Rupee's free fall leaves government worried

There is serious concern in the government as the rupee went into a free fall to touch a six-month low of 55.46 on Wednesday. The issue was reportedly discussed between finance ministry officials and UK Sinha, chairman, Securities and Exchange Board of India (Sebi), at a meeting in North Block.

According to sources, the finance ministry has taken policy steps such as allowing the 'call and put' option for strategic foreign investors and equity funds, and is keen that Sebi smoothens the path to keep the dollars flowing in.

"The equity market has been performing well recently but it is not clear whether it will sustain. In case, there is a sudden outflow of FII (foreign institutional investors) funds from the stock market, the rupee will depreciate sharply," Pramit Brahmbhatt, chief executive officer, Alpari India, a large forex dealing house in Mumbai, told Mail Today.

Brahmbhatt pointed out that globally, the dollar has been strengthening compared with other currencies since the US economy has been recovering and this has also impacted the rupee. "I expect the rupee to weaken further. The 56.20 mark is crucial and if the rupee breaches this mark, it could fall further to an exchange rate of 57 vis-a-vis the dollar," he added.

With the depreciation of the rupee, foreign travel and overseas education is expected to get costlier. The weakening rupee will also raise the cost of petroleum products and increase the oil import bill at a time when the current account deficit is a major concern.

A Bharat Petroleum official told Mail Today that the weakening rupee has put oil companies in deeper financial trouble as for every Rs 1 increase in the value of the dollar, the cost of producing every litre of petrol, diesel, and kerosene goes up by 83 paise and the cost of producing a cylinder of LPG for domestic use increases by Rs 15.40. A petroleum ministry official said that on an annualised basis, for each Rs 1 decline in the value of the rupee, oil marketing companies would see an increased burden of Rs 8,5000 crore.

Courtesy: Mail Today