If net forex outflows turn out to be relatively high in the next few years, the rupee could depreciate beyond Rs 80 to a dollar by 2022. The causal reasons could, for example, include unmet expectations of FPI and FDI investors about the performance of the Indian economy, sharp rise in prices of imported oil and decrease in FX remittances. The RBI has to ask itself whether guaranteeing future rupee-dollar exchange rates on FX forward contracts is a reasonable way to use its risk-bearing capacity, says Jaimini Bhagwati.
If the RBI governor's logic holds, the rupee is far from being extremely overvalued.
Many things could play spoilsport for the Indian economy.
To the extent that monetary variables affect investment, the weather, thus, looks far less clement.
Possible slowdown of FII money into debt and equity markets could add pressure on currency.
Global events will continue to be in the limelight, besides domestic policy.
May touch 64/$ due to foreign flows slowing down
We are much better placed than in 2013 with our overall fundamentals much stronger - higher foreign exchange reserves, a more favourable growth-inflation mix and an institutional framework for targeting inflation, says B Prasanna.
Can we find fault with RBI for not intervening enough in the market? Actually no, say some experts. A correction in rupee was long overdue.
A gradual increase works best for the US, as well as global markets, says Nizam Idris managing director, head of strategy (fixed income and currencies), Macquarie Bank.
It would be a miracle indeed if we grow at 7/8 per cent a year over the current and next few years, says A V Rajwade
'The big elephant in the room is our misguided view about the rupee.' 'India is scared that if our currency appreciates, who will buy from us. But a breakout is inevitable.'
