Economists fret as INR hovers above 74

Two, chances of the domestic unit crossing past 75 aren’t being ruled out, leaving exporters and traders worried.

Published: 11th October 2018 03:46 AM  |   Last Updated: 11th October 2018 03:46 AM   |  A+A-

Rupee

For representational purposes (File | Reuters)

By Express News Service

MUMBAI:  The rupee closed above 74.2 against one US dollar Wednesday, for the third day in a row. This should worry policymakers and economists for two reasons — one, a 74-level that until recently was just unthinkable has not just been breached, but is also sticking around. Two, chances of the domestic unit crossing past 75 aren’t being ruled out, leaving exporters and traders worried.       

Making matters worse is the uncertainty around rising global fuel prices, widening current account deficit and fiscal deficit, and the Reserve Bank of India’s (RBI) unwillingness in determining the fate of the exchange rate. “RBI has for long maintained that it steps in only to curb undue volatility and doesn’t target any currency level. That stance places the authority behind counterparts in Indonesia and the Philippines, which have been actively supporting their currencies,” said Madhavi Arora, economist, Edelweiss Securities Ltd. 

The brokerage expects rupee weakness to persist, and even head toward 75, “unless some additional assertive policy steps come through”.This is perhaps the worst time for rupee in the past decade and according to Bloomberg Research, the rupee has been falling for six straight months, which is its longest stretch since 2002. “We continue to look for the USD-INR to head towards 75, factoring in our view of at least four rate hikes by the US Federal Reserve over the year, which will be dollar and rates positive,” said Radhika Rao, economist, DBS Group Research.

Last week, RBI Governor Urjit Patel stressed that rupee depreciation was moderate compared to its emerging market peers. He reasoned that the currency weakened by 5.6 per cent in nominal effective terms since March, while in real effective terms, it fell only 5 per cent — in contrast to countries like Turkey, whose currency lira fell over 40 per cent. 

However, currency experts argue that rupee lost nearly 13 per cent so far this year and is the worst performing Asian currency. And with the central bank refusing to intervene — unlike Argentina or Indonesia, who used the monetary policy tools, i.e. raising policy rates to defend the currency slide — the domestic unit plunged past the 74 level and is living in fear about its future direction.     

Meanwhile, a Reuters poll of over 50 currency strategists last week also showed the rupee was seen trading around the current rate, about 74 per dollar, in three months and strengthening just a bit to around 73 per dollar in a year. Worryingly, the weakest forecast stood at 78, while the strongest rupee outlook was 67.97 compared to 75.6 and 66.1 respectively in its previous poll.

Stay up to date on all the latest Business news with The New Indian Express App. Download now
(Get the news that matters from New Indian Express on WhatsApp. Click this link and hit 'Click to Subscribe'. Follow the instructions after that.)

Comments

Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

facebook twitter whatsapp