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  1. CEA Arvind Subramanian: RBI stemming rupee rise; containing negative impact on economy

CEA Arvind Subramanian: RBI stemming rupee rise; containing negative impact on economy

Says the central bank is also trying to contain appreciating currency’s negative impact on economy

By: | New Delhi | Published: September 26, 2017 6:29 AM
Reflecting a possible intervention by the central bank and a persistent fall in stock markets, the rupee on Monday closed at a six-month low of 65.12 a dollar. (IE)

The Reserve Bank of India (RBI) has been intervening in the forex market to curb the rupee’s rise against the dollar and contain its negative impact on the economy, chief economic adviser Arvind Subramanian said on Monday. He said the rupee appreciated in a big way from January to April this year, which adversely affected the country’s exports and import-competing sectors. According to the real effective exchange rate (REER) based on a basket of currencies of 36 export partners, tracked by RBI, the rupee was over-valued by around 22% in April, against 17% in January. The appreciation of the rupee has since been contained a bit and the currency remained over-valued by more than 20% in both July and August. The rupee appreciated from 67.95 against the dollar in the beginning of the year to 64.27 by the end of April.

Reflecting a possible intervention by the central bank and a persistent fall in stock markets, the rupee on Monday closed at a six-month low of 65.12 a dollar. Apart from denting the country’s export competitiveness, the strong rupee has helped imports rise at a faster pace in recent months, driving up trade deficit, while borrowing costs remain elevated for small and medium enterprises. Subramanian had on Saturday said the economy was facing challenges on multiple fronts and needed a measured response “across the board”.

India’s economic growth plunged to a 13-quarter low of 5.7% in the April-June quarter this fiscal, as pre-goods ans services tax stock clearances by jittery businesses hurt manufacturing, which was already recovering from the impact of the note ban.  Thanks to the RBI’s heavy intervention to curb the appreciation of rupee, and the strengthening of the Chinese yuan against the US dollar, the real competitiveness of the rupee has improved a little bit recently. “But it is still not enough to offset the loss of competitiveness in the previous six-nine months,” Subramanian had added. All emerging economies face this problem, with a surge in capital inflow putting pressure on the exchange rate.

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