The government anticipates the rupee could weaken to an 80 per dollar level over the next few weeks, despite RBI’s intervention to support the domestic currency, said a Mint report.
"The government is coming around to the view that the Indian currency could weaken to 80 to the dollar over the next few weeks despite the central bank’s intervention to support the rupee," the Mint report quoted a senior official saying so.
The government and the RBI are reported to have discussed the rupee’s depreciation in the past week. “We have no problem if the exchange rate depreciates to 80 to a dollar. However, the RBI won’t have the exchange rate slipping by a rupee in two days," the official said, as per Mint, emphasizing the central bank’s concern about the pace of depreciation.
The rupee has been under pressure since Russia invaded Ukraine on February 24 which fanned worries around high crude oil and commodities prices while boosting the dollar and slowing economic growth. As these factors weighed on the rupee, it shot up inflation also and a weaker rupee also spurs inflation as India imports nearly 85 percent of its oil requirements.
The Mint report further added that the RBI’s deputy governor Michael Patra said that the central bank is intervening in the market to defend the rupee against any sharp volatility.
“We will stand for its stability, and we are doing it. We are there in the market, and we will not allow disorderly movement of the rupee. We have no level in mind, but we will not allow jerky movements. That is for certain," reported Mint, Patra, who looks after the monetary policy department in RBI, besides being a member of the monetary policy committee (MPC), saying so at a meeting organized by a business lobby group.
RBI has been intervening in the market to support the rupee, leading to a significant depletion in foreign exchange reserves. Since 25 February, reserves have declined by $40.94 billion, Mint reported.
"Even as the rupee holds a depreciation bias in the near term, we envisage that the rupee would manage to reverse some of the losses in the second half of the year. Strong long-term fundamentals, political stability, and a large pile of forex reserves are likely to provide a cushion to the Indian rupee around the crucial 80 mark," said Sugandha Sachdeva, Vice President - Commodity and Currency Research, Religare Broking.
"While our forex reserves have depleted by around $10 billion in June, indicating that the RBI is proactively expending reserves to stem the sharp fall in the domestic currency, we still fare well in terms of import cover and other short-term debt obligations. However, RBI is opting for other measures too such as tightening monetary policy, which may arrest the rupee weakness," added Sachdeva.