The rupee’s recent slide to record lows of 54.46 against the dollar,which forced Finance Minister Pranab Mukherjee to say India is considering austerity measures,is not so bad after all,a couple of analysts say.
A weaker rupee at a time of falling oil prices would reduce concerns about inflation,according to this reasoning,while the ensuing boost in exports could reduce India’s trade deficit.
That in turn would relieve pressures on the current account deficit and the balance of payments.
The depreciation of the rupee is part of the solution,not part of the problem,said Rajeev Malik,a senior economist at CLSA in Singapore,a day before the rupee fell to a record low.
J. Moses Harding,head of asset liability at IndusInd Bank added the RBI may not need to defend the currency too aggressively in light of the steep decline in oil prices.
It may not be a bad idea for RBI to allow rupee to find its own floor instead of defending rupee at the expense of money market,which is already under structural liquidity strain,he said.