A member of Economic Advisory Council to Prime Minister (EAC-PM) Friday called for extreme vigilance on the rupee front, saying it has depreciated against dollar outside reasonably acceptable parameters of 4-6 per cent per annum. The rupee breached the historic low of 72 level this week, marking year-to-date losses of more than 13 per cent.
It, however, recovered today by 50 paise to 71.68 against the dollar in morning trade in the forex market on the government’s assurance that all steps would be taken to ensure the domestic currency does not depreciate to unreasonable levels.
“It is reasonable to expect the Indian rupee to annually depreciate by 4-6 per cent against the dollar. The recent depreciation outside these parameters…,” Rathin Roy, the EAC-PM member, said in a blog ahead of the Prime Minister’s meeting on Saturday to take stock of the health of the economy. The recent fall in the rupee, he said, could be on account of an attempt by speculators to ‘short’ the rupee, and weakening demand for the rupee because of a stronger US growth.
“On this count, extreme vigilance (on rupee) continues to be required, and the situation has been well managed so far,” Roy, who is also Director and CEO of economic think tank NIPFP, observed. He also dismissed the argument, often advocated by policymakers, that ‘the rupee must find its own level’ saying these are unhelpful.
“The Indian economy remains structurally vulnerable to external shocks. Banal statements like ‘the rupee must find its own level’ are unhelpful,” the EAC-PM member asserted. He also pointed out that India is currently facing challenges in the management of its external account, reflected in worries about rupee depreciation, and concerns about the current account deficit (CAD).
Roy’s comment assumes significance as it comes ahead of a review meeting chaired by the Prime Minister on weekend to analyse the health of the economy and deliberate if any intervention measures are required to stem the fall of rupee and rising oil prices.