At the beginning of this week 20 major currencies of developing countries fell sharply against the American dollar, with especially hard-hit Indian Rupee. Financial markets of developing countries are having growing tension.
The rupee had fallen by 2.4% (to 63.2 rupees to the dollar). Since the beginning of the year rupee fell by 12%. Investors are afraid for the economic future of the country. Only Chinese yuan wasn’t “injured” among the others due to rate protects by the People's Bank of China.
The People's Bank of China several months is trying to take control of the credit boom. The latter measures amounted to reduce the volume of supply of liquidity. But the banks are constantly ahead of the regulator by one step. They come up with ever more complex schemes to continue lending.
It's like a game of cat and mouse. For example, banks are now mask risky loans to companies as less risky loans to banks. It helps banks to circumvent the restrictions on lending and conceal risks. It is assumed that the risks of such loans are divided between the two banks. Analysts estimate that under this scheme have been granted loans by $ 326 billion.
Investors are increasingly skeptical of the Chinese banks. They do not believe that the banks bear small losses on already issued loans. Bank stocks have already traded less than its nominal value.
Analysts warn that the quality of such loans is lower than conventional loans. Banks give out such loans to borrowers whose access to credit is trying to limit the state : steel producers, local governments and others. Such loans can pose a serious risk to the Chinese government, experts warn.
Investors are forced to sell the currencies of developing countries due to bad news about its economies as well as because of further evidence of the coming completion of the asset purchase program. Most developing countries show signs of an economic slowdown and worsening the budget situation.
For example, Thailand has turned into a technical recession. But investors are most concerned with the fate of countries with high current account deficit, in which there was strong capital inflows but not foreign direct investment.
Indonesia's stock index has fallen by 5.6%, after the country's central bank said on Friday that the current account deficit grew significantly in the second quarter.
Serious concern is India. The government can’t stop the fall of the national currency and the measures undertaken are only exacerbating the problem. Investors do not believe that the government of India will be able to prevent a serious recession.
Many believe that the government has lost control over the economy. Indian stock index Sensex fell by 2%, while the yield on 10-year bonds rose above 9% - the highest level since the 2008 crisis.