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The Finance Ministry on Monday spoke about the depreciation of Indian rupee against the dollar. FinMin said, global factors like Russia-Ukraine conflict, soaring crude oil prices, and tightening of global financial conditions are the major reasons for the weakening of the Indian Rupee against the US Dollar. However, against the greenback, currencies like British pound, Japanese yen, and Euro have weakened more than the rupee, and therefore, the local unit still has strengthened against these currencies in 2022. Also, the ministry pointed out that foreign portfolio outflow is another major reason in the rupee's weakness against dollar.
FinMin cited RBI data that showed, rupee has depreciated consistently since 2018. By 2018-end, rupee was near 69.79 per dollar further rising to 71.27 by 2019 end, and later to 73.05 by 2020-end. The local unit stood at 74.30 by end of December 2021.
In 2014, rupee was around 63.33 by December end but rose to 66.33 and 67.95 per dollar by 2015 and 2016 end. However, it again appreciated to 63.93 by 2017 end.
FinMin while replying to questions in Lok Sabha, highlighted that the nominal exchange rate is only one of the factors that impact an economy.
As per the ministry, the depreciation of a currency is likely to enhance export competitiveness which in turn impacts the economy positively. The depreciation also impacts the imports by making them more costly. The Reserve Bank of India (RBI) regularly monitors the foreign exchange market and intervenes in situations of excess volatility. The Reserve Bank of India has raised interest rates in recent months that increase the attractiveness of holding Indian rupees for residents and non-residents.
Some of the recent measures taken by RBI are - exemption of incremental foreign currency non-resident bank and 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 to attract foreign currency deposits.
Further, RBI revised the regulatory regime relating to FPI in debt flows to encourage foreign investment in Indian debt instruments. It raised the 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.
Also, RBI has allowed 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.
When asked about whether the depreciation in the rupee has caused a huge flow of money from abroad to India, FinMin stated that "the outflow of foreign portfolio capital is a major reason for the depreciation of the Indian rupee. Monetary tightening in advanced economies, particularly in the United States of America, tends to cause foreign investors to withdraw funds from emerging markets."
So far, in FY23, FPIs investors have pulled out $14 billion from Indian equity markets.
On whether rupee reached equal to Bhutan’s currency on 29th June, and 30th June, FinMin said "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."
The Indian rupee on Monday breached over the 80 per dollar mark.