Explained: Capital outflows, pressure on Rupee, but no big India damage likelyhttps://indianexpress.com/article/explained/greek-tragedy-explained-capital-outflows-pressure-on-rupee-but-no-big-india-damage-likely/

Explained: Capital outflows, pressure on Rupee, but no big India damage likely

Shares of Indian companies with exposure to Europe, including IT firms, faced pronounced selling pressure on Monday.

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A bank manager explains the situation to distraught pensioners outside a branch of the National Bank of Greece in Thessaloniki on Monday. (Source: Reuters)

While greater clarity on the impact on India is contingent upon how events unfold in the run-up to the July 5 Greek referendum, Finance Secretary Rajiv Mehrishi conceded on Monday that an increase in interest rates in Europe could trigger investment outflows from India. He, however, downplayed any long-term impact on either the equity, debt or currency markets, stating that he expected “things to settle down in a day or two”.

READ: Greek tragedy waits for final act

The rupee weakened against the US dollar alongside other Asian currencies. “The sentiment spillover on EMs [emerging markets, including India] will imply capital outflows in the near term. We view the coming events with caution and expect the INR [rupee] to remain under pressure. However, RBI will aim to support INR against any sharp depreciation pressures using its reserves/forward positions,” Kotak Mahindra Bank said.

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The Finance Secretary mentioned that the government was in touch with the Reserve Bank of India. Governor Raghuram Rajan had betrayed a sense of cautious optimism last week, saying he expected India’s economy to be able to withstand any fallout of the crisis, thanks in part to its foreign exchange reserves of $ 355.46 billion (June 19).

The big positive for India since the Greek crisis first unfolded is that it has made the most progress in steadying the domestic economy among all of what used to be the fragile five. According to Sameer Goel of Deutsche Bank, India has taken the biggest strides on fundamental macroeconomic indicators, particularly by way of stabilising external imbalances and accumulation of foreign exchange reserves, so the RBI’s capability to defend the rupee against big capital outflows is much better now.

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On the flip side, there have been substantial foreign inflows — well over $ 60 billion — into the Indian debt and equities market over the last 18 months. This raises questions whether some of this money could be vulnerable to exit, should the crisis intensify.

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Shares of Indian companies with exposure to Europe, including IT firms, faced pronounced selling pressure on Monday.

Assocham said problems may arise out of outflows from emerging markets, including India, with a spin-off on the macro situation. While Commerce Secretary Rajeev Kher played down the impact on exports, chairman of EEPC India, Anupam Shah, said EU being the No. 1 destination for engineering exports, the crisis could impact shipments.

What do they mean?
* ALL Greek banks shut until July 7
* ONLY € 60 (Rs 4,250) can be withdrawn by an individual a day
* ONLINE banking, bill-pays open
* NO money can be moved abroad
* FOREIGN credit/debit cards (such as used by tourists) allowed

Greece’s intent is to
* PREVENT people from stashing cash at their homes
* STOP euro flows abroad, converted to different currency

Controls may continue
* UNTIL fears of bank runs remain
* BUT prolonged control hits economy harder
* CONTROLS in Cyprus lasted 2 years, from 2013 to April 2015
* EC HAS allowed controls as a special case, as it did in Cyprus

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WATCH THESE DATES

TODAY, June 30: Troika’s bailout programme reaches its end; Greece’s €1.5 billion payment to the IMF becomes due
JULY 1: New phase of negotiations — ECB has capped loans at € 89 billion; banks afloat, but can’t disburse cash; frustrations will rise
JULY 5: Referendum to decide on bailout deal. Tsipras has called demands — allegedly including spend cuts and pension cuts — “unbearable”
JULY 10: Deadline for Greece to repay € 2 billion worth of short-term treasury bills
JULY 20: Deadline to repay bonds worth € 3.5 billion to Eurozone partners
AUGUST 20: Deadline to repay bonds worth € 3.2 billion