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The Latest Currency War Entrant: India Warns May Retaliate To Chinese Devaluation
When China moved to devalue the yuan earlier this month, it was seen by virtually everyone for exactly what it was: a tacit admission that the country’s economy was in freefall and a desperate attempt to boost exports stinging from REER appreciation of more than 14% in just a little over twelve months.
Of course coming out and accusing China of entering the global currency wars for the sole purpose of supporting the export-driven economy isn’t something that’s politically correct and if you’re China, you want to deflect that criticism so naturally, there was plenty of polite talk about the need to allow the yuan to move in a more market determined way and that rhetoric squares nicely with China’s SDR inclusion hopes.
Ultimately though, trade competitiveness is now front and center in everyone’s minds, especially Asia ex-Japan nations who will now see their respective REERs appreciate even as the weaker yuan means demand from the mainland will be suppressed.
And while we’ve talked plenty about the impact on Asia-Pac and LatAm (especially Brazil, where the trade ministry immediately acknowledged the adverse effect of the yuan deval), we haven’t yet mentioned India where yesterday, in the midst of the turmoil, Central bank governor Raghuram Rajan sought to calm nervous markets by reassuring the world that India is not, for now anyway, in any danger thanks to ample FX reserves and a low CA. Here’s more from Reuters:
Central bank governor Raghuram Rajan told a banking conference Asia's third-largest economy was in a good position relative to other countries to withstand the current global markets volatility.
"India is better placed compared to other countries with low current account deficit, and fiscal deficit discipline, moderate inflation, low short-term foreign currency liabilities, very sizeable base of forex reserves," he said.
"We will have no hesitation in using our reserves when appropriate to reduce volatility in the rupee."
The rupee fell to as low as 66.74 per dollar on Monday, its lowest since September 2013, as Asian markets reeled under fears of a China-led global economic slowdown.
The 30-share Sensex dropped 5.94 percent, its biggest daily percentage fall since Jan. 7, 2009. The index fell to as low as 25,624.72 points at one point, its lowest intraday level since Aug. 11, 2014.
Amusingly, Rajan also pledged to stick to a disciplined monetary policy noting that "rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading."
Be that as it may, economic realities are economic realities and a currency war is a currency war, which is why, we suppose, the Indian government’s chief economic advisor Arvind Subramanian thinks the country might just have to hit back. Here’s Bloomberg:
India may need to respond to China’s monetary policy stance
India’s exports to be hurt if global slowdown persists, ET Now television channel reports, citing Finance Minister’s Chief Economic Adviser Arvind Subramanian.
Underscoring this is the following from Deutsche Bank:
India’s export sector continues to be under pressure, with merchandise exports contracting yet again in July by 10.3%yoy. The weakness in India’s exports is striking (this is the eighth consecutive month of decline), not only in terms of past trend, but also from a cross country perspective. Indeed, India’s exports performance has been the weakest in the region thus far in 2015. In the first quarter of the current fiscal year (April-June’15), Indian exports have contracted by 17%yoy, one of the sharpest declines on record. The main reason for such a weak Indian export performance can be attributed to the sharp decline in oil exports (down 51%yoy between April-June’15), which constitute 18% of total exports.
Another factor that could likely explain the weak performance of exports is the probable overvaluation of the rupee. As per RBI’s 36-country trade based real effective exchange rate, rupee remains overvalued at this juncture and this could be impacting exports to some extent, in our view.
Currency competitiveness is an important factor in influencing exports performance, but global demand is even more important, in our view, to support exports momentum. As can be seen from the chart [below], global demand remains soft at this stage which continues to be a key hurdle for exports momentum to gain traction.
And that, in turn, helps to explain this (from Citi):
The likelihood of a rate cut at the RBI policy review on September 29 has risen given the downside surprise from July CPI inflation and the disinflationary impulse from the continued slide in commodity prices. But market pricing does not seem too far from that outcome. 1y ND-OIS is pricing in about 80% probability of a 25bp rate cut in September (and unchanged rates thereafter).
So while we wait to see if indeed India decides to return fire, the ECB isn’t biting. Or at least that’s the line from Vice President Vitor Constancio who, as MNI reports, "on Tuesday signalled that he saw no reason for the ECB to step up policy support, as it was too early to assess what impact economic turmoil in China and renewed oil prices declines would have on medium-term price stability."
"It is really too early to understand the effect of what is happening, which is now being corrected. Markets are now correcting the initial overreaction to the events in China. [The] yuan devaluation is not a major factor" for the euro-area inflation outlook, Constancio continued. So while Europe may be putting on a brave face for the time being, if exports from the currency bloc's economic growth engine (Germany) begin to take a hit from the weaker yuan, we shall see how calm the ECB remains.
