The INR though (and thus the Nu) are the hardest hit among
the currencies
Depreciation: The recent scaling back of the
United State’s quantitative easing program is hurting not only India but rest
of the emerging markets in south and south east Asia.
Currencies of almost all the Asian nations have
depreciated since the program was put in place this year mid.
India’s rupee has however seen the worst decline compared
to other nations. It closed at 66 a dollar yesterday.
Depreciation of other currencies ranged between 13 to 20
percent.
This recent development is costing the economies in the
region, as imports are becoming more expensive. In some countries, the
depreciation is being felt for the first time since 2010.
A leading newspaper in Bangkok, The Nation, reported the
Baht weakened to 32 a dollar for the first time since 2010. Exporters in
Thailand, however, welcome the currency’s fall, as the prices of their products
have now increased with the dollar gaining against their currency.
Some experts in the region pointed out that these
developments might lead to a repeat of the 1997 Asian crisis. Predictions
by some international experts say that the next global financial crisis will
have its roots in the emerging markets of Asia.
The outflow of capital because of the federal reserve
rewinding on its quantitative easing has also led to falling of stock prices in
the region, which is again putting pressure on their exchange rates.
When stock prices fall, the performance of companies in
the region also drops, which will eventually lead to less money creation in the
economy and lower gross domestic growth.
However, hopes among the region’s economy are that the
federal reserve might stop the scaling back of quantitative easing, which will
arrest their currencies fall.
The risk, however, is that economies are entering into a
deficit in their current accounts, because of the currencies fall and fall in
stock prices. Should this continue, foreign investors might not be too
keen to pump in money in the region.
These have pushed several nations to start packaging new
economic stimulus plans to bridge their current account deficit.
Indonesia recently is also planning to put in place tax breaks for companies to
focus on attracting investments from outside.
“A lot of capital flew out of Indonesia in the last few
days,” one of its media reported.
Nepalese rupee also plunged along with the Indian rupee as
the two currencies are also pegged, at 1.6 Nepalese rupee for 1 Indian rupee.
This development in Nepal is laying heavily on its trade
balance. A media report from Nepal stated that Nepal was predominantly an
import driven economy and that rupee’s depreciation is making a huge impact on
the economy. As more money is spent for purchasing the dollar, goods
imported from countries other than India has become expensive.
In Bangladesh, although the taka has also depreciated, it
has not depreciated to the extent the Indian rupee has.
However, this also is not working towards Bangladesh’s
advantage. With Bangladesh and India competing in the same market, Indian
exporters, in a bid to gain as much as they can from the rising dollar, are
exporting in huge quantities. On the other hand, imports for Bangladesh
has become expensive.
A Bangladesh media reported that the country has already
ceded much ground in the export of garments.
The hardest hit, however, has been the Indian rupee and
the Bhutanese Ngultrum, since the two currencies are pegged at par.
The reason, according to some experts as to why the rupee
has depreciated more than any currency in the region, was because of its own
fundamental reasons. India was importing huge quantities of gold and
electronic items from abroad, putting pressure on its current account deficit.
India’s current account deficit was recorded at around 4.2
percent. This is relatively huge compared to its GDP size of 1.8 trillion
USD.
Recently, in a move to arrest the rupee’s fall, the Indian
government put quantitative restrictions on import of gold and electronics.
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