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Global Economy: Impacts (Turkish currency: Lira (Affect for India? (Rupee…
Global Economy: Impacts
Turkish currency: Lira
What went wrong?
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considered as the worst bilateral
crisis, since the US arms embargo on Turkey following its invasion of Cyprus in
1974
Economic reason
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Signs of a massive bubble in the
construction sector, which threatens the
country's fragile banking system.
lira is the world's worst performing
currency, which slid by almost 50% against Dollar
Fragile Economy?
As per IMF, Turkey has least adequate level of reserves among major emerging market Economies==> Vulnerable to speculative attacks
Political Interference with "Independent" Central bank.
-Bank has been restrained from raising Interest rates to quell surging inflation
Nepotism, crony capitalism on the fore of country's Administration
Lessons to be learnt!
Countries should use borrowed money for increasing
productivity and build the Nation, and not get caught in the same web again
US FED started raising interest rates==> affecting emerging market economy as globe is Interconnected
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Countries approaching IMF in these situations, dictates of IMF can go against welfare/ populist measures
Affect for India?
Rupee is
overvalued with Real Effective Exchange Rate hovering around 115 this will
boostjob creating sectors and promote exports
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Global fight for Dollar persists, because of raise in Interest rates there
-Hence,depreciation of currencies in emerging markets is common
India now a cheaper foreign destination, outward travel expected to be hit
Rupee weakening is because of the contagion effect impacting all emerging markets triggered by Turkish crisis
-Hence Pressure on RBI to keep inflation in range
Way forward
Complete Optimism on macro economic fundamentals, growth and comfort on infation and fiscal deficit
-But India placed better in terms of Vulnerability Ratios