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Declining rupee,difficult economy

On Thursday when the finance minister came to address the media in New Delhi,rupee was trading at around 58.1 against a dollar

Written by Sandeep Singh | Published: June 14, 2013 1:13 am

On Thursday when the finance minister came to address the media in New Delhi,rupee was trading at around 58.1 against a dollar and the market began expecting measures,yet all pundits aver there is little in the short term the government can offer. The dip in the rupee was almost inevitable as treasurers had been penciling in the trend yesterday too.

They are tracking similar trends in emerging markets currencies (South African Rand,Brazilian Real,Mexican Peso and Russian Rouble) too all of which have travelled the same terrain in the last one month,notching up high current account deficits,some thing the finance minister has also noted. However,while the rupee’s fall against dollar (5.97 per cent in one month) is the third highest from among the five currencies,it has dropped more towards the end. In the last one week,the rupee fell 2.3 per cent while the second biggest loser,Rand,fell 1.4 per cent. Jamal Mecklai of Mecklai Financial Services points out that the forthcoming US jobs data is expected to be very strong. If that does happen,then rupee could hit 60 to a dollar,a level it was expected to reach much later this year.

There have been views for and against the RBI and the government’s stand on the rupee but the question is that beyond tempering volatility there is little they can do. But possibly,RBI could have stepped in earlier but then the Governor expressed apprehension that if he had intervened earlier it would have not had the desired impact as the outflow was strong. Responses such as increasing the FII’s debt investment limit and a committee proposing to make it easier for foreign portfolio investors to come and invest will help but only in the medium term. In the short run,the move away from the rupee restores some of the competitive edge for Indian exports that our on-off tax policies and transaction costs had sheared off. That’s good news.

Sandeep is a senior assistant editor based in Mumbai

sandeep.singh@expressindia.com

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