Rupee @ 30? Oh Dear! ; the Government Will Need to Take Some Tough Calls Soon to Tackle the Rising Rupee.

Summary

---

Rupee @ 30? Oh Dear!

The government will need to take some tough calls soon to tackle the rising rupee.

See the full content of this document

Extract

---

Rupee @ 30? Oh Dear! ; the Government Will Need to Take Some Tough Calls Soon to Tackle the Rising Rupee.

By Kapil Bajaj

As the rupee hit a near-decade high of 39.16 to the dollar on November 7 (it was at 39.49 on December 7), it is becoming clear that the Indian economy must learn to live with a stronger rupee over the medium term at least. Gerard Lyons, Chief Economist and Group Head (Global Research), Standard Chartered Bank, said recently that the rupee, driven by the continuous flow of foreign capital into the country, may well appreciate to Rs 30 against the dollar over the next five years. "There is near unanimity on the general upward trend of the rupee value," says Shubhada Rao, Chief Economist, yes Bank, adding that the "fundamental issue" is that the economy's "absorptive capacity" does not match the huge inflows.

As this magazine goes to the press, the rupee was again buoyant on expectations that the US Federal Reserve, at its meeting on December 11, will cut rates again by 25 basis points to 4.25 per cent, making Indian debt securities, bearing a higher interest rate, more attractive. Vivek Moorthy, Professor of Economics at IIM Bangalore, says: "The RBI has no clue about how it wants to influence the exchange rate." The central bank does not have the wherewithal to engineer the scale of intervention needed to cope with the huge capital inflows seen over the last eight months, adds D.K Joshi, Principal Economist, CRISIL. And though RBI has been encouraging greater capital outflows, the effect has not been significant, points out Samiran Chakraborty, Chief Economist, ICICI Bank.

While RBI and the government pull different levers of an increasingly complex monetary policy, the economy is suffering. The export target for this year has been revised downwards from $160 billion (Rs 6.4 lakh crore)...

See the full content of this document

---