Currency in crisis

May 23, 2012, 07:19 IST | Team MiD DAY

It is sabse daraa rupaiya, as the Rupee continues to slide creating a panic situation

Vijay Kalantri
By Tuesday afternoon, the Indian Rupee had already crossed the 55-mark. It is highly unfortunate that the Reserve Bank of India and the Central Govt. has not stepped in aggressively. This fall will benefit exports but, we are an importing country. This decline will also weaken our projects and result in a rise in our import bill. I remember way back in the 1990s, there was a double devaluation of the Rupee.

Illustration/Amit Bandre

Yet, even that time, the Rupee was stabilized. Now, we see at least 25 per cent volatility and that is very alarming. We can expect our reserves to go down and it will definitely impact our oil prices. Besides, we have to think about how many items we import — consumer goods like certain electronic gadgets and food grains too. It will start having a direct effect on the common man and our lifestyles, very soon.

All fall down: Greek law makers attend a swearing-in ceremony in the Greek parliament in Athens on May 17, 2012. Greece unveiled a caretaker cabinet of technocrats tasked with organising the cash-strapped nation's second elections just six weeks after an inconclusive vote sent jitters across the eurozone

Though there is talk about the Rupee touching 60, I did not believe it but who thought it would cross 55? It already has, now. So, there is a basis for all this alarm, it is not just trepidation brought about by rumours. Our Trade Deficit will grow and this will definitely affect our growth in all aspects. Whenever there is some crisis, people say it is a wait ‘n’ watch situation. Here, too, we are talking about a wait ‘n’ watch situation, which some people may take solace and say that it is not a no-confidence situation, but I would say — hold that optimism. It is a low-confidence situation, where people are waiting and watching, not just being cautious, but watching in alarm. We are not taking decisions with regard to infrastructure — especially, power, ports and roads. The Government needs to really push these projects and concentrate on them. Yesterday, there was a statement that a huge number of highway projects have been stalled. In 2003-2004, I remember we were making at least 11-km of roads a day, and if not surpass that, we should have at least maintained that, which we have not. Moving fast and pushing through projects, that, I think is the key to success of the economy and the country.

As told to Hemal Ashar
Vijay Kalantri is the president of the All Indian Association of Industries (AIAI)

Arun Kejriwal
The Indian Rupee is taking a beating and a pounding. It’s been hammered by one and all and appears like a sinking ship. To make matters worse the Government seems to be in a denial mode and is doing absolutely nothing to protect its decline. Call in coincidence, but it is the third anniversary of UPA-II and there is nothing cheerful about it. The budget is more than two months old and there have been virtually no steps taken to curtail the fiscal deficit. Diesel prices are to be raised and it’s probably over six months that we have been hearing about it. The Indian Rupee, which closed yesterday at Rs 55.03, was highly volatile. It closed today at Rs 54.88 a marginal gain of 15 paise compared to the previous close. Historically, whenever the Rupee depreciated sharply, it indicated a reversal in the stock market and the Rupee.

Huge concern: People look for job offers outside a local employment office in Athens. Europe came under mounting pressure to take action to boost growth as the Organisation for Economic Co-operation and Development (OECD ) warned that the Euro zone crisis has worsened and poses the most serious risk to a recovery for the global economy. PICS/AFP

Foreign Institutional Investors (FIIs) turned aggressive buyers in the market. This time around is a unique phenomenon with new lows almost every week and yet no fresh inflows? Surprisingly there are still sellers in the market and no one seems to be willing to take a call. India has a net Trade Deficit and crude oil forms a major part of our import bill. With the dollar appreciating at rates, which are unheard of, our exports have surprisingly shown no significant improvement. We have enough foreign exchange to take care of our imports for the next six months or so. We are being made to believe that all is well with India and concerns exist mainly due to countries like Greece, Spain and Italy. Our stock markets were the worst performing in calendar year 2011 when we lost about 25 per cent. The first two months were great, when we gained around 19 per cent but, currently we are struggling with gains of a mere 4.5 per cent left. The rupee has hit an all-time low and it appears that the Government is hell bent on doing absolutely nothing. It is up to the Central Bank to take some concrete steps. Let us hope that RBI is able to at least control the Rupee and limit its fall.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd

Vijay Kedia
Even as I write this, I see that the Indian currency has fallen to an all-time low of 55.44 against the dollar. It is claimed that it is the worst performing currency of the year in Asia. The currency has dropped around 25 per cent of the value since the past one year. The future of the Indian Rupee is highly uncertain and dicey. This is mainly because the dollar has appreciated against all emerging market currencies and the India Rupee is also one of it. The cause of concern is that dollar has appreciated 10 per cent in a month’s time.

Talking it out: German chancellor Angela Merkel (Left) shows the way to the new French president Francois Hollande upon his arrival at the German Chancellery on May 15, 2012 in Berlin. Francois Hollande met Angela Merkel for their first talks on the debt crisis 

This has left corporate and importers high and dry. Till September 2012, more than eight-billion dollar FCCB and ECB have to be converted. Last year, the value of the Rupee against the dollar was approximately Rs 45 and now it is Rs 55. So it is a big loss for the people who did not hedge their dollars, as they have to bear 25 per cent extra this year. This sudden depreciation of the Rupee against the dollar has left corporates stunned and clueless. It is learnt that many corporate have not even hedged their outstanding dollar positions. It was not expected that the Rupee will depreciate so far. The premium for carry forward of dollar for one year is Rs 4, which is again, huge. That is also the reason why many corporates show not to hedge their dollar positions. Though this depreciation in the Rupee is beneficial to exporters. Currently, it can be called a panic situation, but in the future the prospect of the Rupee against the dollar is very unpredictable.

Vijay Kedia is the director of Kedia Securities

Alex K Mathews
The rupee plunged below the 55-level against the dollar. This is partly because the dollar is in demand. The demand is especially from oil marketing firms. The Indian Rupee has an immediate target of 56 in the short term and there is speculation that the rupee may further touch 60 against the dollar soon. Weak equity markets and rising current account deficit is putting more pressure on the rupee.

The RBI had announced various measures to curb speculative trading in the foreign exchange market, but it did not have the desired impact. The RBI sold dollars many times to defend the rupee. It even imposed net overnight rupee open position limit for Indian banks, which should not include positions taken in the currency futures and option segment, to reduce speculative trading in the Forex market. The Rupee declined nearly 11 per cent since in the beginning of March 2012 and it became the worst performing currency in the emerging markets.

The Euro zone crisis forced many investors to reduce the Euro exposure. Investors with low risk appetite bought US dollar as an alternative investment. This too helped the dollar to gain more strength against many currencies. Dollar Index which measures the strength of the US dollar against a basket of currencies, is trading at 81.299 and is likely to breach the recent high of 81.784. It may test 82.408 levels in the short term could negatively impact the rupee in a big way. If Greece exits European currency, then we may see a bigger impact on the Euro against the dollar. This will put deposits in other European nations at risk and people might start pulling their money out. High inflation in the country and higher interest rate in the current environment will keep RBI in a fix. If the central government increases the petroleum prices and the price of cooking gas, which is expected to happen in the first week of June, then inflation might increase, which in turn will further weaken the rupee. The rating agency S&P has put India on negative watch for its Baa3 foreign currency rating, while Moody’s and Fitch retain a stable outlook on the country. Companies, which have taken foreign loans, may face difficulties in repayment due to the weakening rupee.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd.

Note: The rupee was trading at different rates during the day, when these pieces were written. It finally closed at Rs 54.88 against the dollar        

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