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The Rupee Downgrading
1. The Rupee Downgrading
In spite of being Asia’s 3rd
largest economy, India is yet to show a sustainable
growth, which is unfortunately being mirrored in the state of the Indian
Rupee.The rupee, on Tuesday, sank by a staggering 194 paisa to it’s lifetime
low of 58.98 against the US dollar, to close the day at 58.39 and was still
weaker than Monday’s closing of 58.19. This was the largest depreciation in
the Rupee when compared with other major swings in Nov 2008 and Sept
2011.
As compared to the previous two major downwards movements in the Rupee,
Monday’s fall should not have been unexpected.The Rupee had tumbled by
124 paisa, or 2.57 per cent, on September 22, 2011, and by 119 paisa, or 2.47
per cent, on November 12, 2008. Seeing the rupee downfall in these two
days, experts have forecasted the Rupee may touch the level of 60s soon. The
rupee has fallen nearly 10 per cent in past six weeks and over 2.5 per cent in
past two trading sessions.
Trying to boost the lackluster performance of the Rupee, the RBI had
proposed the floating of NRI bonds as one measure to counter. “We will be
looking at all options for safe financing of CAD. It is still in itsearly days," Chief
Economic Advisor RaghuramRajan said when asked if the government is
considering floating NRI bonds.Today, surprisingly, the Rupee closed down at
57.76 against the US dollar. The RBI is fighting a loosing battle as these
measures to pump up the Rupeeare short term and may not have hopes for
the asset.
On the other hand, Indian consumers have not been able to utilize this
current fall in global commodity due to the Rupee fall down. Prices of soya oil,
pulses and gold have dropped in the global market recently; weak Rupee has
made the imports of these commodities costlier in the domestic market.
To counter these types of situations Government of India had already formed
a Cabinet Committee on Investment. Though, this committee has not
delivered in the terms of guidance and concrete steps to resolve the situation.
All measures to prop up the Rupee are transient solutions. Since fundamental
2. problems are arriving out of structuring imbalances and uncertain economic
state,whereas slow growth in economy is yet to be addressed.
References
1) Data Source – Economic Times
2) Official Statements - Economic Times