Between my writing the earlier blog and now there has been a
bloodbath in Dalal Street(it has tanked more than 800 Points). The restrictions on the limit of capital transfer
(remittance to foreign entities from India ) has increased the fears of more
restrictions and has backfired (as of now). The action taken restricts
residents and companies fear larger restrictions is on the anvil as told by Finance minister that he has many instruments to control the value of rupee. This has
created a fear among foreign investors and they are fleeing with their Dollars.
Here comes the question we raised while saying the currency has stabilized
against the Dollar. Does RBI have the resources to counter a falling Rupee? The
answer seems to be NO. The RBI would be better off making the rupee find its
own value rather than artificially prop it up.
The NRIs who are the hope for Indian government have also
withdrawn net 1.1 Billion Dollars in the last two months. The Rupee has hit 62 against
the Dollar today and could still go down further.
I guess it is beyond redemption (at least for now) and the RBI has to learn its
lessons. Are we in 1991-92 mode or are we on ASEAN late 90s mode? The answer
will come to light in a week or two. Either way it is not picture perfect for
Mr.P.Chidambaram or Mr.Manmohan Singh.
Nice blog there! As for the weakening Rupee, I like to attribute it to the strengthening $ more than anything else. Yes, we do seem have to repay some 175 billion USD by April next but the war costs for the west have reduced and they might just be tired of this recession thing ;)
ReplyDeleteAs for the interest rates, no matter how high a return the nationalised banks out here offer for their deposits, it cannot match the 25-30% loss in the INR value every year. Rs.100/- deposited in a local bank would mature to only Rs.110/- next year while one would actually need Rs.125/- to purchase the same $ as he would have been able to purchase a year earlier. Being an exporter is therefore a consolation that my product is at par with the international value of money.