Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Charts & Analysis

Chart: Dollar Down to August Lows Since Rajan

A quick post on the short term move of the dollar. We are down to just below 62, which is about 10% lower than the recent high, now at levels we last saw in early August.

image

Rajan has had his impact. Yet, will that continue? He’s raised the repo rate, brought down the MSF rate, massively increased FCNR borrowing, reduced the swap rate for banks for forex borrowing by them, and removed the 0% EMI (the last one has very little to do with the dollar).

In addition, SEBI has made it SLIGHTLY easier for FIIs to operate, with a single registration for investments, and the ability to buy debt as long as limits are available.

While this is a good reprieve, there are serious headwinds. India is seeing high inflation, and rates are likely to remain high despite these recent quasi cuts by the RBI. Our imports still are much higher than exports, and we’re not really cutting crude imports (our biggest). Maybe some gold, but that’s temporary, and gold will be smuggled in anyhow. The economy is slowing and we are in a housing slowdown of the scale we haven’t seen before.

We still depend on fund flows. As long as money keeps coming, we’re fine; but this tap is likely to slow down very quickly, as we’ve seen earlier this year.

  • mangoman2012 says:

    Love to see the housing slow down data.
    Is there any data? atleast can we get data from registrations?
    RTI of registrations between 2011,2012 and 2013 will do atleast

  • Paul says:

    Why is it that no one is smuggling in Petrol and Diesel? Isn’t it easy and less risky to do it through fishing trawlers? Or is it happening already? 🙂

    • If you smuggled in say 1,000 liters in a fishing trawler, you might earn say Rs. 10-20 per liter. That’s less than the cost of travel 🙂 Oh and diesel is subsidized in India, so you won’t even get a premium.
      Gold, meanwhile, even a single KG, can give you a neat Rs. 3 lakh in profit. Now that is a call for smuggling!

  • Leo says:

    The problem is with emerging market debt bubble….the minute there is a heavy dumping of bonds…which is coming 3%+ US rates all rates in the world will adjust to that…It will be the time when all equity bears will come out to hunt every large cap into small cap.
    The debt crisis is not about stocks. it is about debt .The creditor and debtor both will be helpless.The currencies are reflecting this DEBT Problem and not some equity flows.Plus this FCNR thing is one more leverage instrument.short term it is great long term really a problem.The mint they know the delevraging will be fast the deposits will put more pressure on the currency.Dont we break our deposits when we make some losses or have to spend or pay our bills.
    And we have yellen coming in again she is clueless only knows how to print.So i believe 3 3.2% breaks out all the bond markets in the world will have earthquake like situation.Till then we need to relax .