Payment news, April 27

The Reserve Bank of India raises key policy rates, while the IFC and Asean associations work to promote trade.

RBI raises key policy rates

The Reserve Bank of India (RBI) made a quarter-of-a-percent increase in key policy rates on April 20. The repurchase rate rose to 5.25% and the reverse repurchase rate to 3.75% effective immediately; the cash reserve ratio rose to 6% on April 24.

The RBI attributed the rise to concerns about high inflation following India's economic recovery in the second quarter of 2009. The central bank hopes to contain inflation and sustain the recovery with the rise. "RBI may have taken a bit of a risk bet by hiking rates by only 25 basis points," wrote Credit Agricole in a report. "Even if headline inflation is likely to stabilise and then decline in coming months, sequential inflation should remain in the landscape, and not only because of food prices. However, the risk is that inflation expectations are not fully put under control. In our view [RBI's] decision opens the door to an inter-meeting hike if necessary."

Robert Prior-Wandesforde, senior Asian economist at HSBC, said that he doubts the rise will impact commercial bank lending or deposit rates. "One suspects that there is still some caution in the central bank concerning the durability of the economic recovery and the prospects for consumer spending," he said in a statement.

New trade risk participation agreement between IFC and Standard Chartered

The International Finance Corporation (IFC) and Standard Chartered bank created a new $1 billion unfunded risk participation arrangement to boost emerging market trade last week. Funded by Standard Chartered, the portfolio will be dispersed in the form of trade finance transactions from banks in emerging markets. IFC will provide credit protection and capital relief on the portfolio for more than three-and-a-half years.

"This arrangement will help boost trade finance in Asia, Africa and the Middle East, which has been sharply curtailed by the global financial crisis, and will support domestic business, job creation and private sector development," said Peter Sands, chief executive of Standard Chartered, in a statement.

IFC chief executive Lars Thunell added: "This innovative structure will significantly increase the supply of trade finance in emerging markets, and in particular the world's poorest countries where it is needed most and will have the greatest impact."

Standard Chartered and IFC have a long-established partnership financing development projects in emerging markets together. Last year, the bank was one of the first guarantors of the IFC's Global Trade Liquidity Programme, a response to 2008's credit crunch and designed to support $50 billion in emerging market trade finance.

J.P. Morgan supports PvP settlement in Indonesia

Indonesian bank customers at J.P. Morgan can now use the institution's Hong Kong cross-border payment-versus-payment (PvP) settlement system to mitigate foreign exchange settlement risk and increase operational efficiency. Established by Bank Indonesia and the Hong Kong Monetary Authority, the PvP infrastructure allows simultaneous delivery of Indonesian rupiah or US dollars to users in either country within the business day in Asia.

"Beyond the role banks normally play in payment clearing and foreign exchange settlement, we are committed to fostering innovation in the industry and are proud to be part of this initiative led by Bank Indonesia and supported by the Hong Kong Monetary Authority," said Raof Latiff, Asia head of treasury services clearing and foreign exchange at J.P. Morgan, in a statement.

J.P. Morgan has been a major provider of clearing services to the banking industry in Malaysia since it introduced PvP settlement services there in 2006.

Asean trade centre to be set up ahead of regional summit

Chua Tiam Wee, president of the SMI (Small Medium Industry) Association of Malaysia, said a new Association of Southeast Asian Nations (Asean) trade centre should be established before the group's summit later this year. The centre would provide support for small and medium-sized enterprises (SMEs) to expand in Asean markets by aiding them to reduce production costs and buy raw materials in bulk.

"The main idea in setting up the trade centre is that we hope to consolidate cargo together for all SMEs," said Ramesh Kodammal, deputy president of Kuala Lumpur and Selangor Indian Chamber of Commerce and Industry, in a statement. The Asean trade centre is expected to be set up by October this year.

MoneyGram International continues quest into China

MoneyGram International inked a deal with Bank of China to expand its money transfer services to the institution's 930 branches in Guangdong province. The deal should allow the company to reach more than 100 million customers. "Continuing our expansion with Bank of China in Guangdong province was a natural choice considering more than half of all remittances to China are collected there annually," said Nick Cunnew, MoneyGram's senior regional director for Asia-Pacific and South Asia, in a statement. MoneyGram and Bank of China will continue their partnership and expand the availability of the transfer provider's services to additional bank branches in other parts of China.

MoneyGram already offers services through Bank of China's 240 Beijing branches, a service it introduced last year. It most recently expanded its partner bank network in Indonesia through an alliance with Mutiara Bank and Sacombank in Vietnam.

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