China on Tuesday devalued its currency in a way that left it 1.9% weaker versus the U.S. dollar. The move will likely have a ripple effect through financial markets as well as in politics, as China is the world’s largest trader and the Yuan is increasingly used overseas. A weaker currency helps China’s exporters sell their goods abroad. The move puts pressure on other and indian market The Indian rupee slipped to a two-month low of 64.26 against the US dollar on Tuesday tracking the devaluation of the renminbi. Other currencies such as the Australian dollar and the South Korean won also lost ground
With the global influence of China, the devaluation of their Renminbi will definitely affect other economies. Last night I was reading a news article about China's investments in Morocco. From the grassroots level up to banking and finance, China is pouring in money into that country. Highways and public structures are being built using China's money. And although the return of investment is the good rate of interest, China had already an established clout in the Moroccan business community.
I think we have already seen the effects of the devaluation not just in the Indian markets, but markets the world over. Central Bank policy makers the world over are bracing themselves for the possibility of an upward movement in the US federal Reserve interest rate, China devalued their currency as a result of this anticipation. The devaluation could also be indicative of a slow down in Chinese growth. Of late, much of global demand has been buoyed by China, as many economies still remain frail. The reduction in Demand by China will affect emerging markets and commodity led economies. With the correct plans in play, and with its large economy, India could actually overtake China as the driver of the world economy. Oil prices are low, driving down inflation, which will be great for India's real growth rate
I will be interesting to see how the devaluation impacts India, which is the main developing market challenger to China on a number of levels. The last thing you want is competitive devaluation by other developing market countries in order to remain competitive with China. We'll see how this story plays out.
