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Global currencies adjustments may hit India
By agencies
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Monday, 07 November 2005, 20:30 IST
MUMBAI: Reserve Bank of India Governor Y V Reddy today said India will have an adverse impact on its economic growth if the valuation of major world currencies varies along with the fluctuation of exchange rate and also if there are changes in global interest rates.
"The impact on India would depend on the pace and extent of currency and current account readjustments, and changes in global interest rates," Reddy said.
Reddy also said while India by itself did not contribute to global financial imbalances, any large and rapid adjustments in major currencies and interest rates or current accounts of trading partners could indirectly impact the Indian economy.
From the case of India it was also clear that readjustment of the currencies and rise in interest rates would impact different emerging markets economies differently, Reddy said.
Despite rise in short-term interest rates; the long-term interest rates instead of rising, have moderated, leading to a further flattening of the global yield curve and narrowing down of credit spreads.
EMEs have taken advantage of favorable financial conditions.
During the first half of 2005, EMEs focused on operations aimed at meeting domestic and external obligations and lengthening maturities. However, higher global interest rates could contribute to widening of emerging market bond spreads, particularly those with high debt to GDP ratio.