2 Sep 2013
Flash: INR and IDR exposed to further downside risks - Nomura
FXstreet.com (Barcelona) - Balance of payments pressures in India and Indonesia remain significant, notes Nomura Economists and FX Strategists, who think both the INR and IDR are exposed to further downside risks without credible local policy responses.
Key Quotes
"INR and IDR depreciation pressures will grow, given elevated foreign positioning in equity and debt markets. The additional risk (especially for India) is that slowing growth, rising inflation, and the mounting risk of negative credit events could lead to outflows from cross-border loans and short-term debt."
"India: We expect the current account deficit to moderate, but growth-sensitive capital inflows will also reverse, which should result in continued BOP pressures over the next 3-6 months. Policymakers are likely to explore stop-gap funding options, but the risk of pro-cyclical fiscal and monetary policy tightening is rising."
"Indonesia: Even if the current account deficit narrows in H2, external funding needs will be a key concern at a time when FX reserves have already fallen sharply. There are, however, available backstops that could help avert a BOP crisis. In addition, we think more monetary and fiscal policy responses are likely, although the risk of timely execution remains high."
Key Quotes
"INR and IDR depreciation pressures will grow, given elevated foreign positioning in equity and debt markets. The additional risk (especially for India) is that slowing growth, rising inflation, and the mounting risk of negative credit events could lead to outflows from cross-border loans and short-term debt."
"India: We expect the current account deficit to moderate, but growth-sensitive capital inflows will also reverse, which should result in continued BOP pressures over the next 3-6 months. Policymakers are likely to explore stop-gap funding options, but the risk of pro-cyclical fiscal and monetary policy tightening is rising."
"Indonesia: Even if the current account deficit narrows in H2, external funding needs will be a key concern at a time when FX reserves have already fallen sharply. There are, however, available backstops that could help avert a BOP crisis. In addition, we think more monetary and fiscal policy responses are likely, although the risk of timely execution remains high."