RE:we need rupper to be devalued
by on Jul 26, 2007 10:07 PM Permalink
I will focus this discussion on the trade between India and USA. With a net trade surplus Indian currency is bound to appreciate assuming that inflation, interest rates and the central bank finagling does not devalue the currency further. At the same time, the Central Bank and corporate managements are well aware of the US dollar's continued weakness. This weakness will lead to a re-examination of the competitiveness of the exports India makes to the U.S.
In the US, the middle class incomes are taking a sound beating due to a lot of imports substituting the high cost of producing domestically and loss of related jobs and industries. The huge trade deficit with China and other countries has been increasing, add to this the domestic budget deficit and you have a huge debt to finance. In the US we also have the problem of footing a huge oil import bill. Some dollar devaluation is natural and is likely to restore some of the lost competitiveness.
For countries like India, we need to work on the quality of the goods and services that we produce in order to create a sustainable competitive advantage versus other countries like China(which refuses to devalue its currency and faces stronger currency controls). At the same time, my understanding is that multinational companies are selling goods in India for much higher margins compared to here in the USA. So the Indian consumer does take a beating for this and this needs a close watch over inflation, which we know the Central ban
RE:RE:we need rupper to be devalued
by on Jul 26, 2007 10:09 PM Permalink
which we know the Central bank is already doing right now.
With a high inflation rate and an appreciating currency, some of the 'commodity' exports are definitely placed precariously and it is up to the government to step in to protect these industries or up to these industries to improve the quality of the goods and services they produce. It will be interesting to see where these commodity exports ends up.
I expect that the Indian central bank will maintain the current exchange rate of dollar to rupee. The central bank will not want to interfere anymore than it already is in order to maintain the market's confidence in the Rupee. In the long run it is the price and quality competitiveness of Indian goods and services that will matter.
