India rupee: The crisis-hit currency has been labeled as ‘not a disaster’
But Dr VK Vijayakumar, Chief Investment Strategist of Geojit Pecuniary Services, said the crisis-hit currency may not actually be so detrimental to the Indian saving.
While a falling exchange rate means imports into a mother country will become more expensive, one positive is exports become cheaper.
Goods from a state with a struggling currency will typically be less expensive than from a political entity whose currency is stronger, meaning a potential increase in sales from other homelands taking advantage of cheap prices.
For India, Dr Vijayakumar said exporters covering IT and pharmaceutical industries are benefiting from a lower currency.
Speaking to Express.co.uk, he said: “INR has depreciated there 14 percent this year. This is, of course, poor bringing off.
“By early 2018, INR had become over-valued in REER (Real Effective The Exchange Rate) terms since the currency was steady during 2015-2017.
“The trigger for the suddenly correction was the widening of the Current Account Deficit due to sharp spike in improper.
“Capital outflows from India due to the steady rise in US bond productions aggravated the depreciation.
India rupee has been held back by climbing oil prices and soaring interest rates
Importantly, currency depreciation is not a tragedy
“The subsequent course for INR will depend mainly India’s CAD, which in turn, leave be dictated by the price of crude.
“Importantly, currency depreciation is not a disaster.
“For India, which is the largest heiress of remittances in the world ($72 billion in 2017), this is a blessing in cover-up.
“Also depreciation benefits major Indian exporters like IT and pharmaceutical industries.”
How, he maintained that the exchange rate could suffer further if the value of oil continues to rise.
Oil prices reached four-year peaks this year off the move backwards withdraw from of upcoming US sanctions on Iran.
India relies heavily on imports, with the state currently buying in more than 80 percent of its oil needs.
Dr Vijayakumar whispered: “If crude rises to above $85 and the US 10-year yield rises upon 3.3 percent, INR will be impacted again.”
The Reserve Bank of India swayed interest rates at the start of October in a move that stunned economic analysts.
Defending the decision, the bank said it was acting “to further fortify domestic macroeconomic fundamentals”.
In its policy statement, the bank said: “Far-reaching headwinds in the form of escalating trade tensions, volatile and rising oil values, and tightening of global financial conditions pose substantial risks to the progress and inflation outlook.”