When the world’s biggest exporter -China has devalued its currency to stimulate export and growth, there is little option for other EMEs. They also have to produce devalued currencies to remain competitive in the international market. At the same time, the EMEs have to evade any potential currency crisis. Declining exports and evading foreign investors may make currencies double weaker. Already, fall in commodity prices are causing currencies of many EMEs, especially that of Brazil and Turkey weaker. Thus, policy makers in EMEs have to carefully balance measures to make currencies competitive at the same time by avoiding currency crisis. For India, it is difficult for
Chinese equity market continued to fall today despite the rate cut stimulus package extended by the People’s Bank of China yesterday. Leading index, the Shanghai Composite Index (SCI) fell by 1.3 %, which is a smaller dip compared to near double digit fall registered on the previous day. For the first time in this year, the SCI fell below 3000 mark and closed at 2927. Yesterday, the PBOC (People’s Bank of China) has cut its policy rate by 25 bps and the reserve ratio by 50 basis points. The continuing decline in stock prices indicates that the market is in an auto correction mode in the context of falling GDP growth. Stock prices that doubled in the last one year are
The People’s Bank of China has made a decisive cut in interest rate to arrest the free fall in the equity market. Central bank’s move came after the Shanghai Composite Index recorded third day steep fall with stock prices coming down by 7.5% today. For the last three days, the SCI has lost 20.5%. Always there is inverse relationship between stock prices and market rate of interest. Cutting the interest rate will make equities more attractive. This is what the PCB aims in its indirect way to support the market. It is expected that interest rate cut will make bank loans cheaper and will provided adequate liquidity in the stock market. The rate cut may encourage inv
The biggest crisis after 2008 has reached. From Japan to US, financial markets and commodity prices have crashed down by the latest turn of faults in Chinese economy. Leading the scoop in stock markets, the Chinese Shanghai Composite Index has fallen by 8.5%; its biggest fall since 2007. Stock markets in Europe, US and Asia- all have recorded value collapse in response to the negative news from China. Over the last one month, the Chinese economy was showing symptoms of crack. Stock market value has come down by nearly five percent on many trading days. Worst is that every official attempt to arrest the market fall had failed. Financial markets are reading that China ca
In a reward maximizing move, China has made its official exchange rate equal to that of the market exchange rate. The result of aligning the two exchange rates was that the Yuan has undergone devaluation of around three and a half percent over three days. Of course there are two interpretations for the Yuan devaluation- one by China and the other by the rest of the world. The financial world has assessed Beijing’s move as a devaluation effort to make export gains. Many analysts have described the step as currency war. Devaluating domestic currency increases exports at the same time decreasing imports. Obviously, the Chinese economy is undergoing a tough and unprecedent
China has to wait for one more year to include the Renminbi under the IMF’s SDR basket. A decision on this has been taken by the IMF on Tuesday, indicating that the Fund will introduce any change only by September 2016. The SDR (Special Drawing Rights) is the reserve asset of the IMF and its value depends upon a basket comprised of the four important global currencies- the US Dollar, the Euro, British Pound Sterling and the Japanese Yen. China has been insisting on every global front that the IMF should reform the currency basket by including its currency – the Renminbi. Inclusion of Renminbi is an indicator of the rising status of the Chinese economy and a big
End of sanctions and slow reentry of Iran into the world economy is a big event for Iran as well as for the world economy. Iran is the 17th largest populated country in the world with nearly 77 million people and is bigger than UK and France. Population size shows that Iran is bigger than South Africa, the latest entrant into the BRICS group. It is expected that besides Iran, the major beneficiaries of the removal of sanctions are India and China. For these big neighbors of Iran, it provides opportunity to get cheaper oil compared to other sources. For Iran, sanctions have produced unstable growth, high inflation, international banking restrictions and hard curr
European Union has agreed to extend a third bailout package to Greece after night long negotiations. The terms of the bailout is not immediately known. But indications are that Athens has to introduce more stringent measures to avail an immediate funding of nearly 35 billion Euros. Media reports shows that Greece has to place its government owned assets in a separate trust to meet the emergency debt payment in future. This was a demand that met resistance from Greece in previous negotiations. Germany, the super power of the currency union has demanded the measure to ensure that Greek bailout will not result in economic injury to the Euro zone. Both sides- the creditor and debt
EU’s two poles of power – Germany and France are divided on the nature of commitment that should be made by Greece to get immediate bailout money and thus preventing Greek exit from Euro. A traditional hardliner and financial discipline advocate; Germany has demanded that has Greece has to make some immediate legislative reform measures legally to get the emergency aid. France on the other has observed that the existing commitment by Greece is enough. Paris is known for socialist version of crisis management and a different French voice has encouraged conflicting opinion among other members. Differences in the EU means that fresh crisis in the bailout talks now h
The BRICS declaration at the Ufa summit has warned that the global economy is going through a difficult and instability phase. It also gives more ideas about the newly launched New Development Bank (NDB). As per the declaration, the NDB will closely associate with another Brettonwoods alternative set up- the AIIB. Global economy is in instability The declaration signed by the five counties that hold nearly 40 percent of world’s population and one third of the world GDP has cautioned fragile recovery of global growth and the group is “concerned about potential spillover effects from the unconventional monetary policies of the advanced economies”. The US Fed
Dictionary on Indian Economy
- Logic of withdrawing Rs 1000 and Rs 500 notes
- Why the GST reform is transformational?
- Raghuram Rajan: The Gladiator returns to Chicago
- Good intention but poor thinking - what troubles demonetization?
- India Black Money Report: CBI underestimates black money at Rs 25 lakh crore
- High interest rate rather than inflation is the macroeconomic problem for India right now
- Japan’s first trade deficit in 30 years is part of the Global Shift
- Arvind Subramanian rocks with 'Chakravyuha' in Economic Survey
- Why we need an emergency monetization plan as well?
- NREGS: give respect to the tax payer’s money