March 02, 2025

-

Premium

WHITHER THE RUPEE?

SANJAY MALHOTRA'S tenure as the new Governor of the Reserve Bank of India has begun at a time of global economic uncertainty. The Indian economy is facing a slowdown, surging oil prices, and a weakening rupee--challenges that could have far-reaching consequencesFinance Minister Nirmala Sitharaman tried to address the slowing domestic economy in the Union Budget 2025-26 by providing salaried individuals some relief on the income tax front in the hope that it will spark a consumption boom, and revive slowing | economic growth. But a weakening rupee could throw a spanner in the worksA depreciating rupee is not just a financial concern--it has significant political and economic implications. When the currency weakens, import costs rise, fuelling inflation. This is especially worrisome for India, a major importer of crude oil, as higher oil prices directly impact inflationOver the years, the rupee has steadily weakened against the dollar and, in fact, by as much as 37% since December 31, 2014, when it was trading at 63.04 and touched a record low of 87.95 against the US dollar on February 10. The depreciation has accelerated in recent months--it has fallen 4.7% since January 2024. In fact, some analysts expect it to move near 90 by year endBut in a break from the past, this volatility has not rung alarm bells in the corridors of policymaking in New Delhi or at the central bank in Mumbai or even amongst analysts and market participants. There have been some high-level discussions, and the rupee's movement is being tracked closely by the government. The RBI has intervened in the forex market to ensure that the depreciation isn't very sharp to maintain stability. However, the government has come in for sharp criticism from Opposition parties that have questioned it over the handling of the depreciationRBI Governor Malhotra has underlined that the central bank does not target any specific exchange

WILD RIDE FOR TO CONTINUE?

TREGIME CHANGE The RBI, under former Governor Shaktikanta Das (left below), is said to have tried to defend the rupee. His successor, Sanjay Malhotra, has said the RBI will only intervene to ensure orderly movement he recent depreciation of the rupee has sparked a debate on the relative merits and drawbacks of the fall in value vis-à-vis the US dollar. The recent volatility has been sparked by US President Donald Trump's tariff policies that have increased uncertainty around the world and have led to a fall in the value of many currencies, not just the rupeeConsider this: the rupee fell by 57 paise to 86.62 on January 28, 2025--the steepest decline in nearly two years. From just February 10 to 13, the rupee quoted between 86.50 and 88In this period, some have questioned the Reserve Bank of India's (RBI's) handling of the situation, raising concerns about its decision to sell dollars to shore up the currency. The debate has also included top ministers in the Prime Minster Narendra Modi-led National Democratic Alliance government"Depreciation is a bad thing. We believe that in the long run, we must focus on a stronger currency because we are still an import-dependent country," Union Commerce and Industry Minister Piyush Goyal said at the India Today-Business Today Budget Round Table 2025That said, Goyal added that the rupee has performed better than most emerging market peers. "The rupee is one of the best-performing currencies among emerging market economies. Our depreciation is roughly half in terms of percentage--