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Redemption pressure of India’s short-term debt
The Reserve Bank of India is facing management challenges against the redemption pressure of short-term debt. Traders took advantage of softer interest rates under the external borrowing route, allowing the short-term credit to jump 20% during the year. This has been exacerbated by the widening current account deficit, a source of concern for reserve management. The ratio of foreign reserves declined in March 2022. The rupee is till overvalued, and there is pressure on the RBI from the political economy to control the rupee depreciation. In short, the strategy would ensure liquidity market and credit risks are sensibly managed along with the standard reserve adequacy metrics.
https://economictimes.indiatimes.com/news/economy/finance/redemption-
pressure-of-short-term-debt-to-add-to-rbis-forex-management-challenges/articleshow/92682610.cms
Zimbabwe’s anticipated economic impacts of introducing gold coins!
Zimbabwe's central bank announced this month that it would begin selling gold coins as a store of value to combat ongoing inflation. Since gold is such an asset that is expected to maintain or increase its value over a specified period, therefore, it is a common practice worldwide to use gold as an inflation hedge to protect the decreased purchasing power of a currency that results from the loss of its value due to rising prices either macro-economically or due to inflation. While it seems logical for the Zimbabwean government to take this decision, treasuries might be a good option in such trying times since the policy rate has also increased.
HISTORY REPEATS IN GERMANY!
In May, Germany saw the first monthly trade deficit in the last three decades since 1991, resulting in significant imports over exports. The Federal Statistical Office stated exports reached €125.8billion in May, while imports came in at €126.7billion. This gap of almost €1 billion was utterly unanticipated, considering Germany is one of the world's most significant economies. Unanticipated deficits could result in the change of expectations of reduced government spending in the future or expectations of increased taxes. This could result in consumers reducing their consumption due to increase in interest rates and increased prices of assets such as stocks. Germany, saw trades to Russia recuperate by nearly 30% in May compared to April, taking after a 60% drop in April due to the war in Ukraine. The exports to Russia were less than half of what they were in May 2021.
Contractionary monetary being the sensible solution to Erdogan's Unusual Inflatory Policy
80% inflation in Turkey is the result of Erdogan's unusual monetary policy and the Russian-Ukraine war. According to Economists, high-interest rates curb inflation, so to control it, it is essential to decrease interest rates. However, Erdogan rejected the traditional method and kept on raising interest. To deal with high inflation, they increased people's income. However, this raise in pay fed the high inflation and created a trap in the spiral problem of inflation.
Moreover, the price of imported goods increased due to the international recession and Russia- the Ukraine war. Due to this, the value of the Lira dropped against the dollar, which caused the devaluation of the Lira. To conclude, a contractionary monetary policy could help mitigate the inflation problem in Turkey. Still, Erdogan's policy of keeping on raising the interest rate increases inflation and devalues the Lira.
https://www.ft.com/content/20f4ee66-8a1a-406a-85ff-9d755fdc9c9b
Declining inward remittance: Looming Foreign Currency Crisis/ Pressure
Bangladesh fails to attract inward remittance despite consistently raising incentives. A 15% fall in remittances received for the fiscal year 2021–22 marked the first decline in six years. Experts believe this is attributable to increased remittance volume via informal channels. The drop adds to the current account's negative balance, making import payments considerably harder, thus straining the financial budget. This brings to light the startling reality of Bangladesh's foreign currency pressure as the national reserve falls below $40 billion for the first time in two years. Unexpectedly, currency depreciation could not resolve the forex pressure by boosting remittances and exports while discouraging imports.
https://thefinancialexpress.com.bd/economy/bangladesh/remittance-inflow-falls-over-15pc-1656
The aftermath of slowed down export growth in FY23
Due to less external demand and the rise of exports by 34% year-on-year, the export rate in Bangladesh will be slowed down to gain stability. As a consequence of decreased demand, the supply of exports will increase, resulting in a deficit. The central bank will regulate by implementing contractionary monetary policy by responding to a reduction in money flow from fewer exports and increased domestic demand. By applying, interest rates will increase, resulting in a higher reserve ratio held by banks. Moreover, due to increased interest rates, consumers will spend less on consuming products, reducing demand, cutting import bills, and consequently bringing down the possibility of inflation.
The impacts of reduced VAT on edible oil imports
The NBR had administered a VAT cut on edible oil imports in March and again earlier this month, prolonging the vat reduction until September 30. Initially, this reduction was made to curb public protest against rising prices, hoarding and delayed delivery. The intention behind VAT reduction is to boost the economy by stimulating consumer demand and purchase through income and substitution effects. While it indicates persistent inflation, it seems like the VAT cuts made twice this year haven’t adequately served their purpose yet. Besides incentivising the consumers, it is imperative that supply is unhindered and firms affected by the cut can accommodate additional demand.
https://www.thedailystar.net/business/news/reduced-vat-benefit-extended-edible-oil-imports-3063821
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