This is part of a long piece we have scheduled for Capital Mind Premium subscribers.
The rupee is above Rs. 64 to a USD. This has again breached a critical resistance level and looks to head higher. There is hardly any selling by RBI that seems to be of use – in fact, it almost looks like they don’t want to support the rupee.
This is the highest level for the USDINR since the crisis in 2013 (when the rupee went from the 53 levels to 68).
(This is why we are critical of RBI arguing they need more reserves. They don’t. If they did, they would be protecting the rupee right now. They aren’t and they are unlikely to. But on the other side, if the rupee appreciated they get all hot and bothered and intervene like crazy, saying they want to “reduce volatility”. Well, sirs, this volatility is here. For the record, we don’t want them to protect the rupee. We don’t want them to buy dollars on the other side also. The rupee should be allowed to float, because it’s obvious this “fatherly” behaviour isn’t working and is hugely hypocritical).
Will This Stop Here?
FIIs continue to be sellers (they sold another 1,400 cr. today). At some point they’re going to look at the market tanking and stop. That should be now, but that should have been two days back as well, so it’s not much of an indicator.
RBI will want to demonstrate some strength, so they may come in soon, especially when the broader impact gets obvious (the unhedged forex borrowers will start showing stress).
The impact of a lower rupee might seem good for Make in India, but honestly, the concept of making in India is stifled more by stupid regulations, crazy export rules and harsh labour laws rather than a high rupee. But it will help certain exporters profit in the short term. However it hurts us in terms of more expensive imports, specially of crude. Yet another hike in diesel and petrol prices would not surprise us.
We will keep looking at “new normals”. The normal was 45 for the USDINR for nearly 5 years. Then it went to 60. Now it might move to another number; let’s just hope it settles somewhere soon. This is just day one.
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