The US Dollar gets into a free fall against most other assets after a Chinese official hints at
diversifying deployment of reserves into stronger currencies
- The Euro sped past 1.47. It appears it’s only a matter of time we see 1.50
- Crude nudges $100 per barrel. Still a little short of it but not much
- Gold goes past $845 /oz and is within reach of an all time high of $850 / oz
I could go on and on….
Amidst all this we see some evidence of decoupling
The Australian Central Bank raised interest rates today. The ECB is expected to maintain a hawkish stance on monetary policy
Amidst all this the Reserve Bank of India has announced that it has loaded up on more ammunition to defend the Indian Rupee against the deluge of dollar flows. The ceiling for issuance of Market Stabilisation (or MSS) bonds has been raised to INR 2.5 trn. That’s almost two times the gross yearly government borrowing (in other words the fiscal deficit).
It’s time they realise that such measures only add to the flows, emboldening potential investors of the near surety that the currency would not depreciate. In addition it allows them to test the limits of the abilities of the central bankers in managing these flows.
It’s time RBI realises that these measures are an exercise in futility.
Remember the “Impossible Trinity“.