🤯 Have you seen our AI stock pickers’ 2024 results? 84.62%! Grab November’s list now.Pick Stocks with AI

Indian govt not averse to weaker rupee vs dollar - source

Published 09/22/2022, 02:40 AM
Updated 09/22/2022, 03:06 AM
© Reuters. FILE PHOTO: An India Rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

By Ira Dugal and Aftab Ahmed

NEW DELHI (Reuters) -The Indian government is not averse to a weaker rupee in line with global market fundamentals, a senior official told Reuters, at a time when the central bank's intervention has tried to moderate the depreciation in the Indian currency.

The comments come against the backdrop of aggressive rate hikes from the U.S. Federal Reserve, which raised rates by 75 basis points overnight, vowing to battle to beat down inflation.

The Fed's decision sent the dollar to a new 20-year high and the rupee to a record low of 80.61.

"A weaker rupee in line with market fundamentals is not a cause of concern to us," the government official, who did not want to be named, told Reuters late on Wednesday before the Fed's rate-hike announcement.

"It can act as a natural stabiliser for the economy by helping reduce imports and maintain export competitiveness," the official added.

The finance ministry declined to comment.

The Reserve Bank of India has been selling dollars to alleviate the depreciation pressure on the rupee due to the surging dollar and foreign portfolio outflows.

The central bank sold a net of $19 billion from its reserves in July alone to prevent the rupee from falling much below 80.

Alongside its intervention in the spot market, the RBI's forward dollar holdings have fallen to $22 billion from $64 billion in April.

"India's current account deficit will hit 4% in the first quarter and remain elevated for the rest of the year. Given the Fed stance, flows will not be adequate for a couple of years. All this points to a structurally weaker rupee," said Dhananjay Sinha, chief economist at Systematix Shares & Stocks.

Sinha said the rupee is overvalued by about 5-5.5% on a real effective exchange rate (REER) basis.

© Reuters. A customer hands Indian currency notes to an attendant at a fuel station in Mumbai, India, August 13, 2018. REUTERS/Francis Mascarenhas

India's current account deficit likely widened to 3.6%, its highest in nine years, in the April-June quarter, driven by soaring global commodity prices and the biggest capital outflows since the 2008 global financial crisis, a Reuters poll found.

RBI Governor Shaktikanta Das had said earlier this month that the central bank's endeavour, amidst the extraordinary global events, has been to anchor expectations and allow the exchange rate to reflect the fundamentals rather than overshoot.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.