%, from 5.5% previously. The
reverse repurchase rate was also raised but by more than expected 50 basis points to 4.5%, from 4% previously. This
was the fourth time the central bank increased its key interest rates in a move to contain the surge in inflation that has
triggered labour strikes and public protests. India’s inflation, as measured by the wholesale-price index, rebounded to
+10.6% yoy in June, after inching up to +10.2% in May and it remained high compared to the peak of 11.0% recorded
in March. Prices are rising in India as the recovery in the country’s economic growth, which strengthened to +8.4% yoy
in the 1Q from +6.5% in the 4Q, is straining capacities in roads, ports and factories. “Capacity constraints are visible
in several sectors and pricing power is returning to producers,” according to the central bank. Indeed, the Government’s
move to raise fuel prices on 25 June could worsen the situation. Workers, on the other hand, are demanding higher
wages that would translate into higher pressure on inflation. The Reserve Bank of India is of the view that inflation is
now being significantly driven by demand-side factors and it is imperative for it to continue in the direction of normalising
its policy instruments to a level consistent with the evolving growth and inflation scenarios. Meanwhile, the central bank
said that it plans to announce monetary policy statements every six weeks instead of once a quarter. The next policy
meeting will be on 16 September.

India’s move comes after Malaysia raised its key policy rate three times this year, while Korea, Taiwan and Thailand
increased them once. The Philippines and Indonesia, on the other hand, left their interest rates on hold. In Australia,
the central bank has boosted rates six times since early October 2009, as an economic expansion powered by Chinese
demand for the country’s commodities sparked inflation pressures.

The US Economy

Consumer Confidence Fell In July

◆ The Conference Board’s consumer confidence index fell to 50.4 in July, from 54.3 in June and a high of 62.7
in May. This was the second consecutive month of easing and the lowest level in five months, indicating that
consumers have become more cautious due to concerns over job prospects and wages. More consumers believed
that business conditions have turned bad and jobs were harder to come by. As it stands, non-farm payrolls in
the private sector slowed down sharply in May, before bouncing back in June but still off April’s peak, as businesses
turned cautious in recruitment. Over the next six months, consumers’ future expectation index fell to 66.6
in July, from 72.7 in June and a high of 84.6 in May, suggesting that consumers are becoming less upbeat in the

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 28 July 2010

months ahead. More consumers expect business conditions to deteriorate and jobs are difficult to come by. As
a result, they expect their income to drop. Consequently, fewer consumers indicated that they plan to buy home
within the next six months. However, more consumers plan to buy automobiles and major appliances. As a whole,
the readings suggest that consumer spending will likely moderate but remain resilient in the months ahead.

House Prices In Major Cities Picked Up Yoy In May

◆ House prices in 20 US metropolitan areas grew at a faster pace of 4.6% yoy in May, compared with
+3.8% in April and +2.4% in March, according to S&P/Case-Shiller. This was the fourth straight month of picking
up, boosted by seasonal factors and the residual impact of the now-discontinued home buyers’ tax credit. Nevertheless,
with both new and existing home sales turning softer following the expiry of the tax credit incentive, the improvement
in house prices is likely to slow down. Mom, house prices rose by 1.3% mom in May, the second consecutive month
of increase and compared with +0.9% in April.

The Euroland Economy

Euroland’s Money Supply Inched Up In June

◆ Euroland’s seasonally adjusted money supply, M3, inched up to +0.2% yoy in June, from -0.1% in May. This
was the first increase in six months, indicating that the underlying economic activities in the region are
improving, albeit gradually. Indeed, loans sustained its expansion and at a slightly faster pace of +0.3% yoy
in June, the fastest pace in 20 months and compared with +0.2% in May.

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