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Analysts on the foreign exchange believe that the Indian rupee may still drop further. At its worst, it could reach 58 against the dollar. The Reserve Bank of India cannot step in and fix the problem because they are limited financially until next month. RBI has stated that it will announce new measures on Monday to deal with the falling rupee.
During intra-day trading on Friday, the rupee managed to reach a record low against the United States dollar of 57.33. By the end of the day, the rupee ended the week of trading at 57.12. Each trading session for the last week has marked the rupee closing in the red against the dollar. Overall, it has fallen 22 percent against the dollar during the last year. Since 2008, the rupee has managed to fall 46 percent against the dollar. Its highest level was 39 rupees per dollar. The rupee reached this rate in January of 2008.
If structural growth issues in India are not fixed, the rupee will continue to become weaker. India is facing an economy filled with subsidies that has not seen enough economic growth for the last few years. In recent months, the rupee has suffered further from financial issues around the globe and domestic inflation. The HSBC reported that the rupee was forecasted to stay around 57 against the dollar. In response to the weakening economy, investors have pulled $225 million out of India since the start of the 2012 fiscal year.
China and Brazil Currency Swap
In order to protect their investments amid a weak global economy, China and Brazil have agreed to a swap of their currencies. The central banks of the two countries traded a total of 60 billion reais for 190 billion pounds. This amount is roughly equivalent to 19 billion pounds or 30 billion United States dollars. With this trade, China and Brazil are hoping to improve trading prospects between the two countries.
China has developed a record of performing the same kind of currency swaps with their other trading partners around the world. In March of 2012, China traded A$30 billion with Australia. They are also in the process of competing trades with Japan and Hong Kong. China is driven to trade its currency in an attempt to make the yuan a global currency.
Greece Told to Shore up its Budget
The finance minister of Germany announced in Bild am Sonntag that Greece needed to focus on fixing their budget and not on receiving more bailout money. According to Mr. Schaeuble, Greece has forfeited its trust due to the way it handled its bailout and debt. Mr. Schaeuble urged Antonis Samaras, the Greek finance minister, to start on their austerity program and stop asking others for help.
After failed elections a month ago, Greece’s new three-party coalition government has begun working on the bailout package that is intended to stop the nation from declaring bankruptcy. Although Germany is prepared to revise the bailout package, the country does not want to make radical adjustments to the original bailout terms.
A recent poll of citizens in Germany showed that 78 percent of Germans wished that Greece would leave the Eurozone. In France, 65 percent of people believe that Greece should exit the European Union. The majority of citizens in France, Germany, Spain and Italy do not expect that Greece will ever repay their bailout loans.
Banking Credit Rating Cuts
Around the world, 15 global banks had their credit ratings cut by Moody’s last week. For many of the banks, investors left in search of stronger financial groups that could secure their short-term funding options. As a result of the downgrade, banks like Morgan Stanley, Citigroup and Bank of America will have a more difficult time when they try to issue commercial paper. These banks and 12 others will have a smaller market that they can turn to sell off their securities.
Analysts believe that the downgrade will affect the municipal bond market in the United States. Previously, banks backed the bonds of these cities. As the banks lose their top-notch rating, business is driven away from these banks. Cities like Philadelphia are choosing to place their funds and municipal debt in stronger banks.