Readings: Rupee-Yen currency swap, MF portfolios, Asia bulls
- Economic Times: India, Japan to sign currency swap deal today
The swap arrangement will enable both the countries to swap yen and rupees against US dollar up to $3 billion. That means, Japan will accept rupees and give US dollars to India if the need arises and India too will accept yen against dollars. However, drawing beyond 20% of the stipulated amount ($3 billion) would require India to have an IMF (International Monetary Fund)-support programme.
. . . up to 20% of the maximum amount of drawing could be disbursed even without having an IMF-support programme.
That the funds continue to put these sectors on top of their radar suggests they remain convinced that the lower valuations more than factor in any earnings concerns surrounding these sectors. Sectors such as financials or infrastructure may recover quickly if concerns on credit growth and execution delays abate.
The knock-on effects are coming, just more stealthily than many expect. Asia is unlikely to get off easy even if the U.S. skirts a recession. The region hasn’t decoupled from America as much as some would say. The worst-case scenario — a prolonged U.S. decline — could be devastating, particularly at a time when record oil and food prices are hurting Asian households.
China is one of several Asian economies with negative real interest rates. With its annual inflation above the central bank’s benchmark lending rate, China would be hard-pressed to stimulate growth with lower borrowing costs or increased government spending.
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