The retreat of the rupee

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New Delhi | Updated: September 1, 2018 12:57:43 AM

The Indian rupee has depreciated close to 10% against the dollar since January this year, in line with currencies of other emerging nations.

The retreat of the rupee

The Indian rupee has depreciated close to 10% against the dollar since January this year, in line with currencies of other emerging nations. On Friday, the Indian currency touched a record low of 71 against the dollar. Similarly, Indonesia’s rupiah slumped to a two-decade low, spurring intervention from its central bank.

Currencies are getting pummelled because of rising crude oil prices, trade war between the US and China, and surging US interest rates, leading to a flight of capital back to the US. The Reserve Bank of India is intervening very selectively to contain volatility.

While the depreciation of the rupee will help exports, a larger oil import bill could mean that India’s current account deficit would widen to 2.6% of GDP in the current fiscal, from 1.9% in FY18.

India’s foreign exchange reserves have also fallen to $400 billion from the peak of $426 billion.

The falling rupee will affect investments by FIIs, as it would depress their returns in dollar terms. On a year-to-date basis, FIIs have sold $5.5 billion of debt and $.20 billion of equity from the Indian markets.

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