Rupee hits 70, but Finmin says nothing to worry

There is nothing to be worried even if the rupee slides to 80 against the dollar so long as other currencies also depreciated, said a senior finance ministry official, even as the Indian currency hit an all-time low of 70.08 to a dollar on Tuesday.

“Even if the rupee falls to 80, it will not be a concern provided other currencies also depreciate in the same range. Rupee is depreciating due to external factors...There is nothing at this stage to worry.... external factors may ease going forward.,” said Subhash Chandra Garg, economic affairs secretary at the finance ministry. He said the rupee was still performing better than some other currencies and the country had “sufficient foreign exchange reserves”.

RBI's foreign exchange reserves were at $402.70 billion in the week ended August 3, down $1.49 billion over the preceding week.

Garg was responding to media queries about the depreciating currency’s impact on the economy. But the secretary said the rupee’s fall was mainly due to external factors and any further selling of dollars by the Reserve Bank of India (RBI) may not help to further stabilise the rupee.. RBI has already spent about $23 billion on intervention . RBI does not comment on its forex interventions.

The rupee fell past the 70 per dollar-mark for the first time in in-traday trading, weighed down by an emerging market currency rout started due to the Turkish currency Lira’s massive collapse.

The rupee fell to an all-time of 70.075 to a dollar against the dollar during the day, but it cut the losses to close at 69.89. The currency is down almost 9 percent this year, making it Asia’s worst performer.

“The fall in rupee was not in isolation, rather a part of the broader selldown in emerging markets currencies,” according to Radhika Rao, economist at DBS Bank in Singapore.

SBI chairman Rajnish Kumar said all currencies have weakened against the dollar, but the Indian currency has not weakened as much as other currencies.

"I feel that it (rupee) should stabilise between 69 and 70 because if you look at the numbers for investment which is coming into the country—investment in bonds, investment in equities—this level has become attractive for foreign investment," Kumar said.

The rupee, which has been on a continuous free fall owing to various factors like US China trade war, hike crude prices, and now Lira’s rout, has pushed up prices of imported goods such as petroleum products, commodities, electronics and engineering equipment.

Though the ministry has put up a defensive front, a weak rupee could spell doom for the Narendra Modi  government facing a general election next year, as high fuel prices could hurt the middle class, the key vote bank of Modi. A falling rupee could also fuel high inflation. The currency could also become a political embarrassment for the government.

“The Indian rupee just gave the Supreme Leader a vote of no confidence, crashing to a historic low,” Rahul Gandhi, president of Congress party, said in a tweet.

The other fall out of a weak rupee would be government’s borrowing costs could go up as yields will harden on the benchmark 10-year G-secs, which is the main funding tool for containing fiscal deficit at 3.3 per cent in FY19.

Analysts said a rise in the 10-year  benchmark bond yield to 7.82 per cent on Tuesday reflected concerns about rising government borrowing costs in the market.

The government plans to raise Rs 6.06 lakh crore ($86.71 billion) in the current fiscal year to fund the fiscal deficit.