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HomeFinanceDon't Blame the Emerging Markets; It's the Curse of Mr. Bernanke!

Don’t Blame the Emerging Markets; It’s the Curse of Mr. Bernanke!

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helicopter-ben65,66,67..one more ..68..! Oh no, I am not forecasting rupee depreciation! It’s just the number of rupee jokes I have been getting these days. No, don’t call me heartless. I am not the one sending these jokes! In fact, I am supporting a dear friend in a fast-until-death, till Mr. Chidambaram and Mr. Subbarao (well, no Rajan right now please, spare the handsome guy till he joins office at least!) bring our beloved rupee back to stable. I even joined my pals in a two minute condolence ceremony for the dying Indian economy! Now, now…before someone comes up with an idea of giving an obituary for the Indian rupee in some daily, I have an advice! Wait for the dollar to come down and then fly off to Washington DC. Why you ask! C’mon, you people, we will stage a demonstration outside the Federal Reserve (think big sometimes please)! Puzzled? Why did I suddenly point the gun in the direction of USA? Well, because the real culprit behind the rupee suddenly going into I.C.U is Mr. Ben Bernanke (the chairman of US Federal Reserve). And just in case you were singing, “It happens only in India”, I am afraid, you are wrong this time! It’s the ‘emerging economies flu’ that has caught on. Be it the Brazilian Real, the Mexican Peso, or the Indonesian Rupiah, the Indian Rupee…from Latin America to Asia, all the emerging markets have witnessed record breaking depreciation in their respective currencies, reason being the ‘Bernanke Spell’!

Let’s rewind to the year 2008, the sub- prime crisis struck USA and with it shook the global markets, as the impacts spread across the globe. The contagion effects further helped in the onset of the Euro-Zone crisis and gradually the developed markets saw capital flying out in the direction of emerging markets. Mr. Ben Bernanke, the Central Banker of the world’s superpower had a big responsibility on his shoulders, to revive the US economy and free the global markets from this contagion effect (how magnanimous Mr. Bernanke!). So, he came up with this brilliant idea of ‘Quantitative Easing’ (central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions, thus increasing the monetary base). Now, how did it impact us? Billion of US dollar was released in the markets as the Fed bought govt. bonds and injected money into the economy. As the rates of interest on investments were low in the US, the Euro Zone (owing to the crisis), this new capital found its way into the emerging markets of Brazil, India, China etc. So, we rejoiced, celebrated A.R. Rahman’s Oscar glory(how co-incidental), our stock markets were booming, Indian corporate were enjoying cheap loans from USA, Japan etc., given the low borrowing costs, without realizing the fact that this fame was short-lived. Just when we were about to declare ourselves as the new superpowers, Mr. Bernanke pulled the strings back! Come June 2013, our protagonist declares that the Fed might consider tapering the bond buying program followed by a complete withdrawal of quantitative easing, since the conditions in the US market seem to be improving. The developing countries got their big blow. Investors started panicking, the rates of interest on investments in the US increased and capital made yet another flight to its source, the US markets and all we could do was watch the rupee, the real, the peso falling to new lows each day as US dollar flew out of our markets. Huh, selfish USA! I told you it was all their fault!

Now, as this devil’s act (no pun intended) makes its way through our markets, there’s really nothing our governments can do about it, other than maintain investor confidence (sadly, the Indian report card has got a permanent ‘dunce’ title in this respect). So, I would say, stop all the lamenting, take a deep breath, and wait till we get some magical portion to end this dry spell!!

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