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LATEST NEWS UPDATES | In a free fall

In a free fall

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published Published on Jul 19, 2022   modified Modified on Jul 19, 2022

-The Telegraph

Unlike 2013, the pressure on the rupee will endure

This month, the rupee’s weakening trend has occupied our attention. Media reports have relentlessly focused on its fall to a ‘lifetime-low’ on a daily frequency. The authorities, on their part, have centred on measures to ease the mounting pressures up on the currency. Memory of the 2013‘taper tantrum’ is fresh in minds and has spurred a series of actions to prevent a potential crisis from brewing. No two macroeconomic contexts are ever identical however,even though past lessons are invaluable.The outburst in 2013 was short-lived amidst severe domestic imbalances. 2022 is about the repricing of rates in the wake of high inflation, high indebtedness across countries, the growing threat of recession and related disorderliness;it also follows a pandemic shock.It is long and messy sailing in uncharted waters without a weather guide. A quick or early respite is unlikely. Best to gear up for the long haul and gradual rupee adjustment along with.

The currency pressures have been continuous, several, and intensifying.These are a combination of external forces and evolving domestic balances. Global risk has been escalating for many months, more so since the Russia-Ukraine war.International capital flows, which respond to risk sentiments and relative returns, have reversed from emerging markets towards the safe haven of the US dollar, pushing up its value and depressing that of others,including the rupee. A widening interest rate gap between India and the United States of America is weighing in. A strong dollar and rising US interest rates have often triggered economic crises in developing countries. These forces will endure as the high US inflation shows no sign of peaking; further and aggressive tightening is likely. There’s little foresight about the future path of US interest rates; speculation abounds, increasing volatility in asset prices.

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The Telegraph, 19 July, 2022, https://www.telegraphindia.com/opinion/in-a-free-fall/cid/1875388


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