Rupee Recovery Boosts Economy

A recovery in the rupee is giving India’s Finance Minister P. Chidambaram rare relief in his battle against a threatened credit rating downgrade to junk status by reducing pressure on the government’s subsidy bill.

Still, the minister can only meet his fiscal deficit target of 4.8 percent of GDP by rolling over a substantial amount of subsidy spending into next year’s budget and by finding big savings elsewhere, two senior finance ministry officials said.

But a 10 percent rise in the rupee – which slumped to a record low late in August – means Chidambaram can at least reduce the amount of subsidy spending that gets pushed into next year’s budget to $12 billion from a previous estimate of $15 billion, these officials said.

Other budget headaches mean he will have to find about $8 billion in savings from budgeted spending plans to meet the deficit target, they said.

The sources, who have direct knowledge of the budget issues or have been briefed on them, declined to be identified because the revised budget numbers are not yet public.

“Chidambaram wants to put the house in order before the 2014 election campaign kicks off and the U.S. Federal Reserve begins cutting its monetary stimulus,” said one of the officials.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza