"India has come under siege this summer. The rupee has depreciated sharply since late July, and foreign exchange reserves dropped significantly. The pressure has been triggered by market concerns on the Fed’s intention to ‘taper’ its quantitative easing, against the background of a growth slowdown in China.
India’s currency suffered a first bout of depreciation starting in early May, right after Fed Chairman Bernanke gave the first hint that the Fed might start reducing its asset purchases. Concern that global liquidity might become less plentiful has made investors wary of emerging markets, triggering capital outflows. India is not alone here. The chart below shows that other emerging markets have had a rough summer. South Africa suffered a deeper depreciation than India year-to-date, as did Brazil before its central bank stepped in announcing a new foreign exchange intervention program (Figure 1).
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FIGURE 1. FX DEPRECIATION V US$ (JANUARY 1, 2013 = 100) |
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