Random Country Report: Part 1 - India

Some days, I know exactly what I’m going to write about. On days that I don’t, I usually peruse through the news, trying to find something that piques my interest. Today’s top headlines in the currency sector centering on the US Dollar not doing anything as there’s little to trade on... thanks for the help world. So, I have decided that on days such as this, a day with little of note on the economic calendar, I would focus on a country (and its currency) that rarely gets much discussion in the world of FOREX. Today, that country is India.

For those of you who were unaware, the currency in India is called the rupee. Should you be traveling to India soon, it would be in your best interest to know that the USD is currently worth about 43 rupees. The country is dealing with high inflation, rising energy costs (who isn’t?), and a weakened rupee. As a response to all three, the Reserve Bank of India recently increased its benchmark repurchase rate and raised interest rates. As a result of this responsible policy move, many analysts now expect the rupee to strengthen against the USD to around 41:1 by the end of the year.

Like many other countries around the world, India has suffered from crude oil prices. As they import about 70% of their oil, their rupee has suffered in kind. Still, not all is bad, as India has produced very impressive growth over the past decade. While that growth is crucial to India’s long term development, the Reserve Bank of India has sent a message that it is willing to sacrifice some of that growth today for improved economic indicators tomorrow. Unlike its neighbor, China, whose policies have led to — and sustained — very high inflation, India has decided to confront the problem.

As for the long term, most analysts remain optimistic. With its enormous population, the economic potential for India is still very strong. The country does sustain a sizeable current account deficit, but much of this could likely be attributed to energy costs. Personally, I applaud India’s commitment to keeping its inflation and rupee at acceptable levels. Instead of just continuing to focus on growth regardless of the long term consequences (ex. China), India is positioning itself to experience excellent growth for a long time by fixing its economic problems now.

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