Rupee's Tumultuous Tumble: Economic Risks and Opportunities

Amidst the rupee's depreciation to a record low against the US dollar, Finance Secretary Tuhin Kanta Pandey highlights risks of inflation and export competitiveness. The RBI is intervening to manage depreciation, with foreign reserves falling. Pandey underscores government focus on non-inflationary growth in Budget 2025.

India's Finance Secretary, Tuhin Kanta Pandey, has raised concerns about the rupee's recent depreciation against the US dollar, citing potential inflationary risks. Speaking at an ASSOCHAM event post-budget, he noted that while the falling rupee presents challenges, it simultaneously boosts export competitiveness.

The Reserve Bank of India (RBI) faces the challenge of deciding the rupee's level amidst its steep decline. The rupee plummeted to a historic low of 87.29 per dollar, triggered by US trade tariffs and global uncertainty. It has depreciated by over 1.5% this year, largely in response to US government tariff measures.

The RBI is actively intervening to manage the orderly depreciation, evident in the declining foreign exchange reserves. These reserves, once at a peak of USD 704.89 billion in September, have fallen by about 10%. The RBI's strategy involves market stability without adhering to fixed exchange rate targets.

Interventions include liquidity management and dollar transactions to prevent sharp depreciation, aiming to keep Indian assets attractive. Pandey also discussed the Budget 2025, focusing on growth without inflation, emphasizing capital expenditure as the sole channel for government borrowing.