Rupee Annihilated@ 66
The Indian Rupee has breached the level of 65.80 to a dollar in the last trade on 21st August 2015.In 2015 rupee is falling in the tune with the emerging economy currencies However it is still among the top five best performing currencies in the world.The dollar rally has taken a toll on the usual suspects, emerging market currencies.As per the data the Brazilian real, Turkish lira, Thai baht, Malaysian ringgit and Indonesian rupiah are down between 7.6 percent and 23.3 percent till the date.The overall currency devaluation is being triggered by the Chinese yuan. This will keep the pressure on the rupee for sum more time to come. To be competitive, the Reserve Bank of India (RBI) will not be too uncomfortable with the rupee at 65-65.50 a dollar, While easing energy prices, robust foreign direct investment and a longer period of easy global monetary policy were welcome news for India, the rupee had to weaken to insulate from cheap imports from China and elsewhere.
Currency depreciation is generally linked with stimulus because it improves net exports, one of the main drivers of economic growth, along with consumption and investment. Although such movement will come with own set of risk of high Inflation and depleting foreign exchange reserve if not controlled with prudence.
How much We need to worry About the fall?
There are three reasons why RBI may not intervene at this level:
- Inflation is coming at lower levels. The latest CPI data July exaggerates the extent of disinflation attributed to the base effect. Food prices were high in the same month last year. But it now seems quite certain that the Reserve Bank of India (RBI) is on course to meet its January 2016 inflation target.
- Declining Commodity prices at International level eases the fear of rising inflation as for now.As India is the net importer of Crude oil.
- RBI is siting comfortably with large foreign exchange reserve to meet any emergency payment scenario.RBI bought dollars to build a buffer in case there is another global shock once the Federal reserve come up with increased interest rates in near future.
