Author Archive

Rupee Story Unfolds Further

The rupee story continues to unfold much as anticipated but the unprecedented depths being plumbed (and perhaps the speed) are causing considerable alarm. Fortunately, despite the sharpest drop in the rupee’s value in the last two decades, it is fair to say that the authorities, while increasingly anxious, have not panicked yet. However, poor communication, seeming disarray within government and apparent reversals in monetary policy direction do not inspire confidence that is necessary to calm the markets. more

Global Economic Signals and Noise – 2013

Outlook Overview – Back to the Future: Economic developments around the world over the past two months have confirmed the short-term prognoses and directional changes spotted by earlier this year. Baldly stated in the most simple terms, economic recovery has firmed up in the advanced economies, (notably the US and Japan) improving their growth prospects while the slowdown in emerging markets is being compounded by pullback of external capital. The latter is caused both by the prospects of “tapering” of global easy money as well as reappraisal (and repricing of risk) of fundamentals, especially structural weaknesses and external vulnerabilities. Going forward, the engine for generating growth momentum for the global economy over the coming year is once again the United States, much as the proverbial American consumer kept the global economy afloat in previous periods of stress. Back to the future, it is! more

Indian Economy – Prelude to Rupee Panic

The Indian Economyremains moribund with few signs of a growth turnaround. Forecasts for GDP growth over the next two years continue to be revised down while financial markets exhibit choppy behaviour. There has been some stabilization of inflation expectations (still high) but these will be hit by pass-through of the exchange rate likely to hover around Rs.60/$ near term. Neither this level nor the sharp correction recently should be surprising. Nonetheless, the fuller implications, including the dangers of a vicious cycle are not widely appreciated.  Beyond constraining the room for monetary policy (e.g. rate cut that business lobbies clamour for), the external debt of Indian firms is an increasing investor concern who are also concerned with dropping rates of return. The government’s fixation on attracting foreign capital may be tilting at windmills at this juncture; worse, agnosticism as regards type of inflows may add to our vulnerability to external shocks. Structural reforms confront a similar reality, either failing to gain traction, impact being attenuated due to exchange rate movements (e.g. fuel prices), or manifesting as expedient measures that lead to perverse incentives and bigger problems in the future. more

Outlook Overview – An Inverted World

The selloff that has rattled global financial markets in June was ironically caused by an omen that would normally be considered good for the global economy. The trigger was commentary by U.S. Federal Reserve Chairman, Ben Bernanke reiterating that the monetary stimulus through asset purchases, popularly known as QE3 would “taper down” as improving economic conditions were taking hold. Market (over-)reaction was also encouraged by the credit squeeze and concerns related to financial stability in China amid the continuing slowdown in major emerging markets. Nevertheless, the gyrations in bond markets are unlikely to derail economic recovery in the advanced economies, because slight downward revisions in near-term GDP growth estimates and forecasts notwithstanding, the engines for aggregate economic re-acceleration in the major markets of the IT/ITeS industry are gathering increasing steam. more