1.43 PM Friday, 29 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 04:56 06:10 12:26 15:53 18:37 19:52
29 March 2024

Indian rupee plunges below 18.60 vs Dh1; What next?

Published
By Vicky Kapur

This morning (Wednesday, February 3, 2016), the Indian rupee plunged to a new low of 18.58 against the UAE dirham (68.25494 vs $1) at about 7.40am UAE time.

That’s almost 1 per cent down from Rs18.419 vs Dh1 that it recorded a couple of days ago, on Monday, February 1.

Of course, such fluctuations in the beleaguered rupee are rote, given that the rupee is an emerging markets currency and these are not good times for emerging markets.

Read: Rupee, peso, rouble at lifetime low... to remit or not to remit

What may be a little concerning for Raghuram Rajan, the Governor of the Reserve Bank of India (RBI), is that this is but the first week of the month.

Generally, the rupee slips during the third and the fourth weeks of the month, when importers (of primarily oil and gold) are looking for dollars to foot their month-end bills.

And the rupee firms up a little after that, during the beginning of the next monthly cycle.

This time, though, the rupee has started showing signs of weakness much sooner than usual, and that can’t be a good sign for its value by the end of the month.

Nobody should envy RBI’s Rajan’s job. For, he’s expected to walk an extremely narrow tightrope when it comes to maintaining the value of the rupee.

On the one hand, the falling value of the rupee makes imports that much more expensive and he’s supposed to use the central bank’s forex reserves to shore up the currency in times of ‘wild fluctuations’.

Exporters, on the other hand, want a weaker rupee as that helps them keep their goods competitive in the global market, where the emerging currencies seem to be in a ‘race to the bottom’.

The government’s ‘Make in India’ campaign will work only if manufacturers see a market for their made-in-India products, which in turn needs competitive pricing. In three words, a weak rupee.

That isn’t all, though.

Now add the spectre of a huge increase – of Rs1.02 trillion (Dh55.18 billion) – in the annual salaries and pensions of Indian government’s present and past employees, respectively, and Rajan’s task looks only slightly less difficult than cracking the quantum code.

Even if he manages to achieve all this, Rajan’s task will still not be over.

He will need to conjure up an interest rate cut sometime soon (the RBI kept the rate on hold this week).

Rajan, definitely, has his job cut out for him.

Will he be able to save his ‘rock star’ image by doing all this? He’ll definitely need help from his friends in the North Block, in particular from Finance Minister Arun Jaitley who is set to table the Union Budget on February 29, 2016.

If Jaitley can come up with a plan to boost infrastructure spending and still amass the extra trillion needed to foot the salary hikes, he’ll be doing Rajan a big favour.

Meanwhile, the forex market seems to think of this to be too much of a Bollywood-style tale, and is therefore pushing the rupee even lower.