This week saw the Indian Rupee print a new record low against the ‘mighty’ dollar. Currently, India is facing a perfect storm of negative factors. And, in the eye of this storm the Indian Prime Minister, Dr. Singh, has come out swinging in favor of his beleaguered currency, stating that recent government steps is helping to stabilize the economy and by default expects the currency to recover.
India’s beaten-down currency has been battling and has not yet given up the fight. On Thursday, it happened to stage it’s biggest one-day gain in 15-years on central bank intervention. The currency continues to pare its recent losses and is trading sub-67.00 to the dollar as we close out the week.
With policy measures in the realm of “no good options” there remains a market risk that INR could trade back and through the psychological 70 levels. The Emerging Market crisis is affecting countries with “poor” fundamentals and India with its large current account deficit and high inflation is at the top of EM flight of capital list.
It seems that India’s biggest problem is the confused response from policy makers and only a year ahead of a general election. Prime Minister Singh’s comments overnight are helping INR. He points out that the government is taking all the necessary steps to achieve a financial year fiscal deficit of +4.8% of GDP and that the central bank will continue to focus on inflation. The government is not expecting any capital controls to be implemented and expects October-March growth to pick up. Will they be able to follow through? Maybe more record dollar highs are required to get a more forceful response?
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