Rapidly rising rupee, what next?
DNA wonders whether we’ll see a repeat of what happened in Thailand - Will rupee rally ape the ‘blood-baht’?
It happened most recently in Thailand, in December, when the baht rose so steeply and so fast that authorities clamped down clumsily on capital flows, which spooked the stock markets.
As in Thailand, the currency is much more likely to strengthen in the late cycle period, when current account constraints are fading and interest rates are at a cyclical high.
The article goes on to assure us that the Indian case is different enough to avoid a plunge in stock markets; but try telling that to Indian exporters!
Meanwhile, gold prices in India haven’t gone anywhere inspite of gold hitting $690 in the US - again thanks to the strength in the rupee. Apparently, demand isn’t keeping up with supply - and Indian gold ETFs such as the Benchmark Gold ETF (GOLDBEES) and the UTI Gold ETF (GOLDSHARE) are at their lowest levels since launch.
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