The rupee has plummeted to a fresh all-time low declining sharply against the dollar to close at 73.78. The free fall of the rupee against its US counterpart can be attributed to rise in crude oil prices, concerns over current account deficit and capital outflows. The current state of the rupee has alarmed the government and the common man, with the former planning on holding an inter-ministerial meeting today to discuss currency weakness and its impact on trade deficit.
Commerce and Industry Minister Suresh Prabhu will chair the inter-ministerial meeting today to discuss rupee depreciation and widening of trade deficit. Representatives from the department of economic affairs, coal ministry, steel ministry, oil ministry and department of pharmaceuticals will be present at the meeting.
These are clear warnings for times to come when the sharp rise in crude oil prices and depreciating rupee might lead to inflation. Hem Securities director Prateek Jain told NDTV that the rupee can fall further from the current levels to around 73.93-74.31 against the dollar.Mr Sajal Gupta of Edelweiss Securities quoted "Rupee weakness will increase the imported cost of goods, particularly consumer durable goods as well as certain imported essential food items. Besides, it further convolutes the fuel prices dynamics which is already getting hit due to higher Brent prices internationally. This further increases the cost of transportation, and prices of goods and food items that are transported within the country. The government could look at cutting the excise duty on petrol and diesel. That would however hit its fiscal accounts. The import tariffs on certain essential goods could be lowered, but that seems to be a less likely scenario when they are looking to reduce the current account pressures."
Investors will closely monitor RBI's monetary policy decision on Friday where it is expected to hike interest rates for the third consecutive time to help stop rupee's fall and curb inflation expectations.
What's also alarming is that extended weakness in the rupee continues despite the RBI announcing bond purchases worth Rs 36,000 this month to ease liquidity. RBI also permitted oil marketing companies to borrow as much as $10 billion through External Commercial Borrowings (ECBs) and waived off hedging requirements to relieve the pressure on the rupee.