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Rupee depreciation; value of rupee
News:
- Rupee now figures among the worst-performing Asian currencies. It slides over 6% against the U.S. dollar since the beginning of 2018.
Important facts:
- In 2013, rupee slides more than 20% in 3 months from May to August, due to bond buying programme of U.S Federal Reserve. This forced RBI to take interventionist measure such as raising interest rates and curbing gold imports.
- Reasons for rupee fall in India.
- Persistent current account deficit (CAD)
- Rising oil prices
- Reduction in foreign investment
- Difference between situation of 2013 and 2018
- CAD in 2018 is forecasted 2% of GDP as compared to 4.8% of GDP in 2013. India is expected to end FY19 with CAD at about $70 billion or about 2.5% of GDP, a significant deterioration from 0.7% in FY17, but still only at half the levels seen in 2013.
- RBI has sufficient stocks of forex reserve in 2018 as compared to 2013 to meet any volatile situation.
- An oil price was $110 per barrel, as compared to $71 in May 2018.
- India attracts about double FDI inflow in 2018 as compared to 2013
- Issues in 2018
- Frequent elections act as a barrier
- Volatile FPI flow
- India equities trade is at stiff premium as compared to other Emerging Markets after the four-year Bull Run. This hampers the FPI inflow.
- A narrowing gap between the bond rate of US treasury and Indian gilts may prompt FPI to pull away from Indian bond market.
