Monday April 22, 2019
Home India Rupee to rema...

Rupee to remain volatile in the midst of Greek crisis, says Arvind Subramanian

0
//

rupee3-001

By NewsGram Staff Writer

The Indian government on Monday said it was closely monitoring the Greek situation and euro market movements after austerity proposals by creditors being rejeted in a referendum posed the possibility of the country’s exit from the euro zone, while the rupee may be affected due to the outward flight of investment.

“In these situations what mostly happens is there is flight to dollars, to a safe haven. Rupee might also be affected by that. But nothing gets unusual at all so far,” Chief Economic Advisor Arvind Subramanian told reporters here.

“This is a drama which is going to play out for some time. We are well protected in at least three ways. Our macro-economic situation is much more stable. We have reserves. We are an economy which is still a very attractive investment destination. So I think we are relatively well insulated,” he said.

“As for the crisis itself, it is going to going to be long and prolonged,” he added.

Over 61 percent of Greeks voted “no” on Sunday, responding overwhelmingly to Prime Minister Alexis Tsipras’ calls to reject a proposal by the country’s creditors for more austerity in exchange for a financial bailout.

On possible impact of the crisis on Indian economy, Subramanian said that as the crisis plays out, “financial markets are going to be volatile. Both the ECB (European Central Bank) and Fed (US Federal Reserve) will take this into account”.

“We will have to see how the euro moves now. We are closely monitoring the Greek situation. There could be some reaction on the Fed rate hike,” Finance Secretary Rajiv Mehrishi said.

He had last week expressed apprehension that if yields on euro bonds go up, it might impact inflows and outflows from India.

Indian industry feels that if a crisis developed for Europe due to Greece, India too could feel the tremors like the rest of the world.

What is worrying is that the overall situation with regard to India’s merchandise exports does not look promising this year and the troubles in Europe could only deteriorate the prospects,” the Associated Chambers of Commerce and Industry of India (Assocham) said in a statement here.

“There is a need for RBI and the finance ministry to keep a close eye on the muddy global situation and its possible effect on India’s capital flows and the currency movement,” it added.

India’s merchandise exports continued to decline for the second month this fiscal, down by over 20 percent at $22.35 billion in May from $27.99 billion in the same month of the previous year, official data showed last month.

The Federation of Indian Export Organisations (FIEO) has warned that the continuing decline in exports would result in layoffs, besides putting pressure on the current account deficit (CAD).

FIEO president S.C. Ralhan also agreed with RBI Governor Raghuram Rajan’s recent remarks that the central banks globally were at risk of slipping into the kind of beggar-thy-neighbour strategies, leading to the Great Depression of the 1930s again.

Next Story

RBI May Recoup Reserves, Strong Inflow of Foreign Funds And Benign Oil Prices Strengthening Indian Currency

A major factor supporting the rupee is the strong prospect of better fund flows from abroad.

0
RBI
Experts now see a chance for the RBI to recoup the reserves it spent in 2018 defending the rupee. Pixabay

A strong inflow of foreign funds and benign oil prices have strengthened the Indian currency but what has worked best for the rupee is the fading impact of war hysteria. Experts now see a chance for the RBI to recoup the reserves it spent in 2018 defending the rupee.

Putting a number to this, Gurang Somaiya, currency analyst at Motilal Oswal, said: “It is possible that RBI may limit some of the appreciation and recoup some of its lost reserves… but it may only come if the rupee strengthens to around Rs 68.20 a dollar.”

Explaining the factors at play, Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, said: “Post-Abhinandan (shooting down of the IAF pilot), geopolitical risk has subsided which has boosted investor sentiments.”

oil prices
The decline in crude oil, which accounts for a large import bill for India, directly affects the exchange rates.
Pixabay

Banerjee added that the gains of the rupee will help the Reserve Bank of India recoup reserves which it lost last year in a bid to arrest its fall.

“The rupee appreciated and closed at 70.14 for the last week on the back of strong flows and fading impact of war hysteria,” said Sajal Gupta, Head Forex and Rates, Edelweiss Securities.

In addition, Gupta said that some “big flows are lined up next week. Maybe Arcelor Mittal money can hit the Indian markets which can lead to some more appreciation towards 69.50 unless the RBI intervenes”.

However, the rising dollar index is causing nervousness and any breakout may lead to a reversal in the rupee’s trend, said Gupta. Somaiya said that RBI may choose not to intervene as the central bank’s prime aim was to arrest volatility.

“Yes the rupee is inching below the 70-a-dollar mark but then the (general) election can cause massive volatility. Also, it is seen that a lot of central banks are getting into a dovish stance owing to the fears of global slowdown.”

The RBI had to stop the slump in the rupee late last year after it touched an all-time high of 74.47 on October 11 following the rising crude oil prices.

dollar
However, the rising dollar index is causing nervousness and any breakout may lead to a reversal in the rupee’s trend, said Gupta. Somaiya said that RBI may choose not to intervene as the central bank’s prime aim was to arrest volatility. Pixabay

The Brent Crude touched $86-a-barrel mark in early October but started to ease following the US decision to exempt 8 countries, including India and China, to continue buying oil for six months from Iran despite sanctions.

The decline in crude oil, which accounts for a large import bill for India, directly affects the exchange rates.

A major factor supporting the rupee is the strong prospect of better fund flows from abroad.

Also Read: The Dining Table Starts Turning To The DIEning Table, Is Eating Alone Healthy?

“Inflows into India have clearly turned positive since the end of January. The flows in February at Rs 17,720 crore is the highest since November 2017. The trigger for this inflows is the dovish statement that came from the Fed at the end of January,” said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

India’s foreign exchange reserves stood at $401.78 billion as against $393.13 billion in November last year. As the data suggests, with improving macros, the forex is already on the recovery path. (IANS)