Why is the Indian currency collapsing

  • from the Fuldaer Zeitung editorial team

- Frankfurt / Main (dpa) - The Syria crisis is putting the already ailing Asian financial markets under increasing pressure. The effects were felt most severely in the middle of the week in India.

The local currency, the rupee, fell more than three percent against the US dollar on Wednesday and suffered the largest daily loss in about twenty years. At 68.75 rupees per dollar, it fell to a record low. In the current year, the Indian currency has lost more than twenty percent of its value.

Other currencies in emerging Asian countries also suffered heavy losses again. In addition to the rupee, the Philippine pesos, the Thai bath and the Malaysian ringgit fell noticeably. All of these currencies are currently at multi-year lows against the US dollar. In Syria's neighboring country, Turkey, the lira fell to a record low against the dollar and the euro.

The Asian stock exchanges also suffered further significant losses. The Philippines were hit hardest again. The PSEi stock market index had already slumped by almost four percent on Tuesday, and there were additional losses of three percent on Wednesday. There were also heavy losses on the stock exchanges in India, Thailand, Indonesia and Malaysia. The stock exchanges in Asia's two largest economies, China and Japan, also fell.

For the second day in a row, government bonds from many emerging countries were under heavy pressure. In India, Indonesia and Thailand in particular, the risk premium charged by investors increased. In return, the courses crumbled. In Turkey, the return on ten-year government bonds in local currency is now above the ten percent mark. Corresponding debt securities that were issued in dollars yield 5.6 percent.

A mixture of political and economic factors is decisive for the decline in the financial markets, especially in Southeast Asia: most emerging countries have been suffering from massive capital withdrawals for months. The reason is the approaching change of course in American monetary policy. The US Federal Reserve wants to reduce its highly expansive monetary policy somewhat this year.

Because of this, market interest rates have risen in the industrialized countries, which makes investments in emerging markets appear less lucrative. The threat of military intervention by Western countries in Syria exacerbates the situation because it increases investor uncertainty.