NEW DELHI: Economic recovery is pushing up the value of rupee against dollar, which might affect the country’s export sector, which is going through a tough time due to slowdown in the global economy.
Rupee has appreciated by around Rs 1.75 per dollar in the last fortnight to around Rs 46.25 on the back of high industrial production of over 10% and huge inflow of foreign institutional investors fund in the stock market.
The weakening of the dollar against major global currencies, particularly the euro has also affected the sentiments. According to a report by Dun and Bradstreet, in India, expectations that the Reserve Bank of India would tighten the monetary policy following a rate hike by the Reserve Bank of Australia, has affected the dollar which in turn provided an impetus to the rupee.
Commenting on the volatility of the rupee, Federation of Indian Export Organisations (Fieo) president A Sakthivel said that the appreciation of rupee has kept the export sector on tenterhooks as exporters are worried about net realizations falling into a negative zone as they are working on leaner margins in the present times.
Export is already down by around 30% since the financial crisis hit the global economy in September 2008. The present volatility of a domestic currency is creating a difficult condition not only for India but also for other economies like of Japan and Europe, which are also dependent on exports.
The expectation that RBI will tighten its statutory rates in the forthcoming monetary policy has further created a sentiment in favour of rupee. A senior banker said that if interest rates on rupee deposits are likely to go up, corporate houses and exporters will bring in their proceeds in India and would like to keep them in rupee assets. This will increase the supply of dollar in the market, which will further depreciate its value.
United States, on the other hand, would prefer that its currency dollar to remain weak to boost its exports, considering the current situation. The American treasury sold $1.4 trillion in fiscal 2009 ended September 30 to finance its budget deficit. So, there is an expectation that value of dollar will fall further against most of the currencies.
After the financial crisis, which originated from US, there is a shift of focus from dollar as a global reserve currency. Now, on an average, countries keep only 37% of there reserves in dollar assets as against 63% in 1999.
Shaktivel said that while the large exporters manage to hedge, which anyway comes at a cost, smaller exporters have to manage with a mark-up on their export pricing.
Source : TOI