Expert Zone
Straight from the Specialists
Will the rupee fall further?
(Any opinions expressed here are those of the author and not of Thomson Reuters)
On May 31, the rupee fell to an 11-month low of 56.51 to the dollar. It wasn’t the only currency to suffer a loss. Most currencies depreciated during the month; some more than the others.
The appreciation of the dollar reflects an improvement in the performance of the U.S. economy and partly the related possibility of the phasing out of quantitative easing (QE) by the U.S. Federal Reserve. The latter would make the dollar even scarcer.
The rupee and the yen lost the most. The behaviour of these currencies in May was rather unusual and trends are different if seen over a longer period. In the past year, for instance, the yen fell 27 percent because of its planned weakening by the Shinzo Abe government to boost an economy bordering on recession. But a number of other currencies in emerging market economies such as South Korea, Thailand or Malaysia appreciated largely because of hot money inflows from quantitative easing. Some of these countries have or are likely to adopt capital controls. Brazil’s finance minister called it the ‘currency war’.
India has a different story to tell. The rupee has been weakening because of internal depreciation caused by high-paced inflation. From 45 to the dollar, it lost 25 percent in about 25 months.
The threat of a junk rating
(Any opinions expressed here are those of the author and not of Thomson Reuters)
Credit ratings by agencies are never very objective and their long-term outlook is also seldom accurate. Sovereign ratings, in particular those which are not solicited, are generally unreliable and often biased. But rating agencies do draw attention to critical issues that should not be ignored.
Standard & Poor’s announced on Friday that it had maintained India’s rating at BBB- with a long-term negative outlook. This assessment is based on three major considerations. The budget deficit, government debt and the current account deficit (CAD) are too high.
The resurrection of Congress
(This piece comes from Project Syndicate. The opinions expressed are the author’s own)
The overwhelming victory of the Indian National Congress in elections in the important southern state of Karnataka in early May has shaken up the country’s political scene. India’s troubled ruling party had appeared headed downhill in the build-up to the next general elections, which must be held by May 2014. Now, following its huge win in Karnataka, all bets are off.
India Market Weekahead – Inflation, FII inflows to be key
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The bulls are back and their four-week winning streak saw the Nifty close at a 29-month high of 6107 on Friday, up about 2.75 percent for the week. Liquidity flows remain robust, fuelling the momentum despite political heat in New Delhi.
The Congress win in Karnataka boosted positive sentiment, followed by industrial output data that was marginally better than expectations. The overall earnings season has been favourable and along with the global rally provided the right environment for the markets to cross the psychological barrier of 6100 in the Nifty and 20000 on the Sensex. The only thing missing is euphoria on the street and broader participation by investors.
The uncertainty principle and the India-Pakistan relationship
(Any opinions expressed here are those of the author and not of Thomson Reuters, the IDSA or the Indian government)
“The more precisely the position is determined, the less precisely the momentum is known in this instant, and vice versa,” said Werner Heisenberg in his 1927 paper on subatomic particle behaviour in quantum physics. While the context could be continents apart, this uncertainty principle perhaps best describes the trajectory of India-Pakistan ties.
Decoding Subbarao’s signals
(Any opinions expressed here are those of the author and not of Thomson Reuters)
When Reserve Bank of India (RBI) governor Duvvuri Subbarao announced last week that the central bank was cutting its policy interest rate for the third time this year, he also made a statement that may well have been directed as much to watchers of the Indian economy as to its managers. His message to the government, originally coded in technocratic diplomacy: It’s time for you to do your share in reviving growth.
Financial markets had widely anticipated the RBI would cut its repo rate by 25 basis points (bps). However, they also expected its policy guidance to adopt a less hawkish tone than in the two prior cuts. After all, inflation had continued to ease and the economy still needs all the support it can get to come back on the growth path. Instead, Subbarao was categorical in saying that the “growth-inflation dynamic yields little space for further monetary easing.”
Why is RBI chief Subbarao so cynical?
(Any opinions expressed here are those of the author and not of Thomson Reuters)
In its policy review on May 3, the Reserve Bank of India (RBI) did bring down the repo rate by 25 basis points but it also presented a gloomy outlook on growth and inflation which left the stock markets cold. The Sensex, which had surged in anticipation, fell 160 points. What makes the RBI so negative when even rating agencies are inclined to accept the emergence of green shoots?
RBI Governor Duvvuri Subbarao has himself spelled out the risks. “Upside risks are still significant in view of sectoral demand supply imbalances, the ongoing correction in administered prices and pressures stemming from increases in minimum support prices,” he said. Is Subbarao’s risk assessment genuine or has it been exaggerated to put the government under pressure?
Why India slowed
This piece comes from Project Syndicate. The opinions expressed are the author’s own
For a country as poor as India, growth should be what Americans call a “no-brainer.” It is largely a matter of providing public goods: decent governance, security of life and property, and basic infrastructure like roads, bridges, ports, and power plants, as well as access to education and basic health care.
Need to bring repo rate in line with inflation
(Any opinions expressed here are those of the author and not of Thomson Reuters)
For nearly three years now, the Reserve Bank of India (RBI) monetary policy has had a single target. The presumption is that only when inflation is below the tolerance limit can the interest rate be made normal.
The last time the repo rate was reduced was on March 19 when it was cut by 0.25 percent, a change understandably ignored by commercial banks and other financial institutions. With the repo rate at 7.5 percent and inflation down to 5.9 percent, the market expects the RBI to cut the repo rate further at its next policy review on May 3.
Markets Weekahead: Not the right time to buy
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The markets continued their winning streak in the past week, with the Nifty gaining another 1.52 percent to close at 5871 on Friday.
The yen impact helped Maruti surprise even the most optimistic earnings estimates and its stocks jumped 5 percent to close at a lifetime high of 1673 rupees. The company seems richly valued and does not take into account the slowdown which we may encounter over the next few months.
