Devaluation talks hit rupee; no policy change, says govt

Rupee falls to twoweek low of 67.02 against dollar; In India, market forces will determine currency’s value: Shaktikanta Das

Talk of a rupee devaluation pushed the rupee to a twoweek of low of 67.02 on Thursday, despite the finance ministry denying that it had any discussions on devaluation and commerce minister Nirmala Sitharaman tweeting that she did not talk about it either.

Both ministries said “no such proposal” has been circulated or was being considered. Officials, however, said since “India is an import intensive country, devaluation would leave importers unhappy and lead to more dollars for exporters.”

In a day of volatile trade, the rupee hit an intra-day high of 66.82, before ending above the psychological 67 mark against the US dollar, a fall of 13 paise.

Meanwhile, exports fell for the second consecutive month in August , declining 0.3% to $21.51 billion due to a dip in shipments, compared to $21.58 billion in August 2015.

Imports, too, contracted 14% to $29.91 billion, leaving a trade deficit of $7.67 billion in August.

“It is quite natural for exporters to demand a weaker currency, while importers will want a stronger valuation to suit their business. This is why India has left the currency to be determined by market forces and there is no plan to change the policy ,” economic affairs secretary Shaktik- anta Das said.

Commerce minister Nirmala Sitharaman, too, clarified in a tweet: “I had no conversation on devaluation of any currency with any news correspondent. Any quotes/mentions referring to me on this topic baseless.”

However, The Federation of Indian Export Organisations (FIEO) confirmed it had discussed the rupee’s exchange rate and interest rates with the commerce ministry. “A rupee devaluation is required,” director-general Ajai Sahai said. “Indian exporters are outpriced in the global market.”

The last time the rupee was devalued was in 1991. The move was precipitated by the balance of payment crisis, which had shrunk India’s forex reserves.

The talk of devaluation comes at a time when new Reserve Bank of India (RBI) governor Urjit R Patel has just taken charge, and the government is setting up a six-member committee to decide the monetary policy.

The RBI has, in the past, rejected demands of a devaluation. Its stance has been that market forces should decide currency level and it would only intervene to prevent sharp movements. On 18 July, former RBI governor Raghuram Rajan said that the rupee was reasonably valued and devaluing it would only increase inflation.