A strong case for a weaker rupee

If the terms of trade shock persist, the rupee will have to be a key part of the needed macro adjustment

For commodity-importing emerging markets, 2022 is delivering a double whammy. A surge in commodity prices — energy in particular — is delivering a substantial negative terms-of-trade shock to some economies.  Simultaneously, increasingly-generalised inflation in advanced economies is resulting in a continuous reassessment of how quickly their central banks will have to move. The Fed has telegraphed seven hikes this year, with growing prospects of more. Consequently, US 10-year yields have surged 75 basis points (bps) in less than a month.