‘Rapid fluctuations in currency market not good for economy’

The rupee on Monday crossed the 58 mark against the USD to hit its all-time low.

Written by Sandeep Singh | Published: June 11, 2013 4:31 am

The rupee on Monday crossed the 58 mark against the USD to hit its all-time low. While the momentum continues to remain against the rupee,Ashish Parthasarthy,Treasurer,HDFC Bank and a senior member of the bank management,told Sandeep Singh that these are not equilibrium levels and when the trend reverses,the correction will also be sharp. Excerpts:

What is pulling the rupee down?

It is difficult to pinpoint a sole reason. It’s a combination of high trade deficit,positive dollar sentiments and the adverse investors perspective on India as there was huge liquidation of debt investments.

What will be the likely fallout of this sharp correction?

A depreciating currency in such a rapid manner is not something that investors like and so it adversely impacts portfolio investors — both equity and debt. Then our imports are largely inelastic and coal and oil are two major components of it. As a result of the depreciation,the landed cost will be higher and translate into higher inflation,higher subsidy and will impact the fiscal roadmap of the country.

How do you see this sharp correction impacting RBI’s monetary policy?

Given the fact that the trade deficit was high in May and it is likely that current account deficit will be high,it reduces the probability of RBI reducing policy rates in their upcoming policy announcement.

Did the fall catch everyone by surprise?

Yes it did. Rapid change in currency is not a good thing for the economy. It has to be gradual and there should be time to adjust for the entities involved. People were of the view that rupee would depreciate but the sharpness and the extent of the fall has caught everyone by surprise.

Where is the rupee headed?

It is tough to talk about the levels but right now the momentum suggests that it is likely to depreciate… These are not the equilibrium levels and it should be between 55-57 to a dollar.

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