Expert Zone

Straight from the Specialists

The rupee at a crossroads

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The rupee was tossed around quite a bit in the last 10 months. It dropped to a low of nearly 69 to the dollar, creating an economic crisis, before it recovered and is now at 59-60. The threat is not that it may drop once again, but that it may appreciate further and upset the economy in other ways.

Why would the rupee appreciate? Because there are expectations the Narendra Modi government will facilitate development and enable the economy to get back on course. This is what drove the Sensex beyond 25,000. But the currency market was more stable in spite of the huge inflow of $2.2 billion in 10 trading days of May.

That is because the currency market can be better managed with intervention by the Reserve Bank of India. The RBI can purchase excess dollars and build foreign exchange reserves instead of leaving it to the market to price down the dollar and encourage additional imports.

The rupee-dollar exchange rate is critical. A harder rupee makes imports attractive to Indian consumers and exports more expensive for foreign buyers. With the inflation that we had in the last three years, prices of most of our exportable goods have been marked up. To some extent, this has been reversed by the fall in the rupee against the dollar to 59-60 from 45. With the rupee correction, the competitiveness of Indian exports has been restored. Even so, exports have not picked up because the major importing countries have been in a stalemate.

Asian financial crisis and lessons for India

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Several economists have gone to great lengths to say that India in 2013 is not facing a repeat of the 1991 balance-of-payments crisis or the Asian financial crisis in 1997. Clearly, the crisis India faces now is unique – as most economic crises usually are.

That does not mean there is nothing to be learnt from past crises. We believe there are several similarities between the Asian one and India’s situation today.

The rupee on a crash course

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Given the kind of volatility in financial products and asset classes that we have seen in India and some emerging markets over the last few weeks, it’s likely to be a long winter for the Indian economy.

The rupee is at an all-time low against the dollar, FIIs are big sellers in Indian debt and equity markets, the Sensex is falling and bond yields have risen. Adding to India’s misery, there’s no sign of inflation easing or interest rates coming down in a hurry. The twin deficits – fiscal and current account – are at levels that could expose the economy to a potential rating downgrade.

Time to get used to a weak rupee

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The fall of the rupee has become politically embarrassing. When the rupee crossed 60 to the dollar, the government and the Reserve Bank of India (RBI) thought it was time to act. The RBI tried to suppress speculation that had exaggerated the rupee’s fall and the government sought to increase foreign resources to fund the current account deficit (CAD).

The RBI complied half-heartedly. “We let our exchange rate be largely market determined, but intervene in the market to smooth excess volatility and/or to prevent disruptions to macroeconomic stability,” Governor Duvvuri Subbarao said in a speech in London.

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