By Prarthana Mitra
The rupee has been experiencing major depreciation in light of the tariff war which has gripped market economies around the world. On Friday, it sank to a new low, at 71 against the US dollar, as crude oil prices registered an all-time high and projected a further rise in the near future.
Experts speak
Hitting the psychological 71 level for the first time, the fall of the rupee from 70.74 on Thursday provoked the Reserve Bank of India to intervene but not to much avail. The market on Friday closed again at 71, which has ratcheted up anxiety even though the country’s largest public sector bank argues for speedy recovery of the currency.
Managing director of State Bank of India, PK Gupta told reporters that the rupee has been faring better than many of its peers, and one should not get too much worried about a “little bit of depreciation” as the currency is still “overvalued”.
You need to look at whats happening globally. Argentina, Indonesia most of the currencies are losing against the dollar. In fact, the fall of the rupee against the dollar has been much lesser compared to most other currencies, Gupta said in an interview with Financial Express. I dont think the value of the rupee is so much of a concern now. The unit is overvalued in any case. A little bit of depreciation should not impact too much at this stage, he added.
Competition and market tension
Although the Indian rupee has depreciated more than 9% against the dollar in 2018, there is sufficient evidence to prove that the Indian rupee is doing rather well, compared to other Asian currencies such as the Indonesian rupiah or the Pakistani rupee.
Experts said there hasn’t been enough aggressive intervention by the RBI to defend the rupee. On the domestic front, the intensity of RBIs intervention has dissipated. While there is complete lack of communication from the RBI, comments from officials from the government and quasi-government agencies give the impression that they support this fall in the rupees value in the interests of competitiveness, said Abheek Barua, chief economist, HDFC Bank.
Emerging market currencies are under pressure and this has weighed on the rupee too. The dollar index continues to remain higher on expectations of aggressive interest rate hike by the Federal Reserve, Rushabh Maru, analyst at Anand Rathi Shares and Stock Brokers, told The Hindu. Forex dealers have also corroborated the rising strength of the dollar against its rival currencies on “expectations of rising interest rates in the US” and continuing trade wars between US and China.
The fall has also weighed heavily on the equity markets as the Sensex lost 45.03 points to close at 38,645.07 with 14 of its constituents ending in the red. According to reports, usual index heavyweights such as Reliance Industries, Maruti, ICICI Bank and HDFC Bank lost ground this week. If the deteriorating performance of the rupee gains further momentum, it can have disastrous consequences for exporters, importers, and borrowers in foreign exchange.
Prarthana Mitra is a staff writer at Qrius