Almost a year after the Reserve Bank of India governor Raghuram Rajan, rescued the rupee from a collapse, his war on inflation remains key to safeguarding the currency.
Mr Rajan, who kept borrowing costs unchanged last week even as price gains slowed and foreign reserves climb towards a record, said developing economies with high inflation risk major market volatility when developed nations end monetary easing. The rupee tumbled 1.9 per cent to 61.095 per US dollar in one month, Asia’s worst performance, on speculation that improving US data would prompt the Federal Reserve to raise interest rates next year.
“With external vulnerability reduced significantly and foreign reserves beefed up, India is better placed to deal with the normalisation of US rates,” said Gaurav Kapur, a senior economist at Royal Bank of Scotland Group in Mumbai. “However, the weakest element in the defence against capital outflows is still high inflation.”
Mr Rajan raised borrowing costs three times since taking office in September to rein in the worst inflation among major Asian economies and avoid a repeat of last August’s sell-off that caused the rupee to sink to an unprecedented 68.845 per dollar. The currency has since rebounded about 12 per cent as global investors bought Indian assets, boosting foreign-exchange reserves to a near record $320 billion last week.
While the rate increases have helped to bring inflation below the RBI’s 8 per cent target for January next year, it is set to accelerate. Consumer prices rose 7.4 per cent last month from a year earlier, compared with 7.3 per cent in June, according to the median forecast of analysts.
Mr Rajan left the RBI’s benchmark repurchase rate unchanged at 8 per cent on August 5 and said there was an upside risk to his goal of slowing price gains to 6 per cent by January 2016. His statement dropped a June reference to the possibility of easing policy should inflation decline faster than anticipated.
The world is at risk of another financial crisis as monetary stimulus in developed economies encourages investors to take risks and boost asset prices, Mr Rajan told UK newspaper The Times. There will be “major market volatility” if investors exit their positions simultaneously, he was quoted as saying by the Central Banking Journal.
One-month implied volatility in the rupee, a gauge of expected exchange-rate swings used to price options, has risen 245 basis points from a 2011 low on July 29 to 7.75 per cent. The Federal Reserve chairwoman, Janet Yellen, said last month that US borrowing costs may rise sooner should the American labour market improve faster than anticipated by the central bank.
“The RBI’s decision to keep rates unchanged is aimed at tackling inflation and strengthening its defences in case there is a bout of volatility,” when the US raises rates, said Pradeep Khanna, the head of currency trading at HSBC Holdings in Mumbai. “The central bank has been strengthening its ammunition by increasing reserves.”
India’s foreign-exchange reserves held near an all-time high last week as global investors, who pared holdings of local-currency debt by an unprecedented $8bn lastyear, ploughed back about $14bn this year, exchange data showed. They also purchased a net $12bn of Indian equities.
Reserves swelled as RBI’s measures, along with a landslide election victory in May that swept the prime minister, Narendra Modi, to power, boosted optimism about a revival in Asia’s third-largest economy.
The shortfall in India’s current account, the broadest measure of trade, shrank to $32.4bn in the year ended March 31 from an record $88bn in the previous period, with the RBI’s curbs on gold imports being a key reason. Mr Modi’s government has pledged to reduce the fiscal deficit to a seven- year low of 4.1 per cent of GDP this year.
“While the Indian economy is better-placed to face any renewed bouts of volatility, there is a need to further augment its reserves by $66bn to increase its import cover to ten months from the present eight months,” said Radhika Rao, an economist at DBS Bank in Singapore. “Inflation remains high amid risks from weak monsoon rains.”
Inflation in India is also fanned by government support for farmers and subsides to keep food and energy prices low.
“The central bank will maintain its vigil on inflation and is unlikely to cut rates over the next couple of quarters,” said Mr Kapur. “India needs to maintain rates at the current levels to get a handle over inflation and strengthen its defences to deal with any exchange-rate volatility as the Fed prepares to raise rates next year.”
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Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
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Director: Navdeep Singh
Stars: Saif Ali Khan, Manav Vij, Deepak Dobriyal, Zoya Hussain
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Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
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The White Lotus: Season three
Creator: Mike White
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MATCH INFO
Burnley 0
Man City 3
Raheem Sterling 35', 49'
Ferran Torres 65'
Aston martin DBX specs
Engine: 4.0-litre twin-turbo V8
Transmission: nine-speed automatic
Power: 542bhp
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Price: Dh848,000
On sale: Q2, 2020
Super Saturday results
4pm: Mahab Al Shimaal Group 3 | US$350,000 | (Dirt) | 1,200m
Winner: Drafted, Pat Dobbs (jockey), Doug Watson (trainer).
4.35pm: Al Bastakiya Listed | $300,000 | (D) | 1,900m
Winner: Divine Image, Brett Doyle, Charlie Appleby.
5.10pm: Nad Al Sheba Turf Group 3 | $350,000 | (Turf) | 1,200m
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6.55pm: Al Maktoum Challenge Round 3 Group 1 | $600,000 | (D) | 2,000m
Winner: Capezzano, Mickael Barzalona, Salem bin Ghadayer.
7.30pm: Jebel Hatta Group 1 | $400,000 | (T) | 1,800m
Winner: Dream Castle, Christophe Soumillon, Saeed bin Suroor.
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
Specs
Engine: Duel electric motors
Power: 659hp
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On sale: Available for pre-order now
Price: On request
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Number of tracks: 10
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COMPANY PROFILE
Name: Akeed
Based: Muscat
Launch year: 2018
Number of employees: 40
Sector: Online food delivery
Funding: Raised $3.2m since inception
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
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MATCH INFO
South Africa 66 (Tries: De Allende, Nkosi, Reinach (3), Gelant, Steyn, Brits, Willemse; Cons: Jantjies 8)
Canada 7 (Tries: Heaton; Cons: Nelson)
Cinco in numbers
Dh3.7 million
The estimated cost of Victoria Swarovski’s gem-encrusted Michael Cinco wedding gown
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The number, in kilograms, that Swarovski’s wedding gown weighed.
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The hours it took to create Cinco’s vermillion petal gown, as seen in his atelier [note, is the one he’s playing with in the corner of a room]
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How many looks Cinco has created in a new collection to celebrate Ballet Philippines’ 50th birthday
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The hours needed to create the butterfly gown worn by Aishwarya Rai to the 2018 Cannes Film Festival.
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The number of followers that Michael Cinco’s Instagram account has garnered.
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
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The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
UAE currency: the story behind the money in your pockets
