Will we ever see 85 again?

By Jamal Mecklai

Boy, that was quick. The rupee had slipped from a wobbly 83+ before Trump’s election through 84 and accelerated through 85, and finally, on Monday morning, fell screaming through 86 to the dollar. The Trump dollar, with the DXY shooting for 110 and beyond, midwifed this process, as did the new RBI governor, who appears to have recognised that continuous intervention was simply burning up reserves and creating extremely difficult domestic liquidity conditions.

Obviously, the rapidly weaker rupee is going to fan inflation, particularly as, in general, oil imports are not hedged forward; again, other commodities, like edible oils are hedged, if at all, only to the next shipment. We can wave goodbye to any interest rate cuts in the near term and brace ourselves for continuing high prices.

Also ReadMonday mayhem! Nifty, Sensex close 1.4% lower; Nifty Midcap 100 nosedives 4%

Exporters are, of course, sitting pretty, since many of them — even those with well-defined structured risk management programmes — backed away from hedging over the past few months. However, it is likely that seeing the sharp decline in the currency, some of them may have to contend with price reduction demands from their customers.

Clearly, the market has taken charge sensing structural weakness in RBI’s policies, so the first order of business is for the RBI to find a way to communicate to the market that it is back in charge. More and indiscriminate intervention is not the answer – it may lie in a combination of approaches, including launching another high-yield NRI deposit/bond programme.

The real lesson for the RBI is that Indian markets are now sufficiently open to where trying to control/manage them will increasingly be a losing proposition. It is better to actually take positive steps to further deregulate – for instance, reversing the futile and counterproductive ban on exchange-traded derivatives – and to encourage users to build and develop more effective risk management skills. Thus, size constraints on derivatives should be reviewed and importantly, bank audits should be redesigned to ensure that banks are not charging excessive spreads to small companies, who are ultimately an important strand in the lifeblood of the economy.

But, I guess the burning question is where do we go from here, and,

 » Read More

Related Articles

GCCs, IT companies dominate office space

Quarterly transactions in the office market reached a historic high of 28.2 million square feet in the January-March period, shows a Knight Frank report.  Global capability centres (GCCs) were the largest consumers of office space during the period, accounting for 44% of the total transaction volume.  A resurgence in demand from the third-party IT services

Gems and jewellery units to take a big hit

The reciprocal tariff of 27% will jack up customs duties faced by Indian exporters of studded and gold jewellery in the US to 32-34%, including 5.5-7% extant tariffs. Diamond products which currently do not have any tariffs, will cost US importers a 27% import duty. Sabyasachi Ray, Executive Director of the Gems & Jewellery Export

Some pain & some gain: India Inc counts the cost

Corporate India is gearing up for a challenging trade environment in the wake of the 27% reciprocal tariffs imposed by the US on Thursday. While the Trump administration has described the move as its moment of liberation, India Inc leaders feel there are some pain as well as some gain. From India’s perspective, key sectors

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

0FansLike
0FollowersFollow
0SubscribersSubscribe
- Advertisement -

Latest Articles

GCCs, IT companies dominate office space

Quarterly transactions in the office market reached a historic high of 28.2 million square feet in the January-March period, shows a Knight Frank report.  Global capability centres (GCCs) were the largest consumers of office space during the period, accounting for 44% of the total transaction volume.  A resurgence in demand from the third-party IT services

Gems and jewellery units to take a big hit

The reciprocal tariff of 27% will jack up customs duties faced by Indian exporters of studded and gold jewellery in the US to 32-34%, including 5.5-7% extant tariffs. Diamond products which currently do not have any tariffs, will cost US importers a 27% import duty. Sabyasachi Ray, Executive Director of the Gems & Jewellery Export

Some pain & some gain: India Inc counts the cost

Corporate India is gearing up for a challenging trade environment in the wake of the 27% reciprocal tariffs imposed by the US on Thursday. While the Trump administration has described the move as its moment of liberation, India Inc leaders feel there are some pain as well as some gain. From India’s perspective, key sectors

Dusit to expand presence in India, eyes emerging cities

Dusit International, a leading Thai hotel and property development company, on Thursday announced plans to expand its presence in India by launching its luxury and upper-midscale brands in key emerging markets.  The strategic expansion plan builds on the momentum of Dusit’s recent foray into the Indian market with the soft-opening of the contemporary and upscale

FMCG firms expect mixed show in Q4

The quarterly updates of fast-moving consumer goods (FMCG) companies, which has been released so far for the January-March 2025 period (Q4FY25), present a mixed picture of the sector at a time when urban demand has remained weak. Rural demand, in contrast, has been resilient and is expected to improve in the coming months. While Marico