The Rupee Factor

Today on August 28, the rupee breached the Rs 68 level marked and reached a low of Rs 69.08 in morning session. The effect of this has been felt on the equity markets too as the markets opened with a gap down opening and fell down to 5126. It is not only dollar, but British Pound, Euro and Swiss Franc also appreciated considerable against Indian Rupee. Today, rupee broke all key levels. The British Pound crossed Rs 106 levels, Euro reached Rs 92 levels, Swiss Franc Rs 75 levels and Australian Dollar Rs 60 levels.

The RBI has intervened the currency market after this free fall. This has helped the INR to recover more than 90 paise. The recovery in the rupee has led to the recovery in the bourses too as Nifty recovered by more than 160 points and Bank Nifty by more than 390 points till end of today's trading session.

Yesterday in Rajya Sabha, Finance Minister P Chidambaram accepted that apart from global factors, domestic factors too are responsible to the Rupee depreciation. Few decisions taken to cater 2008 meltdown during 2009 to 2011 are the reasons for present rupee depreciation. The steps taken by the government caused fiscal deficit to breach to gain growth and stability in the economy.

The Indian rupee came under pressure only after May 22 this year. It has depreciated by more than 40% in last 2 years and during same period, India has been facing the problem of increased fiscal deficit and current account deficit. Interestingly the rupee depreciated by almost 60% from its highest level of Rs 39.40 in February 2008.

Some of the measures to curb rupee depreciation, that the government may take, are raising import duty on Gold, opening more sectors to FDI, selling shares held by SUTI, removing ban on iron ore export. The government and RBI had taken few steps to control the rupee depreciation. However, the efforts by the central bank could not control the same. Ideally, the rupee will appreciate only when investment cycle picks up and manufacturing cycle revives.