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Rupee touches 70, RBI steps in as Government says no need to worry yet

On Monday, the rupee crashed by Rs 1.08, or 1.57 per cent, to end at a historic low of 69.89 against the US currency as the Turkish currency, lira, plunged, sending global currencies into a tailspin.

Rupee, Rupee value, Rupee vs dollar, Rupee value today, rupee today, Share market, Sensex, Srock market, Rupee fall, Rupee gain, business news, Indian express news Rupee fell 6 paise, BSE Sensex, Nifty fell too. (Illustration: CR Sasikumar)

The Indian rupee Tuesday plunged below the 70 level to hit a record low of 70.08/09 against the dollar as the currencies of emerging markets witnessed a rout, triggered by the crash in the Turkish lira. The rupee, however, recovered later to close at 69.89/90 after heavy intervention by the Reserve Bank of India (RBI).

When the rupee hit the 70 level against the dollar for the first time, the RBI sold dollars through public sector banks, preventing a further slide. On Monday, the rupee crashed by Rs 1.08, or 1.57 per cent, to end at a historic low of 69.89 against the US currency as the Turkish currency, lira, plunged, sending global currencies into a tailspin.

READ | Impact of Rupee’s fall: Importers to be hit, exporters stand to benefit

The rupee which has lost over 8.5 per cent this year is one of the worst performing emerging market currencies. The Sensex, however, ignored the rupee’s fall and gained 207 points at 37,852.00 on sustained buying support.

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Economic Affairs Secretary Subhash Chandra Garg attributed the fall in the rupee to “external factors” and said there is nothing to worry about it as long as the depreciation is in line with other currencies.

“The rupee is depreciating due to external factors… nothing at this stage to worry,” Garg said, adding external factors may ease going forward. Even if the rupee falls to 80 per dollar, it will not be a concern provided all other currencies depreciate in the same range, he said.

In New Delhi, SBI chairman Rajnish Kumar told reporters: “Various currencies have depreciated and these days since economies are connected, it is natural for rupee to be impacted by this. Our currency, in comparison to many other currencies, has not seen that much depreciation. I feel it should stabilise anywhere between 69 and 70 because if you look at the numbers that have come in to the country as investment in bonds and equities, this investment has become attractive for foreign investment and figures for both July and August are positive.”

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READ | Modiji has finally managed to do something that we couldn’t do in 70 years: Congress on Rupee fall

Incidentally, in its 2014 election manifesto, the BJP had been critical of the Congress party for the depreciation of the rupee under its watch.

A forex analyst said: “If global currencies show further meltdown, the rupee will also fall further. It could touch 75 in the next four or five months.”

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What’s the impact of the rupee’s fall? Importers will be hit because of the rupee’s decline as the cost of getting goods or equipment in to India will increase. When the rupee weakens, importers especially oil companies and other import-intensive companies, will have to pay more Indian rupees to buy an equivalent amount of dollars. In other words, a weak rupee can act as a kind of import tax. It will be a double whammy for the oil sector as the rise in crude oil prices and the decline in rupee value will add to retail fuel prices. Margins of oil companies will come under pressure.

On the other hand, exporters stand to benefit from a weak rupee as they get more rupees while converting their dollar export earnings into Indian currency. India’s software exporters specially will benefit from the rupee’s decline. This is expected to boost the export sector which has been showing single digit growth. For FY18, exports grew 9.78 per cent.

READ | Turkey rout complicates RBI’s inflation-targeting job

Moses Harding John, CEO (India & East Africa), SBM Holdings, said, “The rupee depreciation from 68.35-68.85 consolidation into 69.65-70 was not a unpleasant surprise, but the timing of it caught most on the wrong foot, more so when this rupee fall from 68.50 to 70 is not triggered by factors such as bullish momentum on Brent oil value or US dollar strength against major currencies or higher USD interest rates. This sudden fall is from the fear of potential Turkish Lira impact on emerging markets currencies, from which the rupee value can’t stand out when current account deficit is moving up sharply and flows into capital account is on the decline.”

Moses said the comforting factor, however, is the optimism on domestic macroeconomic fundamentals, optimism on growth and comfort on inflation and fiscal deficit.

“The way forward is not good for the rupee with certainty that intra-2018 USD/ rupee base is now up from 63.15-63.50 to 68.50-68.85. This sudden value depreciation of INR is major discomfort for importers, squeezing the operating margin. But seen good to support exporters and to attract long term foreign direct investments to support the “make in India” agenda, which has not yet taken off and one of the reason being the strong rupee value. All combined, there is nothing to panic and the current rupee value adjustment from 63.50-68.50 to 68.50-71.50 should do more good than harm to the Indian economy and financial markets,” Moses said.

First published on: 15-08-2018 at 04:47:01 am
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