RBI Chief Rajan tries to talk up Rupee, but experts see further fall

Mumbai, Manju AB(dna): It was a Manic Monday. As rupee slid in tandem with the stock market, Reserve Bank of India (RBI) governor Raghuram Rajan put up a brave front, trying to talk up the currency. But experts feel that the rupee’s further fall cannot be discounted.


State-owned banks continued to sell dollars through the day, but could not prevent the rupee’s fall. It finally closed at Rs 66.66 to dollar, 82 paise lower from the previous day’s close, as the Chinese economy sent jitters among global investors who withdrew from all emerging markets. Foreign institutions sold stocks in Indian stock market, adding to the acute dollar shortage in the market.

A Mumbai-based forex dealer said state-owned banks were selling dollars on behalf of the central bank, but with limited impact. “RBI may be comfortable even if the rupee goes down to 68 or 69 to dollar without any huge volatality. RBI would have sold at least $500 million on Monday to salvage the rupee.”

The central bank checks the fall in the rupee by selling dollars through state-owned banks. The rupee weakens when there is a shortage of dollars in the market.

During the day the rupee went down to Rs 66.73 per dollar. Doubts about the Chinese economy floundering forced global investors to flee to safer haven outside the emerging markets.

The RBI governor said, “I just want to indicate that we have plenty of reserves, which was $355 billion (at the last count), plus $25 billion that existed because of our forward sales. We have got $380 billion to play with.”

“So we have to be balanced. What we have said again and again is that we don’t try and pick the value of the rupee but we try and prevent undue volatility.”

A weaker rupee means you will have to keep aside more money for your overseas education, foreign travel. On the other hand, if you are an NRI, your remittances to India will be higher as you will get more appreciation for the foreign currency earned.

If the rupee strengthens too much then it creates problems for exports and if it weakens too much it is a problem for importers and there is a danger of imported inflation.

Jamal Mecklai, chief executive officer, Mecklai Financial & Commercial Services, said, “The rupee may fall further as the Chinese problem is real and daunting.” He said the rupee is unlikely to breach the 68.80 level it had reached on August 28, 2013.

Rajan tried to assuage the markets that India’s macroeconomic factors are under control as the economy is in much better position relative to other emerging market economies. “I think few expected the Chinese move. Now, given that it has become a focal point for markets to adjust, there was a sense that markets have been going up for sometime without correction and when that happens it seems that people get nervous,” he said adding “We have to absorb this volatility.”

Ashutosh Khajuria, executive director, Federal Bank, said, “Cost of volatility disrupts the entire economy. If our currency depreciated beyond a point then inflation inches up. The rupee may fall further but strong domestic fundamentals will hold up the rupee.”

Posted by on August 25, 2015. Filed under Economy, Nation. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.