Govt says no concern over rupee, analysts see no benefit for exports

As the rupee slid to its all-time low, the government tried to assuage sentiments on Tuesday, saying that the fall in exchange rate was because of  external factors and was not a cause of concern.

“The rupee is depreciating because of external factors. There nothing at this stage to worry,” Economic Affairs Secretary Subhash Garg said. 
 

Speaking to reporters, Garg said the Reserve Bank of India had spent about $23 billion to intervene and support the rupee. 

On what could happen if the fell to 80 against the dollar, Garg said it will not be a concern, provided all other currencies depreciate in the same range. The rupee, he said, is still better compared to other currencies. “Our assessment is that the fall of rupee is a temporary phenomenon,” he said.
 

On Tuesday, the rupee crashed to record low of 70.09 against the US dollar on global concerns, over Turkey’s economic woes that have impacted various emerging markets.

Garg also said while the RBI had sufficient foreign exchange reserves, its intervention in the currency market may not be of much help as of now, as the weakness in the rupee was a result of global factors.  

The RBI’s foreign exchange reserves were at $402.7  billion in the week ended August 3, down $1.49 billion over the preceding week, latest data released by the central bank showed. The central bank has always stated that it does not seek to target a particular level for the rupee’s exchange rate against the dollar, and uses its reserves to ease volatility in the currency market.

“Apart from the recent elevation in prices and input costs, other factors leading to the rupee weakening include continuing global trade disputes. In the period ahead, expectations of three rate hikes by the USFed this year is likely to define the path that rupee can be expected to take. The anticipation of US laying tariffs on India as well as withdrawal of benefits for Indian industries, can be expected to add to these woes,” said Anis Chakravarty, Partner and Lead Economist, Deloitte India.

Analysts feel that the continuing fall of the rupee may not help exports as figures showed that export growth in July moderated to 14 per cent, down from the 17 per cent growth in June. A weaker currency is traditionally considered to be advantageous to exports as global importers generally flock to nations which sell at a lower price. The same trend of depreciating currencies, however, has been true for other competing economies such as Bangladesh, Indonesia and Vietnam and most importantly China.

“It is not going to help in the way everybody thinks. All major currencies of emerging economies is depreciating, with some going down at a faster rate. At least our exports will have a level playing field, and should not lose out on business but had it been an exclusive Indian phenomenon it may have helped exports much more than people expect now.” Ajay Sahai, Director General of the Federation of Indian Export Organizations said.