Rupee touches 70-mark over Turkish crisis

Centre cites external issues for rupee fall, says no need to panic even if it falls to 80.
Image used for representational purpose only. (File Photo | Reuters)
Image used for representational purpose only. (File Photo | Reuters)

MUMBAI/NEW DELHI : The rupee crossed the psychological 70-mark against one US dollar for the first time, besides touching a lifetime low of 70.10 on Tuesday. The currency plunge was led by the trouble from Turkey, though the rupee reversed losses to close at 69.89. Turkey’s lira, the problem child of the ongoing mini currency rout, also pared losses, though its central bank struggled to completely contain the crisis fears in emerging market bonds, stocks and currencies. 

On its part, the Indian government blamed “external factors” for the rupee’s fall and said there was no need to panic. Economic Affairs Secretary Subhash Chandra Garg assured that the situation may ease going forward. “Rupee is depreciating due to external factors,” he said, adding, “There’s nothing at this stage to worry.”The rupee is down 9 per cent this year, making it Asia’s worst performer. In August alone, it lost about 5 per cent, which is steep, but lower than the lira and ruble, which fell 28 and 15 per cent respectively in August.

RBI has been dipping into forex reserves and has spent over $23 billion to stem the slide. But Garg said that since other currencies are also depreciating, RBI’s intervention won’t help much.
The government is yet to assess how long the volatility in the rupee will last, he added. “Even if the rupee falls to 80 against the dollar, it will not be a concern provided other currencies too depreciate in the same range.”

Garg said the rupee was still performing better than some other currencies and the country had sufficient foreign exchange reserves. RBI has a foreign exchange reserve of $400 billion.Falling currencies force central banks to hike rates in order to contain inflation. For instance, Argentina unexpectedly lifted rates by 5 bps to 45 per cent Monday, bowing to lira’s pressure. Back home, RBI, which just raised rates by 25 bps, will be in a tight spot if the rupee slide continues.    

“Given the uncertainty surrounding Turkey crisis and strength in the dollar index, importers are buying dollars aggressively. The RBI has been intervening very selectively in the market. Hence, an absence of aggressive intervention by the RBI has spooked the market,” said Rushabh Maru, Research Analyst at Anand Rathi Shares and Stock Brokers.

Currency watchers also believe that the rupee is overvalued and that there’s enough ammunition to curb dollar supply shocks, should there be any. “There is no reason to be alarmed, as India’s fundamentals remain robust and external sector ratios are quite comfortable,” said Manish Gunwani, CIO-Equity Investments, Reliance Nippon Asset Management. Among those reacting to the rupee’s fall was Anand Mahindra, executive chairman, Mahindra Group. “Instead of bemoaning its fall,” he tweeted, “should we view this as the ‘Make in India’ moment.”

70.09 - Govt, oppn cross swords as Rupee sinks

The Indian currency breached the psychological 70-mark against the US dollar on Tuesday, touching 70.09 before recovering to 69.89 levels at close.  The government blamed global concerns over Turkey’s economic troubles with Economic Affairs Secretary Subhash Chander Garg claiming there was nothing to worry “even if the rupee falls to 80”.

However, the Opposition took to Twitter to mock Prime Minister Narendra Modi by pulling out old videos of him criticising the then UPA government. “The Rupee has risen far beyond the 56inch chest; it is now 70 to the $... Will Modiji celebrate this milestone?” Congress leader Kapil Sibal tweeted.

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