Indian Rupee Rallies by 136 Paisa

[eastwatch]

Rupee rallies to above 67/dollar, pares gains - The Economic Times

Rupee rallies to above 67/dollar, pares gains
By ECONOMICTIMES.COM | 29 Aug, 2013, 10.55AM IST0 comments |Post a Comment

The partially convertible rupee was trading at 67.49 per dollar at 10:42 am, against its previous close of 68.80/81 on Wednesday, when it hit a record low of 68.85.
The partially convertible rupee was trading at 67.49 per dollar at 10:42 am, against its previous close of 68.80/81 on Wednesday, when it hit a record low of 68.85.
The rupee is quite undervalued: Mark Mobius

MUMBAI: The rupee pared gains after rallying sharply to sub 67 per dollar levels on Thursday after the Reserve Bank of India said it would supply dollars to oil companies through a separate window in its latest attempt to shore up the currency.

The partially convertible rupee was trading at 67.49 per dollar at 10:42 am, against its previous close of 68.80/81 on Wednesday, when it hit a record low of 68.85.

The Indian rupee has been one of the world's worst performing currencies this year, leading slides among emerging Asian currencies with Southeast Asian units at multi-year lows.

Amid reversal of FII flows a trend seen in other Asian and emerging market economies - Indian economy in particular faces twin deficit concerns. Foreign investors have pulled money out of the country amid fears over uncertain policy structure, deteriorating economic conditions in the country, twin deficit concerns and expectations of winding down of US monetary stimulus, which are putting negative pressure on the domestic unit.

Foreigners have pulled out more than $12 billion since end-May on fears of the US Fed Reserve tapering its $85 billion-a-month bond purchases that had boosted emerging markets.

The global investment bank outlines three 'dysfunctional dynamics' which could impact the rupee in near term. Higher commodity and crude prices, fiscal concerns and policy vacuum are some factors which are likely to impact the movement of currency.

Meanwhile, the Sensex rallied over 200 points and the Nifty over 1%.

At 10:40 a.m.; the 50-share index was at 5,343.65, up 58.65 points or 1.11 per cent. It touched a high of 5,348.85 and a low of 5,305.65 in early trade.

The S&P BSE Sensex was at 18,215.17, up 219.02 points or 1.22 per cent. It touched a high of 18,217.22 and a low of 18,071.22 in trade today.
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Cheer up Indian posters. Rupee will certainly go further up, hopefully.

 

[Splurgenxs]

Rupee rallies to above 67/dollar, pares gains - The Economic Times

Cheer up Indian posters. Rupee will certainly go further up, hopefully.

the inr is in the 66 zone now.
& ty for ur sensibilities but the situation we are facing now is nothing new to us ,
the frustration is mostly political as we expect nothing but **** decision making in the current future. Such comebacks are inconsequential, the bigger problem lies in the deficit. Until that gets sorted out a neutral indifference is what i can manage.

 

[eastwatch]

Another Asian financial crisis to hit in next 12-18 months, there's no way FM can stop it now - The Economic Times

Another Asian financial crisis to hit in next 12-18 months, there's no way FM can stop it now
By Swaminathan S Anklesaria Aiyar, ET Bureau | 29 Aug, 2013, 06.30AM IST77

FM P Chidambaram wants people to invest, but the coming recession will induce every corporate to postpone investment.

Make no mistake, a second Asian Financial Crisis is on its way. This storm will not blow over soon. It originated in the US, when the Fed proposed to taper and end quantitative easing.

The frightening thing is that this will happen in stages over the next 12-18 months, and each turn of the liquidity screw can cause a fresh financial storm. Nothing Chidambaram or Raghuram Rajan says can avert the storm.

Learning from the 1997-99 experience, all Asian countries (including India) have built up large forex reserves, reduced leverage compared with 1997, and shifted to floating exchange rates. This makes them far more resilient, so they should not collapse as in 1997-99. But they will suffer severe damage regardless.

Depreciation raises the price of all items that can be exported or imported. Estimates differ, but a 10% depreciation probably sucks out 1-1.2% of purchasing power through inflation.

At Rs 68 to the dollar, currency depreciation is around 25% since May, implying a loss of purchasing power of 2.5-3% of GDP. That is hugely recessionary. It will be reflected in much higher prices of petroleum products, fertilisers, most commodities, and knock-on transport and material costs.

Chidambaram wants people to invest, but the coming recession will induce every corporate to postpone investment. A falling rupee keeps making Indian assets cheaper in dollar terms, so foreigners thinking India has good long-run prospects will wait till the Fed's storm ends.

The fall in purchasing power created by a falling rupee cannot be offset by a huge fiscal and monetary stimulus, as in 2008.

Storm will Continue

Chidambaram has sworn to hold fiscal deficit at 4.8% of GDP. With slowing revenues and rising subsidies, only slashing Plan spending can check fiscal deficit.

Money must be kept tight to check inflation. So, the crashing rupee will generate pro-recessionary fiscal and monetary forces. This in turn means corporate earnings will crash, a good reason to dump shares.

Corporates with large unhedged dollar borrowings will suffer huge balancesheet losses, jeopardising banks that have financed them. International rating agencies will have good reasons to downgrade India, worsening the climate further.

Rohini Malkani of the finance minstry wrote in this newspaper on Tuesday that using a model based on relative inflation with trading partners, India's equilibrium exchange rate should be the July level of Rs 58-60 to the dollar.

Many experts say the rupee has overshot and will come back. Really? Remember the same thing was said about the Indonesian rupiah when it depreciated from 2,500 to 3,000 to the dollar in 1997, but it eventually went all the way to 18,000.

Estimates based on fundamentals quickly become meaningless because a crisis changes fundamentals hugely. The crashing rupee has already changed the economy's fundamentals. Do not think that the rupee has just temporarily overshot, and will revert soon to Rs 60 per dollar. The storm is going to continue well into 2014.