India Ratings and Research (Ind-Ra) in its latest report has said that Indian rupee may recover to 69.79 per dollar in the second half of 2018-19 (H2FY19), down 8.3% from the first half, if the monetary authority props it up by mobilising at least $30 billion from Non-resident Indians (NRIs) as it has done in 2013. It pointed out that Indian rupee is the worst-performing Asian currency, declining over 15% year-to-date, while in the first half it averaged at 68.57 to the dollar, down 8.3% year-on-year, making the fall at a five-year high so far.
According to the report, the rupee depreciation against the dollar so far is at a five-year high, but a longer term view suggests that average depreciation during FY15-FY19 will be only 3%, which is at par with the 20 years (FY1999-FY18) average depreciation. It also mentioned that the rupee pain arises from global developments such as the strengthening dollar, high commodity prices, especially of crude oil, and rising US rates, coupled with domestic factors like widening trade/current account deficit, inflationary pressures and likely fiscal slippage.
Ind-Ra furher said that the current bout of a sharp deterioration in the rupee is the fourth such instance in the current decade indicating its vulnerability to global events. It can be noted that after the 2013 episode when it had plunged to 86.83 to a dollar on August 30 that year, the rupee has enjoyed a relatively stable run, due to mobilisation of NRI deposits in foreign currency non-repatriable account, crash in global commodity prices, especially crude from September 2014, and delayed monetary tightening by the US Fed. It added that but all these changed at the turn of FY19 due to a sudden spurt in oil prices and a reversal in capital flows, although chinks in this seemingly happy equilibrium had emerged in FY18 itself.
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