Argentina: After spending more than $4.5 billion in defending the Argentine peso last year, the Argentine centralbank allowed the peso to plummet against the dollar, Wednesday and Thursday, in two brief devaluations that weakened the peso by about 11%. As of Thursday, Argentine dollar reserves were at a seven year low of $29.3 billion from the steady drop in reserves from a peak of $52.6 billion in early 2011 and have sparked concerns that Argentina might struggle to make debt payments this year and in 2015. With an energy bill of $15 billion and debt obligations of $10 billion to pay this year, the Central Bank cannot endure much more pressure.
Turkey: The Turkish currency has been falling steadily amid concerns that a bribery and corruption scandal, that involves people close to Prime Minister Erdogan, might destabilize the government. Moreover, it is expected that an intimidating and non-conciliatory tone used by Erdogan might hit foreign investments in the country. Turkey's lira fell to a new record low against the US dollar despite the central bank's intervention in foreign exchange markets to defend the currency while the bank's net forex reserves have fallen below $40 billion already. This week, the central bank decided against supporting the lira with an interest rate increase, a decision that was taken due to pressure from the government.
Thailand: Last week, the Thai baht fell close to a four year low after the Thai government declared a state of emergency in Bangkok. Attacks against anti-government have escalated and protesters are threatening to disrupt snap elections due to be held at the start of February. The Thai army has said that it is ready to intervene if the violence escalates. Investors have grown increasingly concerned over the ongoing protests and now that things have taken a darker twist many foreign investors have opted to withdraw from the country.
How does India stand within this crisis?
As of week ending January 17th, the India forex reserves were $292.08 billion compared to three year low of $275.491 billion to the week ending August 30th. Crude oil being the largest import component required $144 billion last year and this fiscal from April to August the crude oil import bill was $60.193 billion. It has been estimated that this fiscal the crude oil imports would rise to 196 million tonnes from 185 million tonnes last fiscal.
Further, the restrictions on Gold imports, the erstwhile second biggest import bill for India, are unlikely to be lifted soon.
As of end September, India’s external debt stood at $400.3 billion with Long Term debt - which include Multilateral and Bilateral borrowings, IMF, Export Credits, Commercial Borrowings, NRI deposits – constituting 76.3 percent of total external debt. Commercial Borrowings (32.7 percent) and NRI deposits (17.7 percent) comprise the bulk of India’s external debt.
Lately, FII inflows into the debt market are coming back on account of stability observed in foreign exchange and interest rates. As of 24th January, FIIs have had net investments of $3.03 billion in debt compared to $563 million in equities this calendar year. Last year, FIIs had pulled out net $8 billion from the bond market and infused $20.10 billion in equities. The pull-out from debt was accelerated after the signal of tapering in U.S. followed with a crash in the currency market leading to rupee touching an all-time low of Rs68.85 to dollar. Rupee closed at two month low on Friday at Rs62.69 to dollar.
A sword in terms of sovereign rating of India by global rating agencies is hanging over the head as the global rating agencies are waiting for the outcome of parliamentary elections due in May ’14 to announce their verdict based on the ability of the new government formation to pursue reforms and decrease fiscal gaps.
To sum it up, for Indian currency, rupee, the situation definitely is tense but not as bad as it was some four – five months back for India and the same scenario of rapid and accelerated capital flight due to aversion of emergingcurrencies may not impact India as much as it did in past August – September ’13.
Turkey: The Turkish currency has been falling steadily amid concerns that a bribery and corruption scandal, that involves people close to Prime Minister Erdogan, might destabilize the government. Moreover, it is expected that an intimidating and non-conciliatory tone used by Erdogan might hit foreign investments in the country. Turkey's lira fell to a new record low against the US dollar despite the central bank's intervention in foreign exchange markets to defend the currency while the bank's net forex reserves have fallen below $40 billion already. This week, the central bank decided against supporting the lira with an interest rate increase, a decision that was taken due to pressure from the government.
Thailand: Last week, the Thai baht fell close to a four year low after the Thai government declared a state of emergency in Bangkok. Attacks against anti-government have escalated and protesters are threatening to disrupt snap elections due to be held at the start of February. The Thai army has said that it is ready to intervene if the violence escalates. Investors have grown increasingly concerned over the ongoing protests and now that things have taken a darker twist many foreign investors have opted to withdraw from the country.
How does India stand within this crisis?
As of week ending January 17th, the India forex reserves were $292.08 billion compared to three year low of $275.491 billion to the week ending August 30th. Crude oil being the largest import component required $144 billion last year and this fiscal from April to August the crude oil import bill was $60.193 billion. It has been estimated that this fiscal the crude oil imports would rise to 196 million tonnes from 185 million tonnes last fiscal.
Further, the restrictions on Gold imports, the erstwhile second biggest import bill for India, are unlikely to be lifted soon.
As of end September, India’s external debt stood at $400.3 billion with Long Term debt - which include Multilateral and Bilateral borrowings, IMF, Export Credits, Commercial Borrowings, NRI deposits – constituting 76.3 percent of total external debt. Commercial Borrowings (32.7 percent) and NRI deposits (17.7 percent) comprise the bulk of India’s external debt.
Lately, FII inflows into the debt market are coming back on account of stability observed in foreign exchange and interest rates. As of 24th January, FIIs have had net investments of $3.03 billion in debt compared to $563 million in equities this calendar year. Last year, FIIs had pulled out net $8 billion from the bond market and infused $20.10 billion in equities. The pull-out from debt was accelerated after the signal of tapering in U.S. followed with a crash in the currency market leading to rupee touching an all-time low of Rs68.85 to dollar. Rupee closed at two month low on Friday at Rs62.69 to dollar.
A sword in terms of sovereign rating of India by global rating agencies is hanging over the head as the global rating agencies are waiting for the outcome of parliamentary elections due in May ’14 to announce their verdict based on the ability of the new government formation to pursue reforms and decrease fiscal gaps.
To sum it up, for Indian currency, rupee, the situation definitely is tense but not as bad as it was some four – five months back for India and the same scenario of rapid and accelerated capital flight due to aversion of emergingcurrencies may not impact India as much as it did in past August – September ’13.
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