Davos:

Attributing the fall in Indian rupee solely to the US dollar getting stronger, former Reserve Bank governor Raghuram Rajan has said any intervention by the RBI on this can end up harming Indian exports even as he urged policymakers to focus on creating more jobs and boosting household consumption.

Asked what the second term of US President Donald Trump means for the global and Indian economy, Rajan said, “I think it means uncertainty. President Trump during his campaign laid out a bunch of policies and measures that he wants to implement.”.

“We are seeing some of them being implemented. We have to see how intensely, for example the policy on immigration and trade and tariff proposals against whom and against which sectors are implemented. As of now what and how all this will pan out,” the eminent economist said.

On appreciation in the US dollar and its impact on other currencies especially in emerging markets including rupee, Rajan said the dollar has been appreciating against other currencies, partly due to fear of Trump tariffs.

“If he imposes tariffs, it is going to decrease US imports from other countries, narrowing the current account deficit and the trade deficit. So, from that perspective, it means that the US needs to import less and so dollar will strengthen because there would be fewer dollars in the rest of the world. So, that is the straight forward reason,” the former IMF chief economist said.

“There is also a view that the US is becoming more attractive as an investment venue because the people who can’t export to the US will move their production to the US. Also, you are seeing more capital flowing into the US and that is also leading to a stock market boom and also strengthening the dollar,” he said.

All these reasons, along with the US economy growing very strongly, are leading to a stronger dollar, he added.

Asked if there is not anything that the Reserve Bank of India can do to arrest dealing rupee, Rajan said, “I am not sure whether RBI should do anything because every other currency is depreciating against the US dollar because if it tries to elevate rupee vis-a-vis dollar, it will be essentially strengthening rupee against all other currencies and that would make it more difficult for our exporters.”.

“So, I will be careful about that. I will only intervene if the depreciation of rupee is really abrupt and creates a lot of volatility. That has always been the RBI’s motive for any intervention, that is to reduce volatility and not to try and change the eventual level of rupee,” he added.

“I think the Reserve Bank has not acted in hurry and it is also not done any intervention with an aim of preserving the value of rupee at some particular level. It has always allowed the market to find its own level,” he said.

Asked whether the US becoming more attractive investment destination is happening at the cost of another country and can it have any impact on India as an investment destination, Rajan said, “The idea behind tariffs is to reshore production, so it will have an impact on foreign direct investments of other countries.” Instead of investing in other countries, people will invest in the US, he said.

“For example, we are seeing Taiwan investing more in US to produce semiconductors there. That is not so much because of tariff policy but because of incentives given though. But we can also see tariff policy producing incentives for producing from factories in the US directly,” he explained.

On expectations from the Union Budget in India, Rajan said, “We do need to worry about the recent slowing of economic growth.” “Of course, one quarter does not tell the whole picture but it has come after we were growing very slowly before the pandemic, then during the pandemic, there was a little bit of crash and then we recovered,” he said.

“The worry is that a lot of the strong growth in the recent years was a recovery growth and now we have to build a sustainable growth. And that sustainable growth will come from having big investments and consumption growth,” Rajan said.

“We have worries on those two fronts. Private investments have not picked up. When we look at demand, earlier it was middle class and lower middle class which were soft on demand, for example on two-wheelers, and now it is the upper middle class where demand is softening,” he said.

Household demand for consumption comes when households feel comfortable and when their jobs and income are growing, Rajan said.

“Recently we have seen worries about jobs people have and the kind of income they have. For these reasons, I will suggest that the focus in the budget is how we create more jobs, create better jobs and create more confident households,” he said.

“More households consuming more will result in private industries investing more. So it is a virtuous circle and we need to figure how we fix this,” he said. 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

The rupee saw some recovery from its all-time low level and appreciated 5 paise to 84.83 against the U.S. dollar. File
| Photo Credit: Reuters

The rupee saw some recovery from its all-time low level and appreciated 5 paise to 84.83 against the U.S. dollar in early trade on Friday (December 13, 2024) on the back of favourable domestic inflation data.

However, a strengthening American currency and volatile domestic equity markets amid foreign fund outflows capped the recovery in the local unit, forex traders said.

At the interbank foreign exchange, the rupee opened at 84.85 and inched up further to 84.83 against the greenback, registering a gain of 5 paise from its previous close.

On Thursday, the rupee fell 5 paise to end the session at the lowest level of 84.88 against the U.S. dollar.

The previous record low closing level was recorded on December 9, when the unit settled 20 paise lower at 84.86 against the dollar.

The latest official data released on Thursday (December 12) showed India’s retail inflation declined in November to 5.48% and came within the Reserve Bank’s comfort zone mainly due to easing food prices, creating headroom for a rate cut at the central bank’s rate-setting panel meeting under new Governor Sanjay Malhotra in February.

The country’s industrial production (IIP) growth, however, slowed to 3.5% year-on-year in October 2024, mainly due to poor performance of mining, power and manufacturing, as per official data released on Thursday.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.12% at 106.77.

Analysts said that the dollar has been strengthening after the U.S. inflation numbers came on expected lines, raising hopes for an interest rate cut by the Federal Reserve.

Brent crude, the global oil benchmark, rose 0.01 per cent to $73.42 per barrel in futures trade.

On the domestic equity market front, the 30-share benchmark index Sensex was trading 388.68 points, or 0.48% lower at 80,901.28 points. The Nifty was down 115.20 points, or 0.47%, to 24,433.50 points. Both the indices ended lower on Thursday.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Thursday, as they offloaded shares worth ₹3,560.01 crore, according to exchange data.

At the interbank foreign exchange, the rupee opened at 84.70 against the greenback, then touched 84.73 in the initial trade, registering a fall of 7 paise over its previous close. Representational image.

The rupee fell 7 paise to trade at 84.73 against the U.S. dollar in early trade on Monday (December 9, 2024) dragged down by foreign fund outflows and a muted trend in domestic equities.

Forex traders said the rupee remains in a weakening mode due to dollar demand from importers and foreign banks.

At the interbank foreign exchange, the rupee opened at 84.70 against the greenback, then touched 84.73 in the initial trade, registering a fall of 7 paise over its previous close.

On Friday (December 5, 2024), the rupee appreciated by 5 paise to settle at 84.66 against the U.S. dollar.

“On the domestic front, all eyes will be on Industrial Production (IIP) and CPI data following last week’s RBI monetary policy announcement. The 50-basis point CRR cut provided much-needed liquidity and lent support to the Rupee,” CR Forex Advisors MD Amit Pabari said.

The Reserve Bank of India on Friday kept its key interest rate unchanged citing inflation risks, but cut the Cash Reserve Ratio that banks are required to park with the central bank, boosting money with lenders to support a slowing economy.

Mr. Pabari further said that a wave of IPO activity is expected to drive substantial inflows, offering additional support to the rupee.

“We anticipate the rupee’s downside to remain limited, with the USDINR pair likely to trade in a range of 84.50 to 85 in the near term,” Mr. Pabari added.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.08 per cent at 106.14.

Brent crude, the global oil benchmark, rose 0.08 per cent to USD 106.15 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex was trading 76.29 points or 0.09 per cent down at 81,632.83 points in morning trade, while Nifty was down 24.20 points or 0.1 per cent to 24,653.60 points.

Foreign Institutional Investors (FIIs) offloaded Rs 1,830.31 crore in the capital markets on net basis on Friday, according to exchange data.

Meanwhile, India’s forex reserves increased by USD 1.51 billion to USD 658.091 billion for the week ended November 29, the RBI said on Friday. The overall reserves had dropped by USD 1.31 billion to USD 656.582 billion in the previous reporting week.