Monday, December 5, 2011

India Signals Readiness to Defend Rupee

(Source: Bloomberg) India signaled it’s prepared to act against excessive declines in the rupee, as Asia’s worst performing currency this year threatens to exacerbate the fastest inflation among so-called BRIC nations and hurt growth.
The recent sharp depreciation isn’t a sign of “helplessness in dealing with the kind of global turbulence we are seeing,” central bank Deputy Governor Subir Gokarn said in Mumbai on Dec. 3. “We do have the instruments to do this in the form of strategic capital controls, which can be used to enhance the supply of foreign exchange.”

The rupee has fallen 12.9 percent this year as investors sold emerging-market assets on concern Europe’s debt crisis will lead to a global recession. India’s economy expanded last quarter at the slowest pace since 2009 after the central bank raised interest rates by a record to tame inflation, while Prime Minister Manmohan Singh’s efforts to stimulate growth were hamstrung by corruption scandals that have stalled legislation.
“The central bank is trying to manage expectations right now having given an impression that they don’t have the tools to control rupee weakness earlier,” said Ramya Suryanarayanan, an economist at DBS Group Holdings Ltd. in Singapore. While it would be pointless to fight the trend, “there are negative consequences, in the short term, given the speed of the fall.”
Asian currencies from Indonesia to India have fallen this year as policy makers grapple with Europe’s protracted sovereign-debt crisis, which has hurt demand for the region’s exports and prompted nations fromAustralia to Thailand to lower borrowing costs.
China Services
Asia’s stocks pared gains today after a report showed China’s non-manufacturing industries contracted last month. The MSCI Asia Pacific Index (MXAP) rose 0.2 percent at 1:42 p.m. in Tokyo after earlier rising as much as 0.4 percent. The Shanghai Stock Exchange Composite Index retreated 0.6 percent.
A China purchasing managers’ index for non-manufacturing industries fell to 49.7 in November from 57.7 the previous month, the China Federation of Logistics and Purchasing said on its website Dec. 3. A reading above 50 indicates expansion. A services index issued by HSBC Holdings Plc and Markit Economics today fell to 52.5, the lowest level in three months.
Elsewhere in the Asia-Pacific region, reports today showed Australian business profits advanced 4.8 percent in the third quarter from the previous three months, more than economists estimated, while inventories declined, as high commodity prices boosted earnings in mining. New Zealand construction fell to the lowest level in more than 10 years in the third quarter. Taiwan may report at 4 p.m. inflation held near a nine-month low.

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