Weekly news from 11th october

Submitted By: Karan Kapoor

China’s exchange rate policy has been a matter of considerable political debate in the US.

THE G-20 leaders declared emphatically in April last year “we will not repeat the historic mistakes of protectionism of recent eras

Efforts to increase interest rates in response to domestic inflationary pressures would attract “hot money” flows that would not only place further upward pressure on the currency but could potentially overwhelm the absorption capacity of financial markets

1.US misplacing its energy in currency war with China

In response, Guido Mantega, Brazil’s finance minister, complained: “We’re in the midst of an international currency war. This threatens us because it takes away our competitiveness

Policymakers in the emerging world have assessed the risks the macroeconomic trilemma poses and have postponed monetary tightening to keep “hot money” flows at bay. Their central banks have intervened to prevent excessive currency appreciation

Cont

Meanwhile, sluggish growth and high unemployment in the developed world has contributed to intense criticism of China’s exchange rate policy.

The Middle Kingdom announced during the summer that it intends to gradually relax the peg between the renminbi and the dollar, but the currency has since appreciated by little more than 2 per cent – a far cry from the 25-40 per cent required to silence its critics

Cont

HCL Technologies CEO Vineet Nayar said Indian IT players should take their Chinese competitors seriously, as low-cost labour will make the neighbouring nation more competitive in coming years.

China would pose a serious challenge to Indian IT companies over the next five years because of the low labour cost in that country," Nayar said here.

The company already has a presence in China, having set up a development centre with a seating capacity of 150 employees in 2007.

HCL Technologies, a $2.3 bn company with a workforce of 54,443 professionals, is operational in 26 countries

2.Indian IT cos need to take Chinese competitors seriously: HCL

India is staring at the possibility of overseas fund flow trickles turning into a flood, as more emerging markets shut their doors on cheap money from developed nations that are throwing money to get their economies back on feet.

India is probably the only major developing nation in the world that is still holding back from restrictions on fund flows, despite growing concerns that they are hurting exports and boosting imports.

The current account deficit is headed to 3% of the gross domestic product, the first time in nearly two decades.

3.Gush of dollars set to hit India as emerging mkts close gates

The rupee rose 0.9% to 44.12 per dollar to a two-year high as global investors poured in a record $22 billion into Indian stocks, and are poised to bring in more to buy Coal India shares in the nation’s biggest initial public offering (IPO) that opens next week

Thailand this week joined Brazil and South Korea in imposing curbs on overseas flows that were distorting trade as the US is set to ease controls and China stuck to its stand near fixed yuan exchange rates. It removed a 15% tax exemption for foreigners on income from domestic bonds. Brazil doubled the taxation on overseas flows and Korea said it would start an audit of lenders handling foreign-currency derivatives.

cont

The United States fired the first shot in the currency war and the rest of the world must be on guard for its deliberate strategy to devalue the dollar,

The dollar's depreciation may appear to be market-driven. In reality, it is a depreciation colored by very strong, deliberate actions

Without a weaker dollar, the United States would have no hope of meeting President Barack Obama's goal to double exports in five years, Li said.

 4.US is currency war's 'tomb maker': China economist

Dollar depreciation will also serve longer-term interests by generating inflation and easing the debt burden that the financial crisis dumped on the US government. "If the global financial crisis was about nationalizing private debt, then in the post-crisis period the urgent need of the United States is to internationalize its national debt

Cont

The Reserve Bank of India bought dollars around 44.10 rupees on Thursday, dealers said, in a move that helped brake a rise in the rupee and is believed by traders to have been its first such intervention this year.

Coal India's $3.5 billion initial public offer, which opens on Monday, is expected to attract heavy foreign fund flows and may push the rupee up to 43.50 and force further intervention, dealers have said.

5.RBI buys dollars, likely year's first: Traders

India would intervene in the foreign exchange markets in order to maintain stability, Reserve Bank of India Governor Duvvuri

The rupee dropped to as low as 44.25 on Thursday immediately after dollar purchases that traders said were made on the RBI's behalf.

The amount was not important, but the fact that they came in around 44.10 is most important," a trader at a state-run bank said, suggesting that the RBI's purchase was relatively small.

cont

China has become the world's largest energy user , having overtaken the United States, the head of the International Energy Agency said on Tuesday.

"China is now the largest energy consumer by our definition

"Probably half of the oil demand increase comes from China. Nobody knows when it (will) slow down."

6.China overtakes US as biggest energy consumer

Indian currency and china currency both are non convertible currency. These currencies have to change into dollar for any conversion

Now banks sound out direct yuan-rupee trade

This yuan-rupee trade would cut the transaction time

7.Banks sound out RBI on direct yuan-rupee trade