RBI needs to monitor the Rupee exchange (USDINR) rate closely

Why is the fastest growing economy in the World not showing strength in its currency? Who is shorting it?

Why is the fastest growing economy in the World not showing strength in its currency? Who is shorting it?
Why is the fastest growing economy in the World not showing strength in its currency? Who is shorting it?

Even as India is digesting a career bureaucrat as the Governor of the Reserve Bank of India (RBI), there is a gradual fall again in the price of the Rupee vis-à-vis the dollar. And this is a cause for concern. Because Prime Minister Modi has done enough to shore up the foreign exchange (Forex) reserves:

  1. $75 billion currency swap agreement with Japan (Was $50 billion previously)
  2. Signing deals with Iran and United Arab Emirates (UAE) to pay for crude with rupees.
  3. A falling crude price

Yet, the rupee has started weakening again. The Forex pressure is definitely off and one wonders if a vested group is shorting the rupee again. The same usual noises, such as before elections the rupee will slide are being made. Balderdash! If India is the fastest growing economy in the world, then its currency has to reflect that.

Who wants a weak Rupee?

Before answering this question, let us look at how the Rupee has performed vis-à-vis the mighty US Dollar (see figure below) since the beginning of the year.


The Blue line is the price of a barrel of crude in US Dollars. The Green line is the Rupee exchange rate vis-à-vis the dollar. This is not an apples-to-apples comparison – they are being shown side by side to show the correlation.

On Jan 1st a barrel of Brent crude cost $67. 1 US Dollar yielded 63 Rupees. As the price of crude went up, so did the exchange rate, weakening the rupee. This was explained off as a global phenomenon. Look deeper and it will be evident that the Rupee lost value much faster than any other Asian currency. We at PGurus and some in The Sunday Guardian were the only ones saying that Crude will not hit $100 a barrel and the Rupee will not slide to Rs.100 to a Dollar. In a calculated push, some vested interests were shorting the rupee.

Then in October, the price of crude collapsed; the Rupee should have regained its value back to Rs.63 to a Dollar but it is stuck around Rs.70 (a 10% premium). Something is amiss – the vested group is back to its old tricks and this must be tackled quickly by the RBI.

So who would like to see a weaker rupee?

Foreign Banks, who might be looking to pick up healthy Indian Banks on the cheap. It is a known fact that many Banks would become healthy once their Non-Performing Assets (NPA) are off their books. Much of these NPAs are due to Phone Loans, a concept pioneered and perfected by a pseudo-suave evil genius whose initials match a recently wedded Bollywood actress[1]. Now that the debate on RBI release some of its dividends to the Government is settled, it is imperative that RBI fund the 10-most healthy Public Sector Banks[2]. Not a paisa for ICICI/ HDFC/ Axis or Yes. They are private for a reason.

My humble request to the Prime Minister – Please split the dividend equally between funding the needy banks and the Govt. Both are essential for a healthy India.

References:

[1] PM Modi blames phone-a-loan scam under UPA regime for NPA messSep 2, 2018, Business Standard

[2] The inside story – Why did Modi pick Das for RBI Governor? Dec 14, 2018, PGurus.com

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Sree Iyer

An inventor and out-of-the-box thinker, Sree Iyer has 37 patents in the areas of Hardware, Software, Encryption and Systems.

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