The Indian rupee at 65-66 per US dollar is its “fair” value and does not require any intervention, Economic Affairs Secretary Subhash Chandra Garg said, allaying concerns of the impact of a dropping currency on the economy. With oil stabilising around USD 75 per barrel and India allowing foreign portfolio investors (FPIs) to invest in treasury bills, the rupee would be around 66-67 to a dollar for some time, Garg, who is here to attend a meeting of the Asian Development Bank (ADB), said. “My sense is that there is stability now and this level of (rupee at) about 66-67 (to a dollar) should be the level that should prevail for some time,” he told PTI here. He said the rupee at 64 to a dollar “hurt exports” and was not justified by the real exchange rates. “Rupee appreciated to 64 or something. That is where it hurt our exports. 64 was not at the level which was justified by the real exchange rates. So coming back to 65-66 is a fair valuation. I don’t think we have a concern there,” he said.
The rupee has been the second-worst performing Asian currency this year, dropping 2.4 per cent against the dollar, after strengthening 6.4 per cent in 2017, according to Bloomberg data. A drop in rupee can potentially impact the current account deficit as India relies on imports to meet over 80 per cent of its oil needs. After dropping from over USD 100 per barrel to near USD 40 a barrel just after the BJP-led government came to power in 2014, oil prices are back to USD 75 a barrel, raising concerns about inflation and current account deficit.
India was categorised as one of the “fragile five” economies when crude oil prices were at their peak that led to a current account deficit (CAD) of 4.8 per cent of GDP in 2013-14. Oil price crash brought down the CAD to 0.7 per cent of GDP in 2016-17. At current rate, CAD during 2018-19 may be in the range of 2.5 to 2.9 per cent of GDP, brokerages said. Asked at what level could the RBI intervene in the currency market, Garg said, “I don’t think there is any move to intervene… there is depreciation and therefore RBI should sell dollars to support.
I don’t think there is any such need. I don’t believe anything is likely to happen”. Earlier this week, the Reserve Bank permitted FPIs to invest in treasury bills issued by the central government. However, they will have to ensure that their exposure in government securities, as well as corporate bonds of less than one-year maturity, remains below 20 per cent.
The dollar has been strengthening on expectations of higher interest rates in the United States, which has made imports costlier for India. As per latest data, the CAD widened to 2 per cent of GDP or USD 13.5 billion in the October-December quarter of 2017, up from 1.4 per cent, or USD 8 billion, in the corresponding period a year ago. India’s foreign exchange reserve had touched a life-time high of USD 424.864 billion in the week ended April 6, aided by an increase in foreign currency assets.