It underperformed peers amid volatile capital flows and uneven forex support.
So far this year, the rupee has fallen by 4.2 per cent, the worst among its Asian peers.
'Calibrated depreciation will help rebalance external fundamentals, offset some of the tariff differentials with competitors, improve the competitiveness of domestic substitutes vis-a-vis Chinese imports, and contribute to the easing of financial conditions at a time when the inflation rate is unusually low,' explains Sajjid Z Chinoy, head of Asia Economics at JP Morgan.
The rupee is undervalued as compared to its peers, shows the latest data from the Reserve Bank of India (RBI), even as the local currency keeps hitting new lows.
The Indian rupee depreciated a modest 2.9 per cent in the first nine months of the current fiscal, performing better than other currencies like the Canadian Dollar, South Korean Won and the Brazilian Real, according to the Economic Survey tabled in Parliament on Friday. The value of the Indian Rupee (INR) is market-determined, with no target or specific level or band.
The Real Effective Exchange Rate (REER) of the rupee moderated in December to 107.20 after hitting a peak of 108.14 in November, latest data released by the Reserve Bank of India (RBI) showed. The REER was 103.66 in January 2024. The rupee depreciated around 3 per cent against the dollar in 2024.
The Budget should undertake further reductions in import tariffs and seriously consider an announcement of India's intention to join one or both of the two Asian mega-regional free trade agreements, suggests Shankar Acharya, former chief economic adviser to the Government of India.
The Reserve Bank of India (RBI) was a net seller of the US dollar in August, reversing its net buying position from July. During the current financial year up to August, the central bank had sold a net $1.11 billion. The RBI sold a net total of $6.49 billion worth of the foreign currency in August, according to the central bank's monthly bulletin.
The recent depreciation of the rupee along with sharp fall in the country's foreign exchange (FX) reserves has sparked a debate whether stability of the exchange rate is necessary and desirable. The rupee was one of the least volatile currencies among peers for almost two years before the current downward pressure started in September after the US Federal Reserve lowered interest rate.
The rupee remains overvalued against the currencies of India's trading partners, even as it hit record lows against the dollar in August and September. According to the Reserve Bank of India's (RBI) real effective exchange rate (REER) index, the rupee stood at 5.5 per cent above its fair value in August, down from 7.7 per cent in July. This slight easing followed fears of a US recession and the unwinding of yen carry trades, which exerted pressure on the Indian currency.
But weak global demand, costly imports play spoilsport
The report noted that export volumes are likely to remain sluggish.
Without naming India, S&P said it expects that in regions where inflation already exceeds targets, or which are vulnerable to capital flight, central banks will be forced to raise interest rates.
The Indian currency on Friday traded at 62.48, down 41 paise against the US dollar at 1645 hours.
The criticism that the Reserve Bank of India was behind the curve in hiking interest rate to tame rising inflation is unfair, former RBI Governor D Subbarao said on Wednesday and asserted that it is difficult for any central bank to anticipate the future more accurately. Earlier this month, Monetary Policy Committee (MPC), the central bank's rate-setting panel, surprised the markets with a 40 basis points hike in repo rate in an off-cycle policy meeting. It was also the first rate hike after August 2018, amid spiralling inflation.
Could plumb to 57 against the US dollar if macro dynamics continue to weaken.
The latest balance of payments data released by the Reserve Bank of India (RBI) last week indicate that the CAD in fiscal 2010-11 could be anywhere between 3.5 and 4.0 per cent of gross domestic product (GDP).
The fact that the trade and current account deficit seem to be alarmingly large (the July trade deficit was about $13 billion) adds a sense of urgency to these concerns.
The currency market won't care for our moans, groans, cries and sighs. The rupee will find its own level, explains Tamal Bandyopadhyay.
India's real gross GDP grew by 7.4 per cent year-on-year in the second quarter of 2004 and the rupee depreciated by less than 1 per cent in the first half of the same, the US treasury department has said in a report.
The rupee was overvalued by 12.21 per cent as on April 18, 2007, according to the Reserve Bank of India. The rupee, which was Rs 41.98 per dollar on April 18, surged further to close at a nine-year high of 41.67/68 on Monday.
The RBI governor is focused on growth, and keeping rupee slightly depreciated is part of that 'Atmanirbhar Bharat' strategy.
Going by the real effective exchange rate, the rupee is overvalued
The rupee has had a volatile run in the past one week.
The Indian economy appears to have slowed down in 2018-19 due to lower private consumption, tepid growth in fixed investment and muted exports, a finance ministry report has said.
The rupee is under pressure for the past one week.
A strong currency helps in fighting some of the import-led inflation.
If the RBI governor's logic holds, the rupee is far from being extremely overvalued.
'India's sizeable foreign exchange reserves should serve as a buffer.'
In a recent article, Rajan has ridiculed critics of the exchange rate policy.
Dollar sales by exporters and firm local equities also supported the local currency.
Due to tax associations with the fiscal-ending, April is a month of SIP renewal. So, the April numbers will be important and may perhaps, mark a change in retail attitude.
Launched in September 2013, the Conference Board Leading Economic Index for India, conceptualised back to April 1990, has successfully signalled turning points in the economic cycles of India.
RBI may go for a 25-basis point cut at its February policy meet.
The rupee's recent decline is sharp, yes, he says, but the tale would be scary if India was like the Asian crisis countries of 1997-98, or even Argentina in 2001, when large amounts of debt was denominated in foreign currency. According to him, India's percentage of external debt to GDP was around 20
The recent weakness of the rupee has been due to yuan's devaluation.
The surge in oil prices has also affected the rupee, which hit a 6-week low of 70.25 on Friday against the dollar.
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