The depreciation of the rupee against the greenback has been lower than that of other major global currencies, such as the euro, the British pound and the Japanese yen, chief economic advisor (CEA) V Anantha Nageswaran said on Wednesday, when the domestic currency just remained shy of 80 per dollar.
Aggressive monetary tightening by the US Federal Reserve has historically led to a depreciation of the rupee against the dollar but this time the fall of the domestic currency is “far more moderate”. The tightening by the Fed typically leads to outflow of foreign capital from various emerging economies, including India, exerting pressure on their currencies.
The rupee has depreciated by 7% against the dollar so far in 2022. At the same time, the domestic currency has strengthened close to 3% against the euro, 4.5% against the pound and 11% against the yen.
Speaking on the sidelines of the Fintech Festival India here, Nageswaran said, “You look at the Japanese yen, and the British pound. They all have depreciated much more against the dollar.
“The RBI is managing the monetary policy and has announced liberalised rules to attract inflows. We have also raised the import duty on gold.”
Both the government and Reserve Bank of India (RBI) have taken a raft of measures to check the outflow of dollars and boost inflow of foreign funds so that the rupee depreciation can be reined in, he said.
Earlier this month, the RBI announced a set of measures to boost foreign exchange inflows, including permitting overseas investors to buy short-term corporate debt and allowing more government securities under the fully accessible route.
It doubled the external commercial borrowing (ECB) limit under the automatic route to $1.5 billion, among others. Subsequently, it allowed the settlement of international trade in the rupee. To reduce pressure on the current account, the government recently raised the import duty on gold to 15% from 10.45%.
Funding sustainability initiatives
Elaborating on inequality, climate and economic instability, the CEA pitched for “behavioural change” in the private sector, including ordinary households, for any success of climate change mitigation.
“Today many countries globally have shifted their focus from energy transition to energy security. But it is not just about resources, getting the private sector to finance sustainability initiatives is crucial,” he said.
With interest rates on the rise, multilateral institutions such as the World Bank and European Investment Bank need to consider providing first-loss guarantee or back stops to lower the cost of funds for initiatives on sustainability. “Additionally multilateral financial institutions can also tweak their operating models and become risk managers for the private sector to crowd in private capital,” Nageswaran said.