Saturday, August 05, 2006

INR slides 13% to the Euro since Feb

Going largely unnoticed in India is the constant and steep slide of the Indian Rupee. This is because the Dollar is the base currency against which the Rupee is watched and that shows a slide of only about 6% in 6 months.

However, the Dollar itself has been slipping, losing as much as 9% to the Euro & the Swiss Franc, so when the Rupee is checked against these currencies the true picture emerges: I'm poorer by 13% in 6 months!

Even when you check the Rupee against a "local" currency like the Thai Bhat, the Rupee has lost 9% in 6 months.

There appears to be no sign of this slide slowing down. The steep downward seems to be driven by India's huge import bill for oil and exports not keeping pace. Liberlisation has also opened up India to large scale imports of both capital goods and consumer goods, but has not had the same effects of exports. Very Dangerours.

On the other hand interest rates have gone through the roof; bankers claim there is no liquidity in the market due to steep government borrowing. Housing interest rates are at 11.5% and rising ever month.

So are we heading for a slow down? Sure looks like. The good news is that it's unlikely to be a crash. There are definite fundamentals like better infrastructure, better administration, more employment, better distribution of wealth and more FDI, so these will keep us above water. But those of you who are making streched investments in India, be careful, you might lose heavily.

No comments: