Rupee isn’t done bleeding despite $250 bn defence
Kolkata: India's currency, the rupee, appears poised for further decline despite an impressive $250 billion defense effort, according to Axis Bank's latest research. The trade-weighted real effective exchange rate (REER) index has plummeted to 91.75, a level not witnessed since the 2013 taper tantrum. The rupee has shed nearly 6% of its value this year alone.
Economist Tanay Dalal of the private sector lender predicts that depreciation to a new fair value may have already occurred, but warns of a potential further 10% weakening in the REER over the next year, given sustained terms of trade shocks and a projected 5% loss in relative AI productivity. Dalal suggests that upcoming shifts in terms of trade and productivity could drive additional fair value weakening.
One contributing factor may be the misalignment between neutral rates needed to balance domestic growth and inflation with global trends, Dalal notes. The Reserve Bank of India is believed to have sold $250 billion since mid-2023 to shore up the local currency, nearly double the inflows witnessed during the dedicated dollar-inflows program from June to August, as per Dalal's analysis.
Written by urgent.news from The Economic Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
