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The weakening rupee is anopportunity to boost exports For the Indian rupee, already grappling with high crude oil prices and the growing heft of the U.S. dollar, the latest shock has come from a most unexpected quarter. The currency, which was valued at 63.84 to the dollar at the end of 2017, briefly crossed the 70-mark in early trading on Tuesday, on account of the fall in the Turkish lira. The lira has slipped 40% against the U.S. dollar this year, but a bulk of that decline took place over just two days (16% last Friday and another 6.7% on Monday). There are many factors at play for Turkey’s currency crisis, including its standoff with the U.S. The Trump administration has just sanctioned Turkey’s Justice and Interior Ministers and plans to double punitive tariffs on steel and aluminium imports from the NATO member-country.
In contrast, the rupee’s fall from about Rs. 68.5 to Rs. 70 appears minor. The stock markets, which tumbled on Monday as the currency weakened, seemed to take the rupee’s slide in their stride on Tuesday, with the Sensex rising by half a percentage point. There is in fact no need to panic on account of the rupee. Barring the gradual decline in its value this year, the Indian currency has been fairly stable over 2016 and 2017; with inflation being higher than in developed countries, its purchasing power at home has been falling. As former Chief Economic Adviser Kaushik Basu said last week, the rupee’s correct value may be closer to 70-71 to the dollar, and achieving that level will boost job-creating sectors like exports that have severely underperformed in recent years. In addition, with foreign exchange reserves currently around $400 billion, India is comfortably placed. With both consumer and wholesale price inflation easing in July, the Reserve Bank of India, which has only intervened sparingly in the forex market so far, may have room to hold off on a growth-debilitating rate hike in October. The global flight to safety towards the Japanese yen and the U.S. dollar and the prospect of higher oil prices remain risks. But India is better-placed than most other emerging economies to use this tumult as an opportunity, instead of seeing it as a calamity.
Source : https://www.thehindu.com/todays-paper/tp-opinion/currency-crossfire/article24694159.ece
