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Any currency war could put India in a tough spot
January 30, 2013 / 8:23 AM / 5 years ago

Any currency war could put India in a tough spot

Reuters Market Eye - Finance Minister P. Chidambaram says premature to say Japan’s move to weaken yen constitutes a currency war, but urged Asian countries who are looking to stem volatile inflows to avoid depreciations of their currencies.

Photos of yuan (top) and U.S. dollar banknotes are displayed at a money exchange in Hong Kong September 13, 2010. REUTERS/Bobby Yip/Files

Chidambaram’s comments must be seen in the context that India needs large inflows and a stronger rupee to narrow the current account deficit and to curb inflation.

Despite QE3-led strong inflows into domestic stocks, the rupee actually saw mild depreciation in 2012, with the central bank intervening to prop up the currency.

A currency war could put India in a tough spot, not following other countries in depreciating its currency could make its exports less competitive.

But the country also can’t afford a weaker currency at a time when confidence in the rupee is not particularly strong because of the twin deficits.

Reporting by Subhadip Sircar

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