<p>The rupee has breached the psychological level of 90 a dollar, falling over 7 per cent in the past year, with the decline accelerating in the last few weeks. The decline is expected to continue. The main contributing factors are a negative balance of payments, increasing trade deficit, and a growing current account deficit. The Reserve Bank of India (RBI) has not actively intervened in the currency market to check the slide. It is not a temporary fall that can be tackled with ad hoc measures. The macroeconomic factors accounting for the weakening of the rupee may stay for some time, and the RBI has wisely decided not to prop up the currency by artificial means. It is a natural fallout of many factors over which the country and the RBI have no big control. Efforts to stop the decline in such situations have not been effective in the past. </p>.<p>The country’s balance of payments became negative in the second quarter of this financial year to the tune of $10.9 billion, as against a surplus of $18.6 billion during the same period last year. The decline of exports and a surge in gold imports, the higher cost of petroleum product imports, and high portfolio outflows have together exerted increased pressure on the rupee. Merchandise exports contracted by around 12% in October and exports to the US declined by 8.6% as a result of the higher tariffs imposed by President Donald Trump. Gold imports rose to $14.7 billion in October, as against $4.9 billion a year before, and the trade deficit soared to a high of $41.7 billion. Foreign portfolio investors have made large withdrawals from the Indian market. Uncertainty still dogs the India-US trade deal.</p>.Cure must not be worse than disease.<p class="bodytext">Foreign exchange reserves have fallen by $6.4 billion in the first half of the year, but they are at a comfortable level at about $690 billion. Retail inflation has fallen with headline CPI inflation coming down by 0.25% in October, which is well below the RBI’s tolerance level. This gives the RBI some room to withstand currency depreciation. Among the measures that can help to stabilise the rupee are a reduction in the import of oil and gold and an increase in exports. But oil imports are likely to cost more if there is a major shift away from Russian crude. A weaker rupee will help to increase exports, but it should be noted that it has appreciated against the yuan. That can make Chinese imports cheaper and increase the trade deficit. The trend is unlikely to see an immediate end.</p>
<p>The rupee has breached the psychological level of 90 a dollar, falling over 7 per cent in the past year, with the decline accelerating in the last few weeks. The decline is expected to continue. The main contributing factors are a negative balance of payments, increasing trade deficit, and a growing current account deficit. The Reserve Bank of India (RBI) has not actively intervened in the currency market to check the slide. It is not a temporary fall that can be tackled with ad hoc measures. The macroeconomic factors accounting for the weakening of the rupee may stay for some time, and the RBI has wisely decided not to prop up the currency by artificial means. It is a natural fallout of many factors over which the country and the RBI have no big control. Efforts to stop the decline in such situations have not been effective in the past. </p>.<p>The country’s balance of payments became negative in the second quarter of this financial year to the tune of $10.9 billion, as against a surplus of $18.6 billion during the same period last year. The decline of exports and a surge in gold imports, the higher cost of petroleum product imports, and high portfolio outflows have together exerted increased pressure on the rupee. Merchandise exports contracted by around 12% in October and exports to the US declined by 8.6% as a result of the higher tariffs imposed by President Donald Trump. Gold imports rose to $14.7 billion in October, as against $4.9 billion a year before, and the trade deficit soared to a high of $41.7 billion. Foreign portfolio investors have made large withdrawals from the Indian market. Uncertainty still dogs the India-US trade deal.</p>.Cure must not be worse than disease.<p class="bodytext">Foreign exchange reserves have fallen by $6.4 billion in the first half of the year, but they are at a comfortable level at about $690 billion. Retail inflation has fallen with headline CPI inflation coming down by 0.25% in October, which is well below the RBI’s tolerance level. This gives the RBI some room to withstand currency depreciation. Among the measures that can help to stabilise the rupee are a reduction in the import of oil and gold and an increase in exports. But oil imports are likely to cost more if there is a major shift away from Russian crude. A weaker rupee will help to increase exports, but it should be noted that it has appreciated against the yuan. That can make Chinese imports cheaper and increase the trade deficit. The trend is unlikely to see an immediate end.</p>
