Opinion
Mint Quick Edit | A rupee slide needn’t be bad for India
Summary
- As India’s currency drops to a new low, export prospects brighten, even if inflation risks rise. Is RBI allowing a freer slide? Is growth now a bigger concern than price stability? We’ll know soon.
The rupee seems to be on a relatively unrestrained slide. It dropped to a new low of 87.58 against the dollar on Thursday. It has already weakened about 2% this year, extending its 3% decline in 2024. This need not be bad, though.
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We should let the rupee find its true market value, with intervention only to prevent jerky drops. If the rupee is held artificially high, it gets exposed to speculative attacks, even though capital controls can shield it to an extent. A fairly valued rupee would also enable Indian exporters to stay competitive.
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Under a new governor, the Reserve Bank of India (RBI) may have reduced dollar sales in rupee support, but only data released later can confirm this. The trade-off here relates to inflation, which can be stoked by larger rupee bills for inelastic imports like energy, as implied by a rising dollar.
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The global uncertainty caused by policies under US President Donald Trump, though, could give us a strong dollar for a while. Capital has been fleeing to the safety of dollar assets, even as the US Fed has been pushed back on inflation alert. Price stability here might suffer too. Whether RBI sees economic-growth risks as worse will be clear in its own monetary policy, out on Friday.
