Mumbai: RBI should give Rupee Rally Against Dollar imported inflation This is mainly coming from crude oil prices and helps boost exports, as the current account risk from rising oil prices can be kept at 1.4 per cent of GDP, according to a report.
The rupee has fallen from 73.09 on September 1 to a low of $ 75.52 on October 12 on fears of a rise in crude oil and consequently the current account deficit. But it has started appreciating again and is currently at around 75, which is visible from Forex. The market traded in August to supply an additional $2.2 billion – clearly showing a depreciation bias on the rupee.
The Reserve Bank has been continuously buying foreign exchange, and in FY 2011, it bought foreign exchange worth Rs 5.1 lakh crore and forex reserves increased by $103.72 billion.
SBI Research said in its report on Thursday that despite the second wave, the rupee strengthened and it even went below $ 73.
Taking everything into account – strong FDI inflows amid some volatility in late FPI inflows – our CAD estimate for the full year is 1.4 per cent of GDP, which is comfortable, and if not an extremely disastrous third wave. Rupee is going to handle any minor news with relative calmness, the report said.
Considering the high domestic inflation, as there are supply disruptions, it will do no harm for the RBI to swing with the wind and appreciate the rupee, as it may reduce imported inflation when metals and oil Prices are rising, and may clear liquidity. Somewhat overhang, it added.
The report said that this is because our backward linkages in global value chains are greater than forward linkages and a weaker rupee may not help push exports, as called for by traditional economic theory.
The report also said that the RBI has been lauded globally for its effective exchange rate management. The IMF, in its recently issued Article IV advisory, welcomed the commitment of the authorities to maintain exchange rate flexibility.
Noting that wholesale price inflation averaged 11.6 per cent and CPI 5.34 per cent in the first half of FY22, the report said that since the onset of the pandemic in 2020, consumer price and wholesale price inflation rates exhibit considerable divergence. has been
It said such developments allay the concerns of manufacturers who are battling extremely high imported inflation and a depreciating rupee.
The current rally in oil prices due to the global supply crunch and the world recovering from the pandemic is reminiscent of the early 2010s when oil was above $100 a barrel.
The current account deficit, which touched an all-time high of 4.82 per cent of GDP in FY13, started shrinking and has not gone above 2.1 per cent since then.
However, rising crude oil prices and supply-side constraints due to the pandemic have again raised concerns and the rupee depreciated by 14 per dollar between May and September 2013.
The trade deficit for September 2021 is $22.59 billion, which is significantly higher and is the closest counterpart to that in October 2012 when it was $20.21 billion.
Exports have been doing well so far with goods exports touching $197.9 billion in the first half of 2021, a strong 24.3 percent increase from $159.2 billion in the first half of 2019. Thus, achieving the target of $400 billion is not a pipe dream and it will provide a strong cushion to the current account balance even if the oil import bill rises sharply, the report said.
The rupee has fallen from 73.09 on September 1 to a low of $ 75.52 on October 12 on fears of a rise in crude oil and consequently the current account deficit. But it has started appreciating again and is currently at around 75, which is visible from Forex. The market traded in August to supply an additional $2.2 billion – clearly showing a depreciation bias on the rupee.
The Reserve Bank has been continuously buying foreign exchange, and in FY 2011, it bought foreign exchange worth Rs 5.1 lakh crore and forex reserves increased by $103.72 billion.
SBI Research said in its report on Thursday that despite the second wave, the rupee strengthened and it even went below $ 73.
Taking everything into account – strong FDI inflows amid some volatility in late FPI inflows – our CAD estimate for the full year is 1.4 per cent of GDP, which is comfortable, and if not an extremely disastrous third wave. Rupee is going to handle any minor news with relative calmness, the report said.
Considering the high domestic inflation, as there are supply disruptions, it will do no harm for the RBI to swing with the wind and appreciate the rupee, as it may reduce imported inflation when metals and oil Prices are rising, and may clear liquidity. Somewhat overhang, it added.
The report said that this is because our backward linkages in global value chains are greater than forward linkages and a weaker rupee may not help push exports, as called for by traditional economic theory.
The report also said that the RBI has been lauded globally for its effective exchange rate management. The IMF, in its recently issued Article IV advisory, welcomed the commitment of the authorities to maintain exchange rate flexibility.
Noting that wholesale price inflation averaged 11.6 per cent and CPI 5.34 per cent in the first half of FY22, the report said that since the onset of the pandemic in 2020, consumer price and wholesale price inflation rates exhibit considerable divergence. has been
It said such developments allay the concerns of manufacturers who are battling extremely high imported inflation and a depreciating rupee.
The current rally in oil prices due to the global supply crunch and the world recovering from the pandemic is reminiscent of the early 2010s when oil was above $100 a barrel.
The current account deficit, which touched an all-time high of 4.82 per cent of GDP in FY13, started shrinking and has not gone above 2.1 per cent since then.
However, rising crude oil prices and supply-side constraints due to the pandemic have again raised concerns and the rupee depreciated by 14 per dollar between May and September 2013.
The trade deficit for September 2021 is $22.59 billion, which is significantly higher and is the closest counterpart to that in October 2012 when it was $20.21 billion.
Exports have been doing well so far with goods exports touching $197.9 billion in the first half of 2021, a strong 24.3 percent increase from $159.2 billion in the first half of 2019. Thus, achieving the target of $400 billion is not a pipe dream and it will provide a strong cushion to the current account balance even if the oil import bill rises sharply, the report said.
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