Rupee to fall by another 5-7 percent? See what this government adviser said

India`s rupee is currently over-valued by 5-7 percent, a senior government adviser said on Tuesday, indicating that New Delhi is unlikely to support intervening in the market despite the currency shedding close to 7 percent against the dollar this year.   

Rupee to fall by another 5-7 percent? See what this government adviser said
India`s rupee is currently over-valued by 5-7 percent, a senior government adviser said on Tuesday. Image source: Reuters
By Reuters
Updated: Wed, Jul 04, 2018
10:43 am
Reuters
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India`s rupee is currently over-valued by 5-7 percent, a senior government adviser said on Tuesday, indicating that New Delhi is unlikely to support intervening in the market despite the currency shedding close to 7 percent against the dollar this year. The partially convertible rupee fell to a record low of 69.0950 to the dollar on Thursday and was trading at 68.58 in late trade on Tuesday. It is the worst performing currency in Asia this year.

"The rate of inflation in India has been much higher than the global rate and that is what determines the real effective exchange rate," Rajiv Kumar, vice chairman of NITI Aayog, a government think tank, told reporters in New Delhi.

"And the real effective exchange rate today at 69 or 68.97 is still over-valued by 5 to 7 percent."

Kumar, who advises the government on economic issues and is on the board of the Reserve Bank of India, said intervention was not necessary.

"There is no question at all of either getting worried, getting nervous or intervening in the market," Kumar said, adding India`s economic growth was expected to pick up to over 8 percent in the next year from 7.7 percent in the March quarter.

He said India was not aiming to protect the rupee at any particular level and any RBI intervention was aimed at only containing volatility.

"RBI has always maintained and practised that they will never interfere directly in the market to protect the rupee at any particular level."

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In a separate note, UBS Securities said on Tuesday the rupee was expected to remain in the range of 68-72 against dollar in the short term, on rising external risks, but added the central bank would intervene to control volatility.

"If external stress continues to rise and/or the USD strengthens, we believe policymakers could consider raising USD deposits as a last resort to stabilise the rupee," the note added.

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