Value of rupee declined by 25% since December 2014, Centre tells Parliament

Source: MoneyControl

Date: July 22, 2022

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The Union government on Monday admitted in Parliament that the value of the Indian rupee against the dollar has fallen by Rs 16.08 (25.39 per cent) in the last eight years.
 

The finance ministry informed Parliament that in 2014, as per the Reserve Bank of India (RBI), the exchange rate was Rs 63.33 to a dollar. By July 11, 2022, it had fallen to Rs 79.41.
 

On December 31, 2014, the exchange rate of the Indian rupee against the dollar was Rs 63.33. On December 31, 2018, the rate shot up to 69.79 and breached the 70 mark on December 31, 2019. After Covid pandemic, the exchange rate has remained in the 70s.
 

In reply to a question by two members of Lok sabha - Deepak Baij and Vijay Vasanth on the depreciation of Indian currency, the government said that the exchange rate of the Indian rupee against the dollar was Rs 78.94 per dollar as of June 30, 2022.
 

The government provided the calendar year-end values of the exchange rate of the Indian rupee against the US Dollar from 2014.

Finance Minister Nirmala Sitharaman said in the Lok Sabha that global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of the global financial conditions were the major reasons for the weakening of the Indian rupee against the US dollar. She added that another contributing factor to the decline of the rupee was that foreign portfolio investors have withdrawn about $14 billion from Indian equity.

 

The finance minister, however, said that the decline of the Indian currency is not an isolated phenomenon and currencies such as the British pound, the Japanese yen and the Euro have weakened more than the Indian rupee against the US dollar and as a result, the Indian rupee has strengthened against these currencies in 2022.
 

10 days ago, a government source explained that the Dollar Index has gained 13% in 2022 against 6 major currencies - yen, pound, euro, Swiss franc, Canadian dollar and Swedish krona, while in contrast, the US currency has gained marginally less against the Indian rupee, which has transited from Rs 74.5 per dollar at the end of 2021 to Rs 79.74 at the end of June which is equivalent to close to 7% depreciation.
 

Replying to a question on how the Indian rupee stood equal to Bhutan’s currency on June 29-30, 2022, the minister said that the Bhutanese Ngultrum (BTN) has been pegged at par with the Indian rupee since its introduction in 1974 and moves in tandem with the Indian rupee.
 

Commenting on whether any review/study has been carried out by the government to assess the impact of this decline on the economy, people and various sectors of the country, the Union government's defence was that nominal exchange rate is only one of the factors that impact an economy.

“The depreciation of a currency is likely to enhance export competitiveness, which in turn impacts the economy positively. The depreciation also impacts imports by making them more costly. The RBI regularly monitors the foreign exchange market and intervenes in situations of excess volatility,” the minister stated.
 

Listing this measures initiated to soften the blow, She further said the RBI has raised interest rates in recent months that increase the attractiveness of holding Indian rupees for residents and non-residents.
 

The government through the finance minister told the house that recent measures taken by RBI include: Exemption of incremental Foreign Currency Non-Resident (Bank) and Non-Resident (External) rupee (NRE) deposits from the maintenance of CRR and SLR up to November 4, 2022, exemption of fresh FCNR(B) and NRE deposits from the extant regulation on interest rates to allow banks to provide higher interest rates till October 31, 2022 than those offered to comparable domestic rupee term deposits with a view to attract foreign currency deposits, revision of regulatory regime relating to Foreign Portfolio Investment in debt flows to encourage foreign investment in Indian debt instruments and raising of External Commercial Borrowing limit (under automatic route) to $1.5 billion and the all-in-cost ceiling by 100 bps in select cases up to December 31, 2022.
 

The RBI has initiated allowing Authorised Dealer Category-I (AD Cat-I) banks to utilise overseas foreign currency borrowing for lending in foreign currency to entities for a wider set of end-use purposes, subject to the negative list set out for external commercial borrowings.
 

The government informed the house that the outflow of foreign portfolio capital is a major reason for the depreciation of the Indian rupee. The finance minister attributed the flight of foreign investors to funds from emerging markets to monetary tightening in advanced economies, particularly in the US.

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