As if Brexit wasn’t enough to worry about, India investors now need to cope with central bank Governor Raghuram Rajan’s impending departure in what amounts to a double stress test this week for his moves to bolster the nation’s finances.
The rupee, Asia’s worst performer this year after the yuan, may come under more pressure as forwards fell Monday following Rajan’s weekend announcement that he plans to return to academia when his term ends in September. Rupee volatility surged the most since August last week as the currency retreated 0.5% to 67.0850, 2.6% shy of its record low.
“Clearly investors will not like this and you will see this in markets,” said Sean Yokota, the head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. “Monday will be a tough day for India amidst Brexit.”
Since taking office in 2013, the former International Monetary Fund chief economist helped strengthen the rupee, cut its swings by more than half and propelled the nation’s foreign-exchange reserves to an all-time high. Those moves, along with the implementation of an inflation-targeting regime, built India’s credibility with investors and helped it overtake a slowing China as the world’s fastest-growing major economy.
Rajan on Saturday expressed confidence that the policies he helped implement would protect Asia’s third-biggest economy from the sort of sudden capital flight that occurred in the months before he took office, when the Federal Reserve first signalled it would taper its bond purchases. In 2013, Morgan Stanley included the rupee among the “Fragile Five” currencies along with South Africa’s rand, Indonesia’s rupiah, Turkey’s lira and Brazil’s real.
“We have worked with the government over the last three years to create a platform of macroeconomic and institutional stability,” Rajan said while announcing his plans to leave office. “I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit.”
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The rupee, Asia’s worst performer this year after the yuan, may come under more pressure as forwards fell Monday following Rajan’s weekend announcement that he plans to return to academia when his term ends in September. Rupee volatility surged the most since August last week as the currency retreated 0.5% to 67.0850, 2.6% shy of its record low.
“Clearly investors will not like this and you will see this in markets,” said Sean Yokota, the head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. “Monday will be a tough day for India amidst Brexit.”
Since taking office in 2013, the former International Monetary Fund chief economist helped strengthen the rupee, cut its swings by more than half and propelled the nation’s foreign-exchange reserves to an all-time high. Those moves, along with the implementation of an inflation-targeting regime, built India’s credibility with investors and helped it overtake a slowing China as the world’s fastest-growing major economy.
Rajan on Saturday expressed confidence that the policies he helped implement would protect Asia’s third-biggest economy from the sort of sudden capital flight that occurred in the months before he took office, when the Federal Reserve first signalled it would taper its bond purchases. In 2013, Morgan Stanley included the rupee among the “Fragile Five” currencies along with South Africa’s rand, Indonesia’s rupiah, Turkey’s lira and Brazil’s real.
“We have worked with the government over the last three years to create a platform of macroeconomic and institutional stability,” Rajan said while announcing his plans to leave office. “I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit.”
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