India joins Brazil and China in tightening access to cash

When the BRIC wall starts to how one cracks .

India joins Brazil and China in tightening access to cash.

India joins Brazil and China in tightening access to cash

In response to seeing its currency plunge to a record low, India has stepped up efforts to tighten liquidity by raising two interest rates – a move shadowed in most of the larger emerging market economies.

Central bank Governor Duvvuri Subbarao announced the decision yesterday after he had cancelled a speech earlier in the day to meet the Finance Minister. The Reserve Bank of India thus raised two rates by 2 percentage points and plans to drain 120 billion rupees ($2 billion) through open market sales of government bonds.

JPMorgan Analysts explained how the importance of this move is that it signals that the RBI is willing to act and make it much more costly to short the rupee.

On the other hand, Finance Minister Palaniappan Chidambaram assured today that these measures in no way affect the Government’s commitment to growth. Instead, the ‘measures are taken to quell excessive speculation and reduce volatility and stabilize the rupee’, he said.

Notably, the RBI’s move leaves Russia as the only BRIC economy to not have reined in funds in its financial system.

Meanwhile, India’s economy expanded 5% in the fiscal year that ended in March. Despite the positive figures when compared to minimal growth in the developed world, this marked the slowest since 2003, on the back of moderating investment, easing domestic demand and subdued exports.


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