Rupee plunge knee-jerk reaction, recovery on way, say economists

The recovery of the world's largest economy, they said, will boost Indian exports.


DNA Web Team

Updated: Mar 19, 2018, 03:02 AM IST

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The rupee's plunging to record level and a sharp fall in the equity market are knee-jerk investor reactions to the US Federal Reserve's saying the it will slow down bond-buying programme in view of improving American economy, economists said on Thursday.

The recovery of the world's largest economy, they said, will boost Indian exports.

The rupee, which touched all-time low of 60 against the US dollar in intra-day trade on Thursday, is also likely to appreciate from these levels, they added. On Wednesday, the rupee had closed at 58.70, gaining 7 paise.

"I think, this is a knee-jerk reaction to Fed chairman Ben Bernanke's announcement regarding gradual tapering of the stimulus programme. But an overall improvement in the US economy will be beneficial to our exports growth," Crisil chief economist Dharmakriti Joshi said in Mumbai.

Bernanke on Wednesday said he would gradually slow down the bond purchase programme of USD 85 billion per month (popularly known as quantitative easing) by the end of the year on the back of the recovery seen in economy.

The announcement pulled down Asian markets which shed over 2%, but the Sensex tumbled about 2.8% - by over 526 points to reach 18,719 points.

"We will revise the rupee targets soon. We think the rupee will appreciate from the current level," Joshi said, adding that the market will stabilise as more clarity comes on the US stimulus programme.

A senior economist at Deloitte said the impact of the US recovery will help gradual pick-up in exports from India.

"A US recovery will help gradual pick-up in our exports," Deloitte India senior economist Anis Chakravarty said, adding that the recent rupee movement is mainly due to global factors.

However, some other economists also pointed to the negative impact of rupee depreciation following the Fed announcement.

"The rupee depreciation will increase the imported inflation. It will also push the fiscal deficit by increasing the subsidy burden," StanChart India senior economist Anubhuti Sahay said.

She warned that any pick-up in exports may not be in sync with rupee depreciation. Sahay also noted that it would be too early to indicate bottoming out of the rupee.

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