Economy

Centre’s steps may not stop rupee sliding: economists

Indian currency Rupee - 3D Rendering Image

Indian currency Rupee - 3D Rendering Image  

‘External sources key to fall in rupee’

The measures announced by Finance Minister Arun Jaitley on Friday to address widening current account deficit and attract inflows to stabilise the currency may not yield result immediately and the rupee could be under further pressure.

The steps were primarily aimed at easing conditions related to external commercial borrowings, hedging conditions for infrastructure loans, and relaxing restrictions on masala bonds. “The government believes these measures could lead to additional capital flows to the tune of $5 billion-$10 billion and limit currency pressures to some degree. We are doubtful about the impact of such measures in the immediate future,” Abheek Barua, chief economist, HDFC Bank said in a note.

The rupee went close to 73 per dollar last week, weakening by about 13% in 2018 on the back of rising oil prices and widening current account deficit. Concerns over trade wars have also made emerging market currencies vulnerable, along with the strengthening dollar.

The capital account measures announced are unlikely to result in any significant shift in fund flows in the immediate future since these are better suited when the sentiment in the global market is positive towards emerging markets and when it is relatively easy for emerging market corporates to raise money abroad, Mr. Barua added.

Currency experts, while appreciating that the Centre avoided any knee jerk reaction since the primary source of the rupee weakening is coming from external sources, said the rupee could depreciate again and test the 73-to-a-dollar mark.

‘Will attract inflows’

“It is good that there was no knee-jerk reaction from the government, like NRI deposits schemes etc. because the main reason for the rupee’s weakness is coming from external sources. The steps... will help attract inflows in the long run,” said Anindya Banerjee, currency strategist at Kotak Securities,

The rupee, which had strengthened in the last two trading sessions in anticipation of the measures, could start weakening again. On Friday, it closed at 71.86 to a dollar, appreciating 0.3% over its previous close.

“Rupee may depreciate as long as the external factors are in play. It may touch 73 a dollar levels. We expect announcement of the separate dollar window for oil marketing companies which may help the [rupee]” Mr. Banerjee said. The $400 billion of foreign exchange reserves is a source of comfort for the currency but reserves have depleted in the last few months.

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Printable version | Mar 30, 2020 3:55:00 PM | https://www.thehindu.com/business/Economy/centres-steps-may-not-stop-rupee-sliding-economists/article24962198.ece

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