PremiumAs earlier reported by Mint, it’s not the depreciation but the pace of rupee volatility that the RBI is watchful of. It has introduced a slew of measures to stabilize the rupee, whose sliding adversely affects foreign reserves and import bills.
The rupee weakened below the psychologically critical barrier of 80 against the dollar for the first time in the spot market on Tuesday morning. While the recent depreciation has been rapid, it may not be as fast as some other phases in the past 25 years, a Mint analysis suggests.
The local currency hit a record low of 80.06 to a dollar on the day, but the Reserve Bank of India’s intervention helped reverse some of the losses. The rupee ended trading at 79.95 to a dollar.
Since closing below 75 for the first time on 20 March 2020, the rupee has taken 566 trading days to touch the 80-mark. The decline from 60 to 65 is the fastest on record in this century: it took just 42 days during the US Federal Reserve’s taper tantrums of 2013. It took 382 days for the domestic currency to slip from 70 to 75.
The analysis looks at the first time the rupee closed a trading day below each milestone--selected as multiples of five--and excluded instances when it may have touched a mark intraday, except Tuesday's 80 level. The comparison should only be seen as the trend of key milestones in the rupee’s journey against the dollar and not interpreted as the overall pace of depreciation, which shows a lot more variation.
The Indian currency has been sliding rather sharply since the Russia-Ukraine war in late February, and has been under further pressure due to the sharp interest rate hikes by the US Fed. Hovering around 75 in mid-February, the rupee has fallen 6.6% since then. In comparison, currencies such as Mexican peso (0.9%), Indonesian rupiah (4.4%) and Brazilian real (5.5%) have depreciated less whereas euro (10.4%) and Japanese yen (16.7%) have depreciated more than the rupee. Russian ruble and British pound have appreciated during this period.
The recent decline of rupee comes after its resilience throughout the pandemic, and it had in fact gained against the dollar between April 2020 and March 2021. The worst yearly decline in the period of analysis was 19.2% in 2008.
As earlier reported by Mint, it’s not the depreciation but the pace of rupee volatility that RBI is watchful of. While the rupee’s plunge has been sharp of late, it’s still no way close to the volatility last seen during the taper tantrum of 2013 and the Great Recession of 2008-09.
