The rupee recovered after touching an all-time low of 70.08 against the US dollar amid intense pressure on emerging market currencies, triggered by a financial crisis in Turkey, including the rout of its currency lira. The rupee closed at Rs 69.89 on Tuesday.
The currency has showed resilience as the country is better placed to manage volatility and shocks to the system, backed by adequate foreign exchange reserves and manageable current account deficit, said economists and experts.
According to the Clearcorp Dealing Systems data, the rupee opened at 69.80 against the US Greenback, stronger than Monday’s close of Rs 69.93. But it soon began the downhill journey to cross the crucial threshold of Rs 70 to a dollar mark.
The Reserve Bank of India’s (RBI’s) stance is that foreign exchange intervention should remain two-sided and limited to addressing disorderly market conditions.
From the end of March 2018 to August 3, India’s foreign exchange reserves were down by $21.84 billion to $402.70 billion. The reserves have declined as some of it have been used to contain extreme volatility in the currency markets, currency dealers said.
Rupa Rege Nitsure, group chief economist, L&T Finance Holdings, said the rupee’s significant depreciation in the past few days didn’t warrant any panic reaction. It was primarily due to the currency crisis in Turkey and going to be a transitional phenomenon, she added.
ALSO READ: External factors behind rupee's fall to record low, nothing to worry: Govt
All emerging markets’ currencies have come under pressure due to the turmoil in Turkey.
“India has sufficient forex buffer to manage the volatility. Luckily, global crude prices have stabilised and India's inflation is well controlled. Given that the currency was overvalued, its rapid depreciation should improve price competitiveness of exports, which have been steadily reviving,” she said.
ALSO READ: Rupee fall spooks India Inc boardrooms; CFOs worry RBI may hike rates again
SBI Chairman Rajnish Kumar said the Indian currency had not weakened as much as other currencies against the dollar. “I feel it (rupee) should stabilise between 69 and 70, because if you look at the numbers for investment which is coming into the country -- investment in bonds, investment in equities -- this level has become attractive for foreign investment,” he said.
Pointing to India’s improved external sector profile, Abheek Barua, chief economist at HDFC Bank, said, “If you look at the fragile market, our fundamentals are stronger and the vulnerability is much lower. Globally, the level of anxiety and risk averseness has increased simply because of the policies from the United States, which have made global markets nervous. Typically, these episodes do not last very long and we should see a reversal in the rupee, particularly since the RBI has categorically been defending it and is not in favour of depreciation beyond Rs 69 to a dollar."
ALSO READ: Rupee hits record low of 70.08 a dollar, Turkey rout complicates RBI's job
India has been affected by the emerging market turmoil since mid-April. Portfolio outflows from India were relatively large, triggered by the run-up in international oil prices and tighter global financial conditions. Domestic concerns over fiscal slippages and the banking system’s exposure to the sovereign also had influenced investors sentiments.
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This episode of capital reversal has been less intense than the 2013 Taper Tantrum, thanks to India’s stability-oriented policies and progress with structural reforms in recent years. The RBI accelerated the scaling back of its net forward foreign exchange position, which has been ongoing since September 2017.
B Prasanna, group executive and head – global markets group, ICICI Bank, said the rupee was the victim of a contagion effect impacting all emerging markets, triggered by the Turkish crisis. The gradual pace of depreciation witnessed till the 69 levels is a result of the yuan depreciation and the current account deficit worsening sharply from 0.6 per cent of GDP in 2016-17 to an expected deficit close to 2.5 per cent of GDP this year.
In medium term, the rupee would need to depreciate further to keep up with the inflation differentials with other trading partners. However, there could be a minor reversal of this depreciation in short term if the global situation stabilised, Prasanna said.
The currency has showed resilience as the country is better placed to manage volatility and shocks to the system, backed by adequate foreign exchange reserves and manageable current account deficit, said economists and experts.
According to the Clearcorp Dealing Systems data, the rupee opened at 69.80 against the US Greenback, stronger than Monday’s close of Rs 69.93. But it soon began the downhill journey to cross the crucial threshold of Rs 70 to a dollar mark.
The Reserve Bank of India’s (RBI’s) stance is that foreign exchange intervention should remain two-sided and limited to addressing disorderly market conditions.
From the end of March 2018 to August 3, India’s foreign exchange reserves were down by $21.84 billion to $402.70 billion. The reserves have declined as some of it have been used to contain extreme volatility in the currency markets, currency dealers said.
Rupa Rege Nitsure, group chief economist, L&T Finance Holdings, said the rupee’s significant depreciation in the past few days didn’t warrant any panic reaction. It was primarily due to the currency crisis in Turkey and going to be a transitional phenomenon, she added.
ALSO READ: External factors behind rupee's fall to record low, nothing to worry: Govt
All emerging markets’ currencies have come under pressure due to the turmoil in Turkey.
“India has sufficient forex buffer to manage the volatility. Luckily, global crude prices have stabilised and India's inflation is well controlled. Given that the currency was overvalued, its rapid depreciation should improve price competitiveness of exports, which have been steadily reviving,” she said.
ALSO READ: Rupee fall spooks India Inc boardrooms; CFOs worry RBI may hike rates again
SBI Chairman Rajnish Kumar said the Indian currency had not weakened as much as other currencies against the dollar. “I feel it (rupee) should stabilise between 69 and 70, because if you look at the numbers for investment which is coming into the country -- investment in bonds, investment in equities -- this level has become attractive for foreign investment,” he said.
Pointing to India’s improved external sector profile, Abheek Barua, chief economist at HDFC Bank, said, “If you look at the fragile market, our fundamentals are stronger and the vulnerability is much lower. Globally, the level of anxiety and risk averseness has increased simply because of the policies from the United States, which have made global markets nervous. Typically, these episodes do not last very long and we should see a reversal in the rupee, particularly since the RBI has categorically been defending it and is not in favour of depreciation beyond Rs 69 to a dollar."
ALSO READ: Rupee hits record low of 70.08 a dollar, Turkey rout complicates RBI's job
India has been affected by the emerging market turmoil since mid-April. Portfolio outflows from India were relatively large, triggered by the run-up in international oil prices and tighter global financial conditions. Domestic concerns over fiscal slippages and the banking system’s exposure to the sovereign also had influenced investors sentiments.
Videocon loan issue: ICICI Bank explores consent option with Sebi
This episode of capital reversal has been less intense than the 2013 Taper Tantrum, thanks to India’s stability-oriented policies and progress with structural reforms in recent years. The RBI accelerated the scaling back of its net forward foreign exchange position, which has been ongoing since September 2017.
B Prasanna, group executive and head – global markets group, ICICI Bank, said the rupee was the victim of a contagion effect impacting all emerging markets, triggered by the Turkish crisis. The gradual pace of depreciation witnessed till the 69 levels is a result of the yuan depreciation and the current account deficit worsening sharply from 0.6 per cent of GDP in 2016-17 to an expected deficit close to 2.5 per cent of GDP this year.
In medium term, the rupee would need to depreciate further to keep up with the inflation differentials with other trading partners. However, there could be a minor reversal of this depreciation in short term if the global situation stabilised, Prasanna said.
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