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Looks like the pace is quickening in the race to the bottom.
and to war
Hmmm, BRICS new gold currency.
India's 2015-16 gold imports seen at 900-1000 tonnes - refinerhttp://www.reuters.com/article/2015/08/05/india-gold-idUSKCN0QA0SO20150805
China tracking for 2,500 - 3,000 tonnes withdrawal from Shanghai Gold Exchange
http://jessescrossroadscafe.blogspot.ca/2015/08/china-on-track-for-record-year-for-gold.html
hmmmmm.
She's wearing the requisite amount to enhance her beauty too.
LOL. Just another force beyond the FED's control.
Still worried about a FED rate increase?
No, not that I can remember anyway. You've probably got the wrong guy on that score.
Careful. Curried MSG gives you the shits
Don't go. Let the pols duke it out. While they're fighting we will be free, to lock them out permanently.
Beggar thy neighbor ?
Bugger thy neighbor ?
Fire on the mountain, run boys run
No nation can win a currency war...but nations "lose" if they don't join the war.
Wars are always the same.
Only the elites win.
For the rest, they all lose, just some lose more than others.
If I could vote this up a thousand times, I could. Wars are merely a result of disagreements and disputes among the elites who find a way to profit off of them nevertheless. Trade wars, currency wars, and even conventional wars are this way. Of course, some elites may lose their shirts but the elite class as a whole only gains from war.
Exports down? No shit - USDINR has been ramping since '11. It's at its peak today.
Take a look at the correlation between USDINR and Silver from 2011 to present.
ive been celebrating all day
this is some good ass Tequila...
its so wonderful watching this shit crumble...
why wont somebody just do the right thing???
India with all that Gold....why u still being bitches like them narrow assed Brits was still strolling ur streets...
fuck it...let the collapse continue....its like the 4th of July bitchez......................
USD will be fighting 2 Billion Chinese and Indians ...... Those numbers look like it could be a tidal wave of trouble heading this way. Get Gold. Why is that so hard to understand !!!!!!
Me wonders how the author concludes India is retaliating against China, and not joining China against the USD?
think the 'Hindu Kush' and the immortal Mt Everest of the Himalayas strategic geography
ps. it goes way, way back in tyme
OK...now I'm starting to take this shit seriously and I'm not feeling all warm and fuzzy any longer.
Brazil? You're next.
India better prepare for an outbreak of unexplainable jewish lightning.
When I visualize the indignant Indian economic adviser Arvind Subramanian complaining about the Yuan I see Peter Sellers doing a caricature.
Come on, get this this thing done allready. Aussie Dollar down to $1,600 to the OUNCE of shiny. Waiting for $20,000 Count in PET PAPER weigh in PET ROCKS _JOHNLGALT
Stupid humans. Why do you exchange something abstract (money) for something abstract (another's money)? This abstraction has manipulation built into its structure.
Credit as money comes into being primarily against FIRE (finance insurance and real estate). In the U.S. 70% of the credit money supply is against Fire. So, there is very little relation of this type of money to goods/services. Industry is where goods as prices are made, yet just the real-estate of New York, exceeds value of all U.S. industry. Stupid humans.
FX markets are demonstrably manipulated. In recent times, there has been three Mexican Peso devaluations due to Debt hooks and other manipulations. There was Asian Currency Crises. Russia was attacked in order to get them to give up their FX. Weimar hyperinflation was a whopper that lead directly to World War.
There is no question that international trade is only barter. Barter is trading of goods and services, not money.
A third accounting unit, something like the BANCOR should be used to settle trade relations between countries.
This accounting unit fluxes in relation to goods and services, and hence will act as an anchor to a nations unit. Goods and services, say the ability to grow a cow, or extract iron ore, remain fairly stable. Keynes wanted a basket of 91 commodities for stability.
Stupid humans.
If a country needs credit to get on their feet, they can have a goods credit. Any two countries can enter into bilateral arrangements if they want to. However, settling across the worlds many economies gets complicated and bilateral credit breaks down, which is why there needs to be a third accounting unit.
Stupid humans... hairless monkeys that cannot learn by history's examples.
Or maybe you like to have your wealth stolen through manipulation games. Your money unit is unstable, and it is designed that way, so predators can take rents.
Post Bretton Woods till 71, Gold acted something like a goods exchange medium, although it also was money, but constrained only to international trade balancing This incarnation of Gold system kept the hairless monkeys from waging war; at least for a short time period.
"An eye for an eye only ends up making the whole world blind"...Mahatma Gandhi...
or as the India finance minister would say..."A devaluation for a devaluation only ends up with making the world a devalued place to live"..
Indian currency has no value , no body accepts Indian rupee
whats the point in devaluation.
Deflation kills banksters dead in their tracks.
Bring
it
on.