Mumbai got a big lift last week that is being attributed to rate cut hopes. Central bank policy is in the picture, but it is not the full story.
Declining economic growth was the big story for India for 2011; and the impact on its banking sector will dominate the headlines in the new year. As detailed in numerous articles on www.emergingmoney.com, sector after sector is India is declining, from airlines to auto to real estate. Efforts to bring in foreign investors to reinvigorate the economy were thwarted due to politics.
India’s farmers are doing everything they can to curtail their use of potash and other fertilizers, but reports that consumption of these key soil additives is “tumbling” may be significantly exaggerated.
The Indian rupee plunged to an all-time low of 52.73 versus the U.S. dollar today, the weakest since Asia’s third-biggest economy became independent in 1947. The previous record was 52.195 set on March 3, 2009.
The rupee has been in a tug of war between the demand for the U.S. dollar and India’s fight on inflation.
Emerging market currencies, which rose with the flowers of spring and the warmth of early summer, have seen their gains disappear in the trades of August and September.
Inflation in Asia in particular and simple fundamentals will probably force most emerging markets to let their currencies get stronger over the next three to five years, according to the gurus at PIMCO, the world’s largest bond fund.
Wholesale prices in India rose a relatively sedate 7.48% on an annualized basis in November, giving the central bankers in Delhi a chance to pause as they tighten interest rates.
Indian wholesale inflation is down to a relatively sedate 8.58% annualized rate, which is giving Delhi room to keep local interest rates unchanged