Rupee to strengthen to 60/US$ by March 2014

Economists accuse the Reserve Bank of India of indecision as the rupee tumbles against the dollar.

Financial news outlets the world over have been covering the Indian rupee’s severe troubles, with the currency repeatedly falling to record lows against the dollar. The Reserve Bank of India appears to have made some attempts to calm the feeling of crisis, but any sense of recovery has disappeared quickly.

The central bank had initially attempted to intervene by injecting liquidity into the markets, resulting in a higher value for bank shares and bonds, but this was very short-lived. Wednesday saw the rupee again fall to a record low of Rs 64.55 against the dollar. In addition to the weak currency, the Sensex index also dropped by 2 percent, its lowest point in almost a year.

rbi rupee

Investors are now extremely sceptical about both the government and the RBI’s policies, and whether the current methods are capable of pulling the currency out of its downward spiral.

RBI INEFFECTUAL

It was Tuesday night that the RBI made the announcement that it would purchase government bonds to the value of Rs80 billion ($1.2 billion) in addition to a variety of other measures that were supposed to alleviate some of the stress on Indian banks. They’ve been devalued by previous attempts to keep the rupee from sliding further.

The RBI has thus drawn criticism for flitting between policies, and giving the appearance that it doesn’t know exactly what’s best for the economy. It has said itself that it’s vital that stability is maintained, but that overly tight measures could damage long term yields and throttle credit to the industries that need it most.

Other measures that the RBI has introduced include restricting outward investment buy internal businesses and individuals, and increasing the duty levied when importing gold. Economists are claiming that these are nothing but stop-gaps, which will do little to solve anything in the long term.

REGIONAL DECLINE

Of course, India isn’t the only emerging economy that’s facing difficulties at the moment. Indian officials have been keen to point out that investors are moving away from a great many Asia-Pacific countries, and back to the United States. The Federal Reserve looks to be tapering its policy of quantitative easing, and this is making the dollar more attractive. Malaysia, Indonesia and Thailand are all suffering, with Chinese growth slowing, and only Japan remaining on track. India is however, the worst performer.

The governorship of the Reserve Bank will change on September 5th, when Raghuram Rajan takes over from Duvvuri Subbarao. Rajan has been a chief economist with the International Monetary fund, and it is hoped that the change will perhaps have an impact on the policymaking. Alpari regional director Monjit Gogoi has asserted that the only way the rupee can rebound is if the government can make actual reforms rather than papering over the cracks in the short term.

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