An 18 percent slide in the value of the rupee since July is adding to a growing worry of economic crisis in the country as stubbornly high inflation ties the hands of the central bank from easing policy to try to turn a grim economic outlook.
Data on Wednesday showed wholesale prices, the main gauge of inflation in India, rose 9.11 percent in November from a year earlier. That showed inflation actually fell from 9.73 percent in October thanks to a sharp pull back in food price pressures.
The risk is that a plunging rupee will be seen by investors as reason enough to pull capital out of the country, adding yet more downward pressure on the currency and setting off a balance of payments crisis.
Now, analysts say India will struggle to grow even 7 percent, a sharp drop from 8.5 percent in 2010/11.
Such forecasts were supported by data on Monday showing India's industrial output slumped more than 5 percent in October from a year earlier, far worse than expected and the first fall in over two years.
Headline inflation has been above 9 percent for 12 consecutive months despite 13 rate increases since March 2010 that have lifted the repo rate -- the policy rate -- to a three-year high of 8.5 percent from 4.75 percent.
http://www.reuters.com/article/2011/12/14/india-economy-idUSL3E7NE57V20111214
as i have said before, wall street need a pillage to write off the over-issued dollar and over-blown bonds. but the two possible targets, china and germany, are very vigilant. so wall street turns its eye on india, a vulnerable country easy to be attacked by currency war.
let's check this graph:
since 2009, large quantities of american hot money run into india(most of the money is actually america's QE money, of course they also run into china, leading to the inflation. dumbruno, i said QE money lead to inflation in emerging countries, never said it could prick the real estate bubble), india's rupee appreciated, from 1:55 to 1:44.
at the same time, india's inflation reached more that 20 percent in the peak time. so india's policy rate is at 8.5%. the currency appreciated 20%, and the interest rate is 8.5%, that means hot money can get 30% profit in one year.
let's check india's economic situation. india's industrial output slumped more than 5 percent in october from a year before. india government run a high budget deficit, relying on hot money's inflow. india's foreigh currency reserve is limited, so they do not dare to interfere the market to stop the rupee's sliding.
with hot money flowing out of india more quickly, i see a disastrous economic crisis is waiting for india.
who is the prime culprits? no doubt they are those greedy wall street speculators who launch currency war everywhere.
