Rupee Will Stablise On Its Own, Says Government
With the rupee hitting a new low, the government today said the currency will stabilise on its own as there are no domestic factors contributing to the depreciation.
The rupee hit an all-time low of Rs 71.57 to a U.S. dollar earlier on Tuesday, making imports costlier, and putting price pressures.
“Rupee has depreciated primarily on trade war fears and a rise in global crude oil prices. The government doesn’t have control over these,” a top official in the Finance Ministry said requesting anonymity.
This, however, could widen the current account deficit as India would have to pay higher for its oil imports. The country is 81 percent dependent on imports to meet its oil needs.
Credit rating agency Moody’s Investors Service last week said there are risks of India breaching the 3.3 percent fiscal deficit target for the current financial year as higher oil prices will add to short-term fiscal pressures. The current account deficit, the difference between inflow and outflow of foreign currency, will widen but will not jeopardise India’s external position; and the gap will remain significantly narrower than five years ago.
The government has budgeted the fiscal deficit to be at 3.3 percent of gross domestic product in the ongoing financial year. Fiscal deficit during the April-June quarter of the current fiscal had touched 68.7 percent of Budget estimates.
Driven by higher oil prices and robust non-oil import demand, Moody’s expects the current account deficit to widen to 2.5 percent of GDP in 2018-19, from 1.5 percent in 2017-18.
Anis Chakravarty, lead economist and partner at Deloitte India, said the depreciation is in line with emerging market exchange rates, which was largely fed in through dollar strength.
A divergence between U.S. dollar appreciation and a moderation in euro may have amplified the dollar strength, an effect of which reinforced rupee depreciation. Apart from the recent elevation in prices and input costs, other factors leading to rupee weakening include continuing global trade disputes.Anis Chakravarty, lead economist and partner, Deloitte India
State Bank of India group chief economic adviser Soumya Kanti Ghosh said the rupee has now depreciated 6.2 percent since June when the Reserve Bank of India started hiking rates.
“Even as the decline in rupee is in consonance with the strengthening of U.S, dollar, we believe the decline may continue further and there are enough reasons to substantiate such,” he said.
Rushabh Maru, research analyst at Anand Rathi Shares and Stock Brokers, said the rupee continues to hit a new record low on account of the crisis in the emerging market currencies.
Also, a consistent rise in crude oil prices and dollar index has kept sentiments bearish. “There are talks of rupee moving towards Rs 72-73 levels,” he said. “There are talks of out-of-the-monetary-policy interest rate hike by the RBI and issuance of NRI bond issue to raise dollar money. However, at present the possibility of both the options is very low as the macroeconomic situation is much better than it was in 2013.”