Rupee gliding to a New Low Against US Dollar; Indian Government in Denial
Indian rupee is facing a constant downfall, and it has fallen down a 12% in the calendar year of 2022. This new dip has brought the Indian currency to a new lifetime low of 83 rupee versus dollar.
On October 12, the International Monetary Fund (IMF) had published a detailed report on the performance of difference currencies. This report started with a statistical sentence that read: “The dollar is at its highest level since 2000, having appreciated 22 percent against the yen, 13 percent against the Euro and 6 percent against emerging market”. And, just two days after this report was published, the Indian Finance Minister, Nirmala Sitharaman spoke in Washington DC about the falling rupee saying, “I would look at it not as the rupee sliding but as dollar strengthening incessantly”.
Experts believe that this is not how it should be put. The USD strengthened, but this rise was the least against the EMDEs (Emerging Market and Developing Economies), India being a part of it. If you look at the statistics, rupee fell more than the average EMDES, i.e. by 12%, against the average of 6%. On top of that, Mexico and Brazil recorded an appreciation in their currencies against the US Dollar.
Let’s take a look at IMF analysis to understanding what exactly happened with EMDEs that performed better compared to the USD
Well, IMF accredited the fluctuations to two factors, including:
- These countries being “ahead in the global monetary tightening cycle-perhaps in part out of concern about their dollar exchange rate”
- Positive terms-of-trade shock, which is more exports than imports
Why is USD becoming stronger?
The IMF believes that the strengthening of the US dollar is the result of the US’s economic fundamentals that include:
- Rapidly rising US interest rates
- More favourable terms-of-trade that happened after the energy crisis that was followed by the war.
What does the rupee fall indicate about India’s fundamentals?
The decline in the value of rupee is the result of both external and internal factors. Experts believe that not a lot can be done about the external factors, but we can still focus on the internal factors or macroeconomic fundamentals. These fundamentals refer to the growth and recovery of fiscal deficit, Forex reserve, trade and current account deficits, investment inflow and outflow, external debt, etc.
Is India living in denial?
After the various statements put forward by the finance minister on the current financial crisis, the experts believe that the country and its government are living in denial. This denial is one of the most troublesome aspects over the fallen condition of rupee. Besides, the prolonged economic slowdown, rising poverty, high inflation, job crisis, and the reluctance to admit the reality of the current condition is no longer going to help. The RBI and the government is only talking about ‘imported inflation’ in the recent reports despite of so many other financial issues prevalent in the country.