Rupee’s journey: Sajjid Chinoy at Explained.Live today

As the Indian economy looked set to charting out a recovery path in the aftermath of the Covid-19 pandemic shock, the sharp depreciation of the rupee against the US dollar on account of the aggressive monetary tightening by the US Federal Reserve and the spillover effects of the Russia-Ukraine conflict have thrown major challenges for policy makers in the government and the Reserve Bank of India (RBI). The domestic currency has depreciated over 7 per cent in 2022 and breached the 80 to a US dollar mark, before staging a partial recovery, largely due to the intervention of the central bank in the forex market.

The withdrawal of accommodative policies in India and other countries, amid concerns oft global inflation and an overhang of recessionary fears, continue to weigh heavily on the broader sentiment.

Capital outflows are likely to continue on account of rate hikes in the US amid high inflation concerns, with such a sharp depreciation over a short duration of time throwing up multiple challenges for the RBI and the Central government, as they grapple with the challenge of sustaining the growth rebound while nipping runaway inflation without taking recourse to multiple, sharp interest rate hikes that could impact the nascent recovery that is underway.

Forex reserves have fallen by over $50 billion between September 2021 and now, primarily on account of the RBI’s intervention, with the rupee’s exchange rate against the dollar having fallen over 7 per cent this year. Experts expect the rupee to weaken further in the coming 3-4 months given the aggressive tightenting of the monetary policy by the US Fed. A higher rupee translates into costlier imports, which, in turn, could widen the trade deficit as well as the current account deficit, which, will likely put more pressure on the exchange rate.

As the cascading impact trickles down to the level of citizens — through multiple routes including higher fuel prices, a hike in the cost of education for students going abroad and more expensive consumer items — it is time to seek answers to some pertinent questions: What are the challenges and implications of rupee depreciation on the economy? Will a lower rupee mean costlier imports, and hence higher inflation? A depreciation does make Indian exports competitive, but does it add to growth and jobs? Should the RBI intervene, and use its forex reserves to sell dollars and stabilise the rupee further?

To understand the many facets of the rupee’s journey, join The Indian Express for a decluttering Explained session on August 2 at 6:30 PM with Sajjid Chinoy, JP Morgan’s Chief India Economist, who is also a Part-Time Member in the Prime Minister’s Economic Advisory Council (EAC-PM). He will help us understand the spillover effect of the depreciation in the Indian currency, look ahead at its trajectory and better understand the response of policy making — both monetary and fiscal — in times of high inflation. The session will be moderated by P Vaidyanathan Iyer, Executive Editor, The Indian Express.

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