That the rupee is weakening against the US dollar is not a surprise, ever since the US currency showed signs of bottoming out after the Federal Reserve hinted that it was done with rate cutting for some time. After all, the dollar has been strengthening against most currencies lately. What’s interesting, however, is that the rupee has been losing ground against most regional and emerging market currencies as well. Since 1 April, the rupee has depreciated against the Indonesian, Thai, Malaysian, South African, Brazilian, Philippine and Chinese currencies.
Why has that happened? Gaurav Kapur, senior economist with ABN Amro Bank in Mumbai, says that unlike most Asian nations, India has a current account deficit and is heavily dependent on oil imports, which is why its currency is getting weaker. In fact, South Korea, against whose currency the rupee has shown a marginal appreciation in the past month, also has a current account deficit. Of course, China too is a huge net importer of commodities, but the Chinese market has started to see strong inflows, apart from the hot money betting on an upward revaluation of the yuan against the dollar. That’s apart from their deliberate policy to see a higher yuan to offset some of their inflationary pressures.
Rupee depreciation will be good for exporters and it’s probably responsible for some of the bounce in IT stocks. But it will add to inflationary pressures at a time when crude oil prices are setting new records.