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While Rupee at 70 Doesn’t Mean This Is 2013 All Over Again, India Should Still Be on Guard.


Date: 11-07-2018
Subject: While Rupee at 70 Doesn’t Mean This Is 2013 All Over Again, India Should Still Be on Guard
On June 28, 2018, the Indian rupee plunged to an all-time low of 69.10 against the US dollar amid growing concerns over tightening of global financial conditions and higher crude oil prices coupled with the worsening of domestic macroeconomic variables, especially the current account balance and inflation.

The mad rush for dollar by importers and currency speculators was halted temporarily after the central bank, RBI, aggressively intervened in the currency markets by selling dollars in both spot and forward markets to arrest the slide in the rupee.

If the RBI had not intervened in the currency markets on that day, the rupee might have breached the psychologically crucial mark of 70 to a dollar.

The RBI has not yet disclosed how much foreign exchange reserves were spent on that day, but market observers estimate that the RBI might have spent close to $2 billion in the forex markets to stem the fall in rupee value.

After a gap of four years, the RBI increased the benchmark repo rate, the rate at which the central bank lends money to banks, by 25 basis points on June 6, citing upside pressure on inflation due to rising crude oil prices which hit $80 a barrel in mid-May 2018. However, this move has not stopped the rupee from falling.

Analysts predict a weaker rupee in the coming months. It is expected to remain in the 68-72 range against the US dollar during the year amid high oil prices, tightening of global liquidity, a strong dollar and growing protectionist tendencies.

Analysts also predict one more policy rate hike by the RBI in the range of 25-50 basis points before the end of 2018.

Source: thewire.in

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