State of India Economy before September 2013
- Consumer prices were accelerating at a +10% annualized rate
- There was a very sharp slowdown in growth (sub 5%)
- Fiscal Deficit out of control because of wasteful spending
- The current account deficit touched a record high of $87.8 billion in FY13 -blame it on crazy Gold imports
- India was declared part of Fragile 7 nations (Argentina, Brazil, India, Indonesia, Turkey Russia, and South Africa).
Then, the situation became worse when US Fed in May 2013 announced that it would slowly start withdrawal from QE3 (described as Taper Tantrum)
Taper Tantrum acted a trigger and in just matter of few months - INR depreciated from levels of 54 to 68. It was a disruptive move in the foreign exchange market and it worsened India's inflation problem (Depreciating currency means Expensive imports with Crude at $110+)
Then two things happened in September 2013:
- Indian policy makers panicked and they made an unusual announcement: Raghuram Rajan, an outsider, as new RBI Governor.
- Modi became the PM candidate on 13th Sep 2013
Here's USDINR weekly chart since then -
Raghuram Rajan and Modi team has helped put a ceiling on USDINR at 68.8 despite a very challenging Global environment. Just see how USD index has strengthened in last 2.5 years
The Big question: What Next after Rajan exit
Will INR depreciate beyond 68.8? That's what market will keep an eye on
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers