The rupee’s journey this year is a currency crash
The rupee was just another leap, skipping and jumping far away from 80 per dollar, underscoring a significant fall this year in a journey that included a breach of several key psychological levels, which which no one expected even in their silliest predictions at the beginning of 2022.
The news in recent months was read and the rupee hit an all-time low almost every other day.
While the impact on India’s currency is less than that of its peers, the impact on the broader economy from the rupee’s plunge has its pitfalls.
The view that the Russo-Ukrainian war has driven the changing landscape in global financial markets is partly true.
The growth of foreign investors migrating away from emerging markets and into dollar assets began after the US Federal Reserve publicly admitted that it had misjudged the ‘most inflationary’ time’ and was behind the price pressure control curve in early 2022.
But much of the increased impact has come since Russia’s invasion of Ukraine in late February, with the rupee breaching the 77-per-dollar mark for the first time, and its crash course since then has been nothing more than thrilling.
The 77 against the dollar to 78 and then to 79 was quick in forex market terms, with 80 per greenback not too far off.
For their part, the Reserve Bank of India and the government intervened but were unable to stop the steep decline.
The government levied a gold tax on imports to help depreciate the rupee, and the RBI intervened in the spot and futures foreign exchange markets by selling dollars. The central bank also announced a series of measures to increase foreign exchange inflows to boost the rupee.
However, the RBI has repeatedly said it would intervene just to control the rupee’s “jerky movement” and has been largely successful.
But in the monetary environment, there is only so much central banks can control.
Keeping the downsides in mind, the risk to currency stability remains high even where it is paramount, especially when combating rising inflation and higher commodity prices.
Add to that the fear of a global recession fueled by anti-inflationary central banks.
After a witnessing week, the rupee closed 13 pars weaker at 79.26 against the US dollar on Friday, having hit a record low of 79.40 against the greenback on Tuesday.
The real fear is that once the rupee breaks through the $80 level, the drop could be even steeper, as the main psychological rate breaks the limit bets against a free fall, like ours. has seen since the rupee broke the 77 level per dollar rate.
Anuj Choudhary, Research Analyst at Sharekhan, said: “The rupee is expected to trade in the negative due to the strong US dollar. BNP Paribas.
A Reuters survey of private economists and analysts found that The worst is not over yet for the rupeewith the coin expected to trade near its historic low in three months.
The rupee has been battered by a widening trade and current account deficit, and boosted by a global downturn into a safe-haven US dollar due to increased global recession risks.
“We live in a highly volatile and high-risk environment right now, where forecasting is all about scenarios, and with US inflation (rate) showing no signs of peaking like it is today. , the Fed will probably deliver another 75 basis point hike, Sakshi Gupta, chief economist at HDFC bank, told Reuters.
“The momentum we see in the rupee is signaling that there is a lot of global pressure with market valuations down, dollar appreciation, foreign capital outflows, plus prices,” she added. Oil and commodities are extremely volatile.”
