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from MacroScope:

Brazil’s need for dollars to shrink in 2014 – but the long-term view remains bleak

Brazil's current account deficit will probably narrow this year. That may sound as a reassuring (or rather optimistic) forecast after the recent sharp sell-off in emerging markets, which prompted Turkey to raise interest rates dramatically to 12 percent from 7.75 percent in a single shot on Tuesday. But that was the outlook of three major banks - HSBC, Credit Suisse and Barclays - in separate research published earlier this week.

The gap, a measure of the extra foreign resources Brazil needs to pay for the goods and services it buys overseas, will probably shrink to 3.0-3.4 percent of GDP in 2014, from 3.7 percent last year, they said.

"Brazil’s external vulnerabilities are overstated," claims Barclays' Sebastian Brown, adding: "the central bank's FX intervention program should limit bouts of excessive BRL weakness."

So far, so good. Brazilian international reserves are huge compared to other emerging countries at about $375 billion - a decent war chest. But looking beyond the day-to-day mood swings of financial markets, Brazil's still deep current account deficit tells us a more worrying story about long-term prospects for economic growth in Latin America's largest economy.

from Global Investing:

Waiting for current account improvement in Turkey

The fall in Turkey's lira to record lows is raising jitters among foreign investors who will have lost a good deal of money on the currency side of their stock and bond investments.  They are also worrying about the response of the central bank, which has effectively ruled out large rate hikes to stabilise the currency. But can the 20 percent lira depreciation seen since May 2013 help correct the country's balance of payments gap?

Turkey's current account deficit is its Achilles heel . Without a large domestic savings pool, that deficit tends to blow out whenever growth quickens and the lira strengthens . That leaves the country highly vulnerable to a withdrawal of foreign capital. Take a look at the following graphic (click on it to enlarge) :

from Expert Zone:

Invisible hand of market at work

(Any opinions expressed here are those of the author and not of Thomson Reuters)

India's economic situation is at least grave, if not exactly in dire straits. Growth is at a decadal low, consumer inflation is persistently high, jobs have never been as scarce, the currency is volatile and the investment cycle is showing no signs of revival. Many of these problems are a result of bad policy and global economic conditions, but several are also the outcome of a natural economic cycle.

from India Insight:

Bharti Airtel, NTPC top Sensex losers this week

By Sankalp Phartiyal and Ankush Arora

The BSE Sensex recovered on Thursday and Friday after the index lost around 700 points in the first three trading sessions of the week. However, the index still ended down 0.4 percent as a weak rupee, concerns over foreign flows and uncertainty over the end of the U.S. Fed’s stimulus plan kept investors on the edge.

As a worsening current account deficit and inflation loomed large, the rupee hit fresh record lows below 65 per dollar in the week ending Aug. 23. However, gold prices and bonds rallied.

from Expert Zone:

Time to get used to a weak rupee

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The fall of the rupee has become politically embarrassing. When the rupee crossed 60 to the dollar, the government and the Reserve Bank of India (RBI) thought it was time to act. The RBI tried to suppress speculation that had exaggerated the rupee’s fall and the government sought to increase foreign resources to fund the current account deficit (CAD).

The RBI complied half-heartedly. “We let our exchange rate be largely market determined, but intervene in the market to smooth excess volatility and/or to prevent disruptions to macroeconomic stability,” Governor Duvvuri Subbarao said in a speech in London.

from MacroScope:

Not again, please! Brazil and India more vulnerable now to another crisis

After bad economic news from Germany, China and the United States over the past few weeks, here are two more. Brazil and India, two of the world's largest emerging economies, are increasingly vulnerable to another crisis or to the eventual end of the ultra-loose monetary policies in developed economies after five years of a severe global slowdown.

Weak demand for Brazil's exports and the voracious appetite of local consumers for imported goods widened the country's current account deficit to 2.93 percent of GDP in the 12 months through March, the widest gap in nearly eleven years. In dollar terms, that amounts to $67 billion.

from Deepti Govind:

Not again, please! Brazil and India more vulnerable now to another crisis

After bad economic news from Germany, China and the United States over the past few weeks, here are two more. Brazil and India, two of the world's largest emerging economies, are increasingly vulnerable to another crisis or to the eventual end of the ultra-loose monetary policies in developed economies after five years of a severe global slowdown.

Weak demand for Brazil's exports and the voracious appetite of local consumers for imported goods widened the country's current account deficit to 2.93 percent of GDP in the 12 months through March, the widest gap in nearly eleven years. In dollar terms, that amounts to $67 billion.

from Expert Zone:

India’s current account deficit: solution lies in exports

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The U.S. dollar is the major currency for international trade. Most countries use it to pay for their imports and also peg the dollar for exporting products and services.

The balance of trade (net import or export) would determine if a country is a net payer or a receiver of dollars. Trade, along with other dollar inflows (portfolio/FII, FDI, inward remittances), determines the overall availability of the international currency for a country to engage itself in the global economy. This also has a bearing on determining the exchange rate of a country’s own currency with that of the dollar.

from Expert Zone:

Investment boost needed to break India’s vicious cycle

(Any opinions expressed here are those of the author and not necessarily of Reuters)

The current account balance reported last month hammered in the fact that India is spending more than it saves. While it had been stubbornly in the red for all but a couple of years in the last two decades, reaching a record deficit in both absolute terms and in relation to the gross domestic product was sobering.

from Global Investing:

Rupiah decline – don’t worry

Indonesia has just given the go-ahead for another leg down in the rupiah. It has cut its forecasts for the exchange rate to 9,700 per dollar compared to the 9,200 level at which the central bank used to step in. The currency has duly weakened and nervous foreigners have rushed to hedge exposure -- 3-month NDFs price the rupiah at almost 10,000 to the dollar. The  rupiah last week hit a three-year low, its weakness coming on top of a dismal 2012 which saw it fall 6 percent as the current account deficit worsened. Traders in Jakarta are reporting dollar hoarding by exporters.

All that is spooking foreigners who own more than 30 percent of the domestic bond market. The currency weakness hit them hard last year as Indonesian bonds returned just 6 percent, a third of the sector's 16 percent average (see graphic).

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