Rupee Now At 57.30: Will It Be A Senior Citizen (60) Soon?

It seems that the pain for Indian economy will continue for quite a while going ahead. One of the major bad news that flowed during the day was that the rupee has further depreciated against the dollar and breached the 57 mark, thus posting an all-time low. The rupee in the afternoon today slid down further at Rs 57.30 against the US dollar and, as the joke is on D-Street, it may soon turn into a senior citizen if it touches the 60 mark. It recovered mildly from that low and is currently trading at Rs 57.22, depreciating almost by 0.92 paise in today’s trade.

One of the reasons for the rupee to fall could be the downgrading done by the global credit rating agencies. Two major rating agencies, S&P and Fitch, have downgraded India’s outlook to negative from stable in the recent past. This will further raise the cost of borrowing for the economy. Further, with an uncertain macro environment, investors are forced to stay with the safe haven i.e. the dollar, which has resulted into a depreciation of some of the other currencies. However, one should note that the Indian rupee has depreciated very sharply and is one of the worst performers across Asia.

The rupee depreciation would further affect the companies who have to repay their dues. According to media reports, around 48 companies Foreign Currency Convertible Bond (FCCB) are going to mature in 2012, of which as per S&P around half of them would probably default.

Well, it just seems that things are not working out right for the economy. Lackluster demands from the developed economies are keeping the domestic exporters to remain quiet. Exporters are not able to get the full advantage of the rupee which has moved from the level of 50 to 57 in the past three to four months. On the other hand, the importers are facing the worst brunt of its kind. We are also not able to take advantage of the falling crude oil prices as the rupee depreciation has offset some of those benefits. Crude contributes roughly around 33 per cent of India’s import bill, which further indicates that our balance of payment position will become worse. The current account deficit for the economy is gradually widening, thus affecting the economy.

Further, according to media reports, the RBI’s heavy selling of the dollar also failed to drive the rupee to change its direction. This strategy of kicking the ball into someone else’s court has now begun to hurt the economic scenario. The RBI is also not taking any major steps to stop the rupee from falling and on the other hand the government has continued to remain silent on the policy and reforms’ front, thus keeping foreign investors at bay. We believe that the issue of the depreciating rupee is being taken too lightly and this could have a drastic impact on the economy, unless some major steps are taken by the government or the RBI at the earliest.