The rupee fell to an all-time low of 85.81 against the dollar last Friday before recovering slightly.
This gradual depreciation is seen as a positive step, indicating a shift in RBI currency management strategy
RBI’s interventions in the forex market have raised concerns about an unofficial dollar peg.
Allowing the rupee to gradually slide signals speculators to look elsewhere, reducing the risk of currency attacks
In 2023, the rupee weakened by less than 3 per cent, trailing peer currencies.
Experts predict a further decline, driven by the strengthening US dollar and delayed adjustments to global currency trends
An overvalued rupee hampers exports and growth. At a time when export-led recovery is crucial, maintaining an overvalued currency can be counterproductive for economic momentum
RBI economists found that depreciation in the rupee’s real effective exchange rate (Reer) has historically improved India’s trade balance.
Current estimates suggest the rupee is overvalued by 9 per cent
A flexible approach to the rupee’s value is necessary to enhance competitiveness, ease liquidity issues, and counter speculative risks.
It is a critical step toward reviving India’s growth momentum