Rupee depreciates sharply: What experts are saying
The rupee has depreciated sharply in the past week, being one of the worst performing Asian currencies. It weakened and fell 1.3% for the week, extending its losing streak to a third successive week, hurt by concerns about a possible pullback in global fund flows and the country's external deficit.
While RBI has said that it will take steps to check volatility in the foreign exchange market, experts are divided over the depreciating currency's outlook. We bring you the viewpoints of seven renowned analysts:
While RBI has said that it will take steps to check volatility in the foreign exchange market, experts are divided over the depreciating currency's outlook. We bring you the viewpoints of seven renowned analysts:
other Asian currencies are also down with respect to the dollar. Ascribing the recent rupee volatility to a seasonal variation, Wadhawan said that 'usually there is a high dollar demand in the months of April and May' and it is also a time when the trade deficit is high.
this demand would soon balance out and rupee is not likely to breach the 56.50 levels in the next two months. He said that beyond that time frame international developments may impact the rupee movement.
The rupee will continue to trade weak until the RBI reassures investor confidence by recouping at least the $65-billion (including forwards) of forex reserves sold since 2008.
The only way out of is for the RBI is to strategically buy FX — as it has rightly begun to do — to comfort the market, like it did in the late 1990s. We also hold the contrarian view that India would benefit from any withdrawal of quantitative easing by the Fed as it would stabilise commodity prices.
Looking ahead, we see three options to augment FX reserves beyond the withholding tax cut on FII debt investments. First, the government can raise FII debt limits with the provision that the FX leg has to be deposited with the RBI.
Second, the RBI can re-issue 5-year FX denominated NRI bonds like the Resurgent India Bonds of 1998 and the India Millennium Deposits of 2001. And finally, the government can issue sovereign debt.
The only way out of is for the RBI is to strategically buy FX — as it has rightly begun to do — to comfort the market, like it did in the late 1990s. We also hold the contrarian view that India would benefit from any withdrawal of quantitative easing by the Fed as it would stabilise commodity prices.
Looking ahead, we see three options to augment FX reserves beyond the withholding tax cut on FII debt investments. First, the government can raise FII debt limits with the provision that the FX leg has to be deposited with the RBI.
Second, the RBI can re-issue 5-year FX denominated NRI bonds like the Resurgent India Bonds of 1998 and the India Millennium Deposits of 2001. And finally, the government can issue sovereign debt.
The main reason causing the rupee to fall is the immense strength of the Dollar Index, which has touched its three-year high level of 84.30. The US dollar is looking like gold these days because the Federal Reserve is in a very different position versus the ECB, BoJ and the RBA. The Federal Reserve is talking about tapering asset purchases at a time when European officials are considering more aggressive monetary easing measures such as negative deposit rates.
lack of optimism about the economy, along with "general dollar strength against global currencies and political uncertainties and limited bandwidth for reforms ahead of elections" as the key factors hurting the rupee.
"In an environment where the US dollar is being bought against currencies across the board, the Indian rupee is depreciating. But that is the case with all other currencies and at least with a currency like the rupee you have some yield cushion to protect you during the periods of downdraft in values." It will pay you even if the currency is moving horizontally.
