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Now, heartburn over falling rupee

There is no way you can escape the high levels of volatility in the rupee rate.

     Print Edition: October 5, 2008

Rupee: Set to appreciate further
Rupee: Set to appreciate further
There is no way you can escape the high levels of volatility in the rupee rate. It has been on the boil—appreciating significantly and then deprecating all in the space of 18 months on the back of huge foreign inflows into the bourses and fluctuations in crude oil prices.

The global slowdown is taking a heavy toll on the value of the rupee against the dollar (see Days of High Volatility). So far, it has fallen about 15 per cent from 39.40 against the dollar in January 2008 to 45.72 in September. “The fall in oil prices did not result in substantial gains for the domestic currency because of the dollar’s strong recovery,” says Rajesh Mokashi, Executive Director, Care Ratings.

The sudden depreciation of the rupee has brought smiles to the faces of exporters, especially IT companies, that were hit following its sudden appreciation a few months ago. The depreciation is expected to add to the buoyancy in exports. According to available statistics, exports registered a 25 per cent increase in April-July 2008 to Rs 2,48,498 crore against Rs 1,94,689 crore over the same period last year.

On the other hand, importers are a worried lot as any depreciation in the currency will increase the cost of imports. With the economy still growing at a robust rate, imports are on the rise. In the April-July period, they grew 34 per cent to Rs 4,21,541 crore, up from Rs 3,06,946 crore in the same period last year. If crude prices remain high and imports continue to grow at the current pace, the current account, which is running a deficit, may be a casualty, forcing RBI to further tighten monetary policy. Experts however, say if there is a strong recovery in global economies, the rupee will appreciate further.

Anand Adhikari

 

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