“To think of the rupee value as reflecting the weakness of the Indian economy would be a very simplistic way of looking at it. In macroeconomics, we do not have these neat one to one solutions. There os the irony of the US perhaps heading into a recession or perhaps already there and the US dollar being the safe haven precisely because of its international reserve currency status,” says Mythili Bhusnurmath, Consulting Editor, ET Now
As the rupee goes into a freefall, the response that is coming in from the government is that it is not a rupee problem, it is more of a dollar strengthening problem. Is that the way to look at it?
Well the dollar is certainly strengthening and with the Fed all set to raise interest rates given the fact that inflation has come in at a 41-year high, this is going to continue, the trend is going to continue, the rupee is going to weaken further. The fact that other countries’ currencies are also weakening is not much of an answer really simply because of the implications of a weakening rupee for us.
As the rupee goes into a freefall, the response that is coming in from the government is that it is not a rupee problem, it is more of a dollar strengthening problem. Is that the way to look at it?
Well the dollar is certainly strengthening and with the Fed all set to raise interest rates given the fact that inflation has come in at a 41-year high, this is going to continue, the trend is going to continue, the rupee is going to weaken further. The fact that other countries’ currencies are also weakening is not much of an answer really simply because of the implications of a weakening rupee for us.
At a time when inflation is already pretty high in India also, a weakening rupee means further imported inflation, given that we import about 80% of our oil requirements that also has huge implications for our current account deficit. For our fiscal deficit, since the government beyond a point does not want to pass on the higher prices to consumers, because even though we say technically oil prices have been deregulated, we have seen that…