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FIEO reacts on continuous depreciation of US Dollar

20
Nov '09
Mr A Sakthivel, President, Federation of Indian Export Organisations(FIEO) while commenting on the continuous depreciation of the US Dollar stated there are indications that the US Government / Federal reserve in order to resume growth will basically not raise interest rates for the coming 12 to 18 months leading to massive dollar inflows in emerging markets through “carry trade”.

The FIEO Chief stated that while the lower interest rates may help the US economy, in India and the emerging markets the inflationary pressures are becoming more acute every day with foreign funds purchasing US $ 15.77 billion in Indian stocks this year resulting in the appreciation of the rupee by 4.8%. This has hurt exports in India and the emerging markets including those of Brazil & Taiwan are imposing capital controls on such inflows. It is estimated that the rupee may strengthen to around 44 to a dollar creating difficulties to the MSME export sector which is dealing with a price sensitive recession hit global market.

Further, with too much of liquidity in the market inflationary pressures may result in interest rates moving upwards. Given the fact that credit off-take as on November 13, 2009 has just about picked up (9.78%) maintaining growth and retaining this credit off-take may be difficult. It is understood from RBI reports that credit to the MSME sector has been around 2.57 lakh crores in the preceding financial year and RBI needs to monitor on a quarterly basis that atleast this level of off-take is maintained in the current fiscal for the MSME sector.

Federation of Indian Export Organisations (FIEO)


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