The rupee is back in the news following a sharp depreciation in its value versus the dollar in the last one month after a prolonged period of relative stability. It has weakened by a little over 4% since mid-July and touched the 72 mark to a dollar before retracing its steps.

Reasons for slowdown

  1. The fall has to be seen in the context of the overall weakness in currencies of emerging markets.
  2. The fall in the rupee is influenced to some extent by the overall economic slowdown and the sell-out in the equity markets in the last couple of months leading to capital withdrawal by foreign portfolio investors. The capital outflow particularly has hit the currency’s valuation.

But the fall is no cause for alarm as yet because there is stability on the external account with the current account deficit at a comfortable 0.7% in the quarter ended March 2019. Of course, export growth is depressed but the forex reserves are at historically high levels of $430 billion. In fact, the fall will make India’s exporters competitive.