Rupee at all-time low of 52.20 against a dollar !
Tick! Tick! Tick!… Yes, the rupee-dollar exchange rate is ticking like a time bomb for the businesses involved in import of goods and services. While the suffering for importers gets unbearable as they take a direct cut on their profit margins marred by weakening rupee; its exporters that get to laugh all the way to the bank.
The rupee was at 48 per dollar last time we had carried out the foreign exchange update in mid-September. Since then, the rupee has depreciated by almost 10% to 52.20 against a US dollar, which values rupee at lowest exchange rate over three years.
In fact, yesterday, the rupee had hit a low of 52.70 to a dollar, but back tracked today on the likely RBI intervention to stabilise the Indian currency by asking state-run banks to sell dollars in truck loads. However, the rupee stays dangerously still above 52-mark.
In fact, for an oil importing nation like India, rupee plunging to new lows spells doom for the country as it puts further pressure on the increasing trade deficit, which had come in at a record $19.6 billion in October 2011. Moreover, Indian imports during the period grew by 21% to $39.5 billion due to increase in payments towards oil, gold and coal bills.
Forex analysts are already betting on rupee to crossover the crucial 54 mark to a dollar based on strong demand for the greenback from banks and importers, and reemergence of the American currency as a safe-haven global asset.
To add to India’s woes of fiscal deficit, the government had recently cut fuel prices by Rs.2/litre ahead of the key political event in form of winter session of the Parliament. However, the cost of importing crude oil has actually surged with almost 5% weakening in rupee value over the last fortnight.
In addition, the declining rupee will also be a hurdle in the government’s effort to tame inflation as it will blunt the high base impact. Further, even RBI has limitation in intervening in the forex market to stem the currency volatility, as it has no control over the renewed demand for dollar assets arising out of panicky euro zone sovereign debt crisis.
The dollar strengthening will also lead to extra burden for the corporate firms that have borrowed money from overseas markets or whose businesses are dependent on ancillary parts that need to be outsourced from abroad. At individual level, students will have to pay higher fees in rupee terms and bear extra travelling costs for the trip abroad.
Do you feel Rupee-dollar will really plunge down to 54 in next few weeks?