Freefalling Indian rupee poses opportunities for country, says IMF

Aug 30 2013, 12:19 IST
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Rupee is able to depreciate without too much drama, and this by itself should help to reduce imports and increase exports, says a former IMF chief economist. Rupee is able to depreciate without too much drama, and this by itself should help to reduce imports and increase exports, says a former IMF chief economist.
SummaryBut IMF spokesman refused to speculate on any support or program need of India from the agency.

economy growing ahead of elections in early 2014.

"So we should not expect fiscal policy to tighten. And if the Federal Reserve does indeed tighten monetary policy in the United States - currently referred to as "tapering" its purchase of bonds - that will tend to push up interest rates and is likely to attract more capital out of emerging markets," he said.

Johnson said when a country like India faces crisis, for domestic reasons but also perhaps because of what is happening in the United States, capital tends to flow out of that country and toward safe havens (like the United States).

According to The Wall Street Journal, the rupee's steep decline is fuelling inflation and posing a threat to public finances as the cost of oil, fertiliser and other critical imports in rupee terms rises.

Companies with foreign-currency debts also face mounting repayment costs.

A poll of 18 economists conducted in recent days by The Wall Street Journal found a median gross domestic product growth estimate of 4.6 per cent for the April-June quarter.

Forecasts ranged from 4 per cent to 4.9 per cent.

"Everything depends on whether the rupee stays at these levels or it bounces back," D K Joshi, chief economist at ratings and research firm Crisil, told the daily.

"If it stays at these levels, it will lead to a lot of trouble from many directions," he said.

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