Investors will be looking for clues on how quickly the U.S. Federal Reserve will trim its $85 billion in monthly asset purchases when the Federal Open Market Committee’s July meeting minutes are released on Aug. 21.
The $3.9 trillion of cash that flowed into emerging markets over the past four years has started to reverse since Chairman Ben S. Bernanke talked about a tapering in quantitative easing this year. The slowdown in Fed bond buying will probably begin next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13.
The JPMorgan Emerging Markets Currency Index has declined 3.2 percent since Bernanke’s June 19 tapering comment. The Bloomberg Dollar Index, which monitors the greenback against 10 major currencies, is up about 1 percent over the same period.
“The emerging Asia story is crumbling and dollar is once again the king,” said Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai.
Gold Imports
India’s moves to tighten cash supply, restrict currency derivatives and curb gold imports since July failed to arrest the rupee’s slump to a record low of 64.12 per dollar during trading today. UBS AG says a drop to 70 is possible.
The deficit widened to an unprecedented 4.8 percent of GDP in the year ended March 31. The government plans to narrow the gap to 3.7 percent, or $70 billion, this year, Finance Minister Palaniappan Chidambaram said Aug. 12.
India’s slump is worse than elsewhere in Asia because the country has failed to carry out long-overdue structural changes to the economy, said Pan at Kotak Mahindra Bank.
“In India, we have great policies on paper but the gap between the what’s on paper and the implementation is unduly large,” R.C. Bhargava, chairman of Maruti Suzuki India Ltd., the nation’s biggest carmaker by volume, said in an interview. “If we just implement what’s already there, we can get back on track in the next two to three years.”
Too Optimistic