Prime Minister Narendra Modi will today hold crucial economic review meeting over the fall in the rupee, Reuters reported quoting government sources. The Prime Minister will hold a meeting with the finance ministry to discuss the rupee and other economic issues.
The rupee has fallen about 13% since the beginning of the year mainly due to the strengthening of the dollar, however, putting pressure on India’s current account deficit and oil imports. The government has been asked by top economists to stick to the fiscal deficit target and avoid populism.
Due to the fall in the rupee, coupled with higher crude oil prices, fuel prices in India also skyrocketed, triggering demand for excise duty cut on petrol and diesel. However, the CAD, which widened to 2.4% of the GDP in the April-June period of the year 2018-19, is already under pressure due to the twin shock of the rupee and oil.
Recently, the news of slowing inflation in the month of August infused some optimism in the market. Both rupee and the benchmark 10-year bonds climbed on August CPI posting 10-year low of 3.69% on-year growth. The government had earlier maintained that the rupee was overvalued and needed to find its own level.
However, when the rupee neared the 73-mark, DEA Subhash Chandra Garg signalled that both the government and the Reserve Bank of India (RBI) might be willing to intervene.
“No fundamental rationale for the rupee to depreciate to levels we saw till yesterday. It reflected overreaction of market operators. Government and RBI will do everything to ensure that rupee does not slide to unreasonable levels. Today’s correction seems to reflect that realisation,” the DEA said. Many economists are expecting interest rate hike by the central bank in the upcoming monetary policy meeting in October.