Emerging economies that don’t follow the US lead risk losing investor appeal too. Our central bank has a tough job ahead.
This week started on a poor note for Indian shares, with the BSE Sensex ending 1.64% lower on Monday. The rupee tumbled to a new low of around 81.66 to the dollar. Recent losses suggest that Indian stock markets are finally catching up with their global counterparts, which have been in agony for about a month now. India had been a bit of an outlier, fuelling talk of our economy having decoupled somewhat from the rest of the world. While domestic investors have large appetites for optimistic narratives, we can’t escape the risks of red-hot inflation that have forced central banks globally to ratchet up interest rates. These threaten to tip much of the world into a recession next year, one that could turn out worse than we’ve seen in recent decades if a bad-case scenario unfolds. Sure, India’s economy may be expanding at a relatively fast clip, but sluggish export markets will hurt, even as the bulk of worldwide capital flows respond to tighter US monetary policy, and a rupee weakened in both internal and external value could weaken macro stability. Emerging economies that don’t follow the US lead risk losing investor appeal too. Our central bank has a tough job ahead.
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