India ScramblesForPlan D AsStocks, CurrencyResumeCollapse
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After a modestly weak start, India’s FX and stock markets accelerated lower overnight in the currency’ssecondbiggestdailycollapsein 17 years, and stocks second biggest daily plunge in 2 years. Rubbing further salt into an already gaping wound of capital outflows, S&P re-iterated its downgrade threat overnight following India dismal PMI print and this appears to have pushed the Indian government to Plan D. Following the failure to halt outflows of Plan A (status quo and blame it on the Fed/Speculators), Plan B (well something is up so ‘capitalcontrols‘ on FX and tariffsongold), Plan C (that’s not working so let’sconfiscatepeople’sgold), the Indian government is trial-ballooning Plan D – ditchtheUSDfortrade-payments(especiallyoilwhichisup 50% inINRtermsin 4 months).

Just when you thought it was safe to dip your fast-money toe back into Emerging markets…

Last night’s INR collapse was dramatic to say the least as was the stock market’s 3.8% collapse…

and 1-month forwards are pointing to things getting a lot worse before they get better as the divergence grows… 1-monthINRforwardsaretrading at 69 – theirhighest (weakestINR) ever

ViaWSJ,

Indiaisexploringpossibilitiesof a rupee-basedtrade-paymentmechanismwithseveralcountries, Foreign Minister Salman Khurshid said Tuesday, a move that may help stabilize the local currency and reduce the country’s current-account deficit.

Indiaalreadyhas a rupee-basedpaymentmechanismwithIran, which was worked out by New Delhi and Tehran to skirt Western sanctions against Iran. Under that, Iranian oil would be purchased with Indian rupees, which Iran would use to buy Indian goods, which include food, drugs, consumer products and auto parts.

Indiaimportsmorethanthree-fourthsofthecrudeoilitrequiresand a depreciatingrupeehasincreaseditsenergycostsinthelocalcurrency, adding to the government’s fuel subsidies.

[the Rupee price of a barrel of Brent crude has spiked over 50% on th last four months]

…

"Ourcommerce [trade] ministerisintouchwithmanycountries. Let’s see where it is possible," Mr. Khurshid told reporters here. "If it is possible, than it would be of help to us right now," he added.

…
Trade Minister Anand Sharma last month said his ministry was exploring a rupee-trademechanismwithIraq, thecountry’ssecond-largestsupplierofcrude, behind Saudi Arabia.