The rupee slipped to a record low of 70.64 against the dollar on Wednesday in intra-currency trades and staged only a limited recovery to end the session at 70.59. The Indian currency has now lost nearly 10% since January making it Asia's worst performing currency.
The rupee slipped to a record low of 70.64 against the dollar on Wednesday in intra-currency trades and staged only a limited recovery to end the session at 70.59. The Indian currency has now lost nearly 10% since January making it Asia’s worst performing currency.
It was possible, dealers said, exporters may also have sold dollars allowing the rupee to recover some lost ground.
Meanwhile, the yield on the benchmark bond rose over two basis points over Tuesday’s close of 7.89%, to 7.91%.
The rupee has also been impacted by the contagion effect of the steep depreciation of the Turkish lira and the accompanying fall in other emerging markets currencies.
The dollar index – dollex – hovered around 94.72 levels down from 94.77.
Although economists highlighted that a calibrated depreciation was not too worrying, a weaker rupee, they concede, would make imports costlier and push up inflation. Adding to this is the stress caused by the widening current account deficit.
Radhika Rao, economist at DBS Bank, noted that besides worries over a widening CAD and a fiscal deficit, three factors had likely fuelled this down move. “A sense that the authorities are tolerant of a weaker rupee, primarily reflected in a lower Indian rupee real effective exchange rate,”Rao observed.
Shubhada Rao, group president and chief economist at Yes Bank, pointed out that not only is the REER based on a fundamental fallacy of assuming financial year 2005 (FY05) as a ‘normal’ year, when macro-conditions were vastly different from the present situation, but it is also misaligned from other macro data which are based on a newer base year. “Re-basing FY05 base REER on FY12 suggests that INR overvaluation could be lower close to 4% . The average USD-INR for August 2018 so far is at 69.50. Basis this, the fair value of rupee could be closer to 72.0,” Rao observed.