Category: Currencies
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India’s reserves falling drastically
(Hattip Mint)
No wonder the Indian Rupee is getting crushed
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What was that again?
Over the last two years, India has been inflating at roughly 10% per annum. The dollar has been inflating at roughly 2% per annum. So, it is only natural that the exchange rate will depreciate; the nominal exchange rate which is correcting from the fact that the rupee has been losing value faster than the dollar. By my own calculation compared to two years ago to now, say two years ago Rs 44-45 now I would have expected it to be between Rs 51-54, roughly in that range-Kaushik Basu, Chief Economic Advisor to GoI said in an interview
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Whats next for the Rupee?
In an earlier post way back in April, I had mentioned that the odds were very high for the rupee weakening.
Now that the Rupee has crashed to an all time low of around 55 Rs/$, whats next for the Rupee?
There are two distinct factors on the horizon which bode ill for the Rupee.
The first factor is that almost half of Indian reserves could vanish in the next one year.
The second factor is that FII inflows to date in Indian equities are still net positive.If they were to start selling like they did in 2008 because of geopolitical and other reasons, then the impact on the equity and currency markets would be dramatic
We are indeed living in interesting times !