Rupees 54.20 – That’s what you get now for every American dollar!
Where sentiment is beaten down and monies are at stake, negative news feeds on itself – be it stock market rumors or speculation on currency fluctuations.
When rupee was quoting at 47 per dollar couple of months back, analysts had projected a target of 50 for the Indian currency. Few weeks back, just as rupee breached the psychological 50-mark against a dollar, forex trackers jumped their gun to 54 levels.
Now that the unimaginable 54-mark has been crossed, a fearsome INR/USD projection of 58 has cropped up from the analyst community, to add to the woes of importers and India’s fiscal position. One after another new downside targets are being achieved at a rather quick pace.
Well, it’s not just the sharp depreciation in the currency value that is concerning the importers, but the pace at which the rupee has depreciated, giving no respite to the naked (un-hedged) importers to cover their foreign exchange risks. Rupee has depreciated by almost a fifth in last few months, posing severe cuts in the importers’ margins.
Even as importers shout for ‘respite’ from the excessive volatility in the currency market, questions are being raised on RBI’s ability to intervene in a strong demand driven market, along with limited reserves of American currency in its forex kitty.
The worsening of the Euro zone debt crisis is not helping the matters either; as foreign inflows have slackened on bleak revival prospects in the emerging markets, in case the global economy goes into a complete tailspin. Currently, rupee value has slumped to all time lows of 54.20 per dollar.
Moreover, it’s not just the importers that get stung by depreciation in the currency; often even exporters are negatively affected by sharp rupee fall leading to rise in travel, wage and power expenditures over a period of time.
Domestically, India’s trade deficit during the eight month period from April to November 2011 stood at $116.8 billion; with imports growing by 30.2% to $309.5 billion during the period. The imports in the first half of the fiscal were largely driven by increasing imports of petroleum, oil and lubricants and precious metals.
The strengthening dollar not only blunts the government’s efforts to tame inflation, but also puts extra burden on the corporate firms that have borrowed money from overseas markets. At individual level, students will have to pay higher fees in rupee terms and bear extra traveling costs for their trip abroad.
Do you feel rupee can really stoop as low as 58 per dollar going forward?