India's rupee likely to remain weak despite better economic indicators
The Indian currency breached the recent level of 64.30 and the rupee currently has depreciated below the psychological 65 a dollar mark and hit the low at 65.32 on last Friday. The Hindu The Indian currency breached the recent level of 64.30 and the rupee currently has depreciated below the psychological 65 a dollar mark and hit the low at 65.32 on last Friday. Lot of factors have contributed to the recent fall of the rupee against the dollar. The major reason has been the concerns about an imminent interest rate hike by the U.S. Fed after almost a decade which led the dollar index mounting to a high.
While talking to exporters in September 2013, P. Chidambaram, the then Finance Minster, had retorted that the right level of rupee would be between 59 and 60 a dollar and the "currency should not overshoot that level." He made this statement exactly one month after the fall of rupee to its historical low of 68.93 on August 28, 2013. Since then, the rupee remained strong , for various reasons.
With the unprecedented fall of rupee in 2013, the Indian currency turned out to be the worst performing currency amongst the other emerging market currencies on the back of policy logjam, sub-par growth regime, high inflationary pressures, soaring current account deficit (CAD) and the talk of tapering of bond buying programme of the U.S. Federal Reserve (U.S. Fed).
However, there was a significant recovery in the domestic unit after the appointment of the new Reserve Bank of India (RBI) Governor Raghuram Rajan, as he introduced a slew of measures to control volatility in the Indian rupee, which curtailed further fall. The rupee also got a boost after the formation of a BJP-led Government at the centre, which resulted in significant capital inflows to the equity as well as debt markets. This was a time when the rupee transformed itself from being one of the worst to one of the best performing currencies within a span of just 8 to 9 months compared to other emerging market currencies. The rupee held its ground thereafter.