Real, rouble, rupee: Trouble looming for all

The Indian rupee, Brazilian real and Russias rouble share more than first letter, R. The currencies of the three emerging economies have all faltered miserably against the US dollar in the past one year. The tumultuous developments surrounding the major emerging markets currencies can be analysed from the fact that the Indian rupee and the Brazilian real lost 20 percent and 24 percent value against the American greenback during the past one year, respectively, while the Russian rouble slid by 15 percent. This is down to multifaceted challenges currently being faced by the emerging economies, with value of export receipts largely dependent on the economic health of the EU region. For the same reason, investors flocked toward the dollar, with US dollar index up by around 10 percent during the past one year. Higher inflation, slower economic growth and decline in capital inflows are together the chicken and egg debacle for emerging contagion of currency crises among emerging countries. To validate the flagging performance of the rouble, Russian economy faces additional threats from lower oil prices, given its economic dependency on oil and gas exports. Around this time last year, the emerging markets were voluntarily racing against each other in currency devaluation to make their respective exports competitive. But recent interventions by these countries to check the precipitous decline of their currencies suggest that the currencies have now fallen beyond the comfort line: losses from currency weakening are greater than the gains. Indian government has been aggressively eyeing ways to lubricate capital inflows, while it has directly intervened in the foreign exchange market by selling dollars. The Brazilian government has eased restrictions on foreign borrowings. The Russian government has also intervened in foreign exchange currency market in order to cushion the rouble. In the wake of the current scenario, the market gurus are urging caution. Foreign currency strategist Stephen Jen predicted that currencies from Brazil, Russia and India will probably decline at least 15 percent further by year-end. A checkered history of developing countries, along with their recent feeble performance, confirms the market believes that these rudimentary economies will do little, in the near term, to pull the developed world out of economic quagmire.