Rising inflationary pressures and a weakening currency have crushed India exchange traded funds this year, but investors are coming back, betting on India’s new central bank leadership.
Raghuram Rajan, former chief economist of the International Monetary Fund, took over the Reserve Bank of India, the Associated Press reports. Rajan has announced he will implement short-term changes.
“It involves considerable change, and change is risky,” Rajan said in the article. “But as India develops, not changing is even riskier.”
Specifically, Rajan stated that existing banks would be able to open new domestic branches without RBI go-ahead and that new banking licenses would be issued by January. The RBI will also issue inflation-indexed savings certificates and encourage low-income financial services. Additionally, he promised to improve bad loan recovery.
“Some of the actions I take will not be popular,” Rajan added. “The governorship of the central bank is not meant to win one votes of Facebook ‘likes.'”
India’s economy slowed to 4.4% growth in the second quarter. The Indian rupee has depreciated 20% since May. The WisdomTree Indian Rupee Fund (NYSEArca: ICN)is down 14.5% year-to-date. [India ETFs on Shaky Footing with Weakening Rupee]
Due to the ongoing problems in India, Jim O’Neill, the former chief economist of Goldman Sachs and creator of the BRICs – Brazil, Russia, India and China – acronym, does not believe India is not holding up to the former standards. [Guggenheim BRIC ETF to Get More BRIC Feel]
“I would exclude India from the group, as its current cyclical challenges have grown and, despite market pressures, the government seems no closer to doing the obvious things,” O’Neill said. “Some might say similar things about Russia and I could see why, but China is doing plenty of the right things and Brazil is beginning to do the same.”
WisdomTree India Earnings ETF
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Max Chen contributed to this article.