Opinion
Mint Quick Edit | Is the rupee’s new low okay?
Summary
- The Indian rupee fell to a record closing low of 83.56 against the US dollar. RBI’s managed float doesn’t promise to get easier as the currency trade-offs we face won’t ease.
The Indian rupee hit a record closing low of 83.5650 against the US dollar on Tuesday. That most of its Asian peers also weakened against a rising greenback would offer strong-rupee advocates some consolation, but not much. A weaker rupee makes imports dearer, which hurts domestic manufacturers who rely on foreign equipment and inputs for production.
It also makes our oil usage costlier, feeding local inflation. But then, the policy choices of the Reserve Bank of India (RBI), tasked with rupee management, are always complex. We also need the currency’s real effective exchange rate to be low and competitive globally for the sake of exports. As the rupee slid, RBI reportedly sold dollars as part of its remit to keep sharp movements in check without intervening to peg the currency at any level.
Its chest of foreign exchange reserves, last reported at over $650 billion, however, has been growing larger from one year to the next, a sign of net forex purchases as capital inflows strengthened. Currency trades are a judgement call dictated by how the economy is placed. When big trade-offs are faced, acting in favour of domestic stability can hardly be faulted.
