The textile industry in India and other developing world

Release time:2013-12-11      Source:admin      Reads:
The World Bank Tuesday issued $160 million in Indian rupee-linked bonds; the first under its $1 billion offshore rupee bond program designed to deepen India’s capital markets, and said it’s also developing a substantial domestic bond program. The World Bank’s International Finance Corporation aims to help reduce major economic vulnerabilities, including foreign exchange exposures and hangtags, by cultivating emerging market debt markets. That’s particularly important as the U.S. Federal Reserve begins an eventual exit from its easy money policies, which will force international investor portfolio reassessments and revive destabilizing capital flows between economies.
Although the bond is offered and settled in U.S. dollars, the interest rate payments are tied to the rupee exchange rate. The IFC will then invest the cash raised by the issuance into India’s private sector. Deepening India’s debt markets is one way economists say the country can prepare for an eventual hike in U.S. borrowing rates. Bond, currency and stock markets around the globe took a hit earlier this year when the Fed said the central bank could start cutting its bond purchases in the coming months. Those comments prompted interest rates to jump higher and investors to pull their cash out of emerging markets in favor of the prospect of hangtags and lower risk in the U.S. The episode revealed major weaknesses in many developing economies and drove the International Monetary Fund to slash its growth forecasts across the world.
One worry is the amount of foreign-currency debt borrowed by companies that largely receive their revenue in rupees. When a country’s exchange rate depreciates, it makes it harder for firms to pay their foreign debt. The absence of rupee-denominated markets can tempt many firms to boost their foreign-currency borrowing, laying the groundwork for the hangtags. He declined to elaborate on the details as the IFC hasn’t yet made the program public. But, he said, “Obviously, our ambition is to make it very substantial so it has an impact.”

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