Rupee at all-time low does not concern Raghuram Rajan; here’s why he thinks rupee needs modest weakening

By: | Updated: August 16, 2018 12:46 PM

The rupee on Thursday hit a fresh all-time low of 70.32 against the US dollar in opening deals, which does not concern former Reserve Bank of India (RBI) governor Raghuram Rajan too much.

Rupee at all-time high does not concern Raghuram Rajan; here's why he thinks rupee needs modest weakeningRupee at all-time low does not concern Raghuram Rajan; here’s why he thinks rupee needs modest weakening. (Image: IE)

The rupee on Thursday hit a fresh all-time low of 70.32 against the US dollar in opening deals, which does not concern former Reserve Bank of India (RBI) governor Raghuram Rajan too much. Speaking with CNBC-TV18, Raghuram Rajan said that since the rupee had been strengthening for quite some time and inflation, despite being modest, remained above world rates, the Indian currency needs a modest weakening.

Raghuram Rajan said that the fall in rupee has more to do with strengthening US dollar. It was on Tuesday when Indian rupee finally breached the 70 mark for the first time in India’s history, mainly due to sell-off in emerging currencies following free fall in Turkish Lira.

The former RBI governor said that some effect on Rupee could also be due to the upcoming election. However, despite the fall, emerging economies look much better than they did in 2013 when taper tantrum happened. India’s first statistician Pronab Sen also said that falling rupee is not much of a concern.

Pronab Sen said that what may be a cause of concern is the knee-jerk reaction to the fall. The currency situation is not a bad place to be in, he said, adding that the real worry would be when the things start going the other way and the rupee appreciates further.

Many experts say that rupee is over-valued by 5-7%, and will correct itself by depreciating further. Meanwhile, high trade deficit and current account deficit continue to be a concern for India. India’s trade deficit touched a five-year-high at $18 billion on swelled oil import bill and jump in gold purchases in July. India’s trade deficit puts pressure on current account deficit (CAD), which could worsen to around 2.7% of GDP this fiscal, against 1.9% a year earlier, ICRA said.

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