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Risk of US hiking rates drowns rupee

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Mumbai: The Indian rupee plunged to a new two-year low of Rs.65.69 to a dollar during intra-day trade on the foreign exchange markets on Thursday following apprehensions of a US interest rate hike and the continuing slide in the Chinese markets.

The rupee, however, later gained strength and closed the day’s trade at Rs.65.56 to a dollar.

Thursday’s intra-day fall mirrors the currency’s movements on Wednesday — when it had hit a fresh two-year low at Rs.65.44 to a US dollar.
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According to analysts, the rupee was impacted by the possibility of US raising its interest rate after a decade of easy financing.

The intent was made clear by the minutes of the last Federal Open Market Committee (FOMC) meet which was held on July 28-29.

Higher interest rates in the US are expected to lead the FPIs (Foreign Portfolio Investors) away from emerging markets such as India.

The other major catalyst for the rupee’s fall has been the devaluation of yuan, intended to boost Chinese exports and arrest the fall in the Chinese markets by pumping up the economy.

“Today, the Chinese markets continued their downward movement despite various measures taken by the government there. This shows that the problem is deep rooted and the impact might be much greater,” Anand James, co-head, technical research, Geojit BNP Paribas, told IANS.

Though unrelated, the stock market crash can prompt China’s central bank to further devalue yuan to propel the domestic economy.

The People’s Bank of China had devalued yuan by two percent on August 11. This was the biggest devaluation in the Chinese currency since 1994.

The currency fell again dropped by two percent on August 12 panicking the world economy.

The attempt is viewed as a tack-tick to corner the international export markets from other emerging trading powers such as India and the Asean (Association of Southeast Asian Nations) grouping.

The move has strengthened the dollar value, which has negatively impacted major world currencies including the Indian rupee.

The yuan has fallen by 4.6 percent till now since August 11.

(IANS)

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Despite Tariff War With U.S, China’s Economic Growth is Steady

The fight between the two biggest global economies has disrupted trade in goods from soybeans medical equipment, battering exporters on both sides and rattling financial markets.

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An employee working on the production line of an electronics factory is seen reflected on an equipment, in Jiaxing, Zhejiang province, China, April 2, 2019. VOA

China’s economic growth held steady in the latest quarter despite a tariff war with Washington, in a reassuring sign that Beijing’s efforts to reverse a slowdown might be gaining traction.

The world’s second-largest economy expanded by 6.4% over a year earlier in the three months ending in March, the government reported Wednesday. That matched the previous quarter for the weakest growth since 2009.

“This confirms that China’s economic growth is bottoming out and this momentum is likely to continue,” said Tai Hui of JP Morgan Asset Management in a report.

Government intervention

Communist leaders stepped up government spending last year and told banks to lend more after economic activity weakened, raising the risk of politically dangerous job losses.

Beijing’s decision to ease credit controls aimed at reining in rising debt “is starting to yield results,” Hui said.

Consumer spending, factory activity and investment all accelerated in March from the month before, the National Bureau of Statistics reported.

The economy showed “growing positive factors,” a bureau statement said.

A delivery worker pushes boxes of goods at the capital city's popular shopping mall in Beijing, April 4, 2019. The U.S. and China opened a ninth round of talks Wednesday, aiming to further narrow differences in an ongoing trade war.
A delivery worker pushes boxes of goods at the capital city’s popular shopping mall in Beijing, April 4, 2019. The U.S. and China opened a ninth round of talks Wednesday, aiming to further narrow differences in an ongoing trade war. VOA

Recovery later this year

Forecasters expect Chinese growth to bottom out and start to recover later this year. They expected a recovery last year but pushed back that time line after President Donald Trump hiked tariffs on Chinese imports over complaints about Beijing’s technology ambitions.

The fight between the two biggest global economies has disrupted trade in goods from soybeans medical equipment, battering exporters on both sides and rattling financial markets.

The two governments say settlement talks are making progress, but penalties on billions of dollars of each other’s goods are still in place.

China’s top economic official, Premier Li Keqiang, announced an annual official growth target of 6% to 6.5% in March, down from last year’s 6.6% rate.

Li warned of “rising difficulties” in the global economy and said the ruling Communist Party plans to step up deficit spending this year to shore up growth.

Beijing’s stimulus measures have temporarily set back official plans to reduce reliance on debt and investment to support growth.

Also in March, exports rebounded from a contraction the previous month, rising 14.2% over a year earlier. Still, exports are up only 1.4% so far this year, while imports shrank 4.8% in a sign of weak Chinese domestic demand.

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Chinese leaders warned previously any economic recovery will be “L-shaped,” meaning once the downturn bottomed out, growth would stay low. VOA

Auto sales fell 6.9% in March from a year ago, declining for a ninth month. But that was an improvement over the 17.5% contraction in January and February.

Tariffs’ effect long-lasting

Economists warn that even if Washington and Beijing announce a trade settlement in the next few weeks or months, it is unlikely to resolve all the irritants that have bedeviled relations for decades.

The two governments agreed Dec. 1 to postpone further penalties while they negotiate, but punitive charges already imposed on billions of dollars of goods stayed in place.

Even if they make peace, the experience of other countries suggests it can take four to five years for punitive duties to “dissipate fully,” said Jamie Thompson of Capital Economics in a report last week.

Chinese leaders warned previously any economic recovery will be “L-shaped,” meaning once the downturn bottomed out, growth would stay low.

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Credit growth accelerated in March, suggesting companies are stepping up investment and production.

Total profit for China’s national-level state-owned banks, oil producers, phone carriers and other companies rose 13.1% over a year ago in the first quarter, the government reported Tuesday. Revenue rose 6.3% and investment rose 9.7%. (VOA)