Rupee Risks: The Hindu BusinessLine Editorial

Rupee Risks The Hindu BusinessLine

Rupee Risks: The Hindu BusinessLine

An orderly correction in the rupee’s exchange value is not a such bad thing
There was a marked (clearly noticeable) lack of knee-jerk (a quick reaction that does not allow you time to consider something carefully) reactions in the financial markets this week as the rupee sank to its lifetime low of 69 to a dollar. Though the slide was triggered by global cues (signs) reminiscent (tending to remind one of something) of the taper tantrum (the term used for the 2013 surge in U.S. Treasury yields, which resulted from the Federal Reserve’s use of tapering to gradually reduce the amount of money it was feeding into the economy) episode in May 2013, the depreciation has been far more orderly this time round (at present). The rupee has slipped by 7.4 per cent against the dollar over the last six months compared to the free fall (21 per cent depreciation) it witnessed in May to August 2013. Multiple factors have contributed to the recent depreciation. Tighter oil supplies, geopolitical tensions and US sanctions on Iran have sent global crude oil prices soaring, bloating (increasing) India’s dollar demand. At the same time, rising US interest rates, a shrinking Fed balance sheet and a strong dollar have seen foreign funds pull out $6.7 billion from Indian markets in 2018, forcing a dollar shortage.
The financial markets appear to be taking comfort from the fact that India’s macroeconomic fundamentals today are in far better shape to handle external shocks, than they were in 2013. Despite the rising import bill, the country is expected to run up a current account deficit (CAD) of 2.5 per cent of GDP in FY19, far lower than the 4.8 per cent in FY13. Recent CPI inflation readings have stayed below 5 per cent, offering comfort that low food prices may cushion the impact from spiralling (continuous and dramatic change) oil. Thanks to its stockpiling (to accumulate a large stock) of dollars over the last two years, the RBI’s foreign currency reserves, at $385 billion, provide import cover for nearly 10 months compared to barely seven months in FY13. But policy-makers cannot afford to relax their vigilance. The fundamental indicators cited above can deteriorate very quickly indeed, in the event of a run on the currency. A sliding rupee can set off a vicious (violent) cycle on the CAD and inflation numbers. Foreign portfolio investors (FPIs) are known to react in a knee-jerk fashion to dwindling dollar returns. The RBI has tried to pre-empt such outflows by raising the FPI ceiling for bonds and relaxing its residual maturity conditions. But then, India’s FPI flows in the last couple of years have featured a lot of hot money chasing rate differentials, and the RBI will face a rapid drawdown (a decline in an investment or fund) of its coffers (repository) if it tries to counteract an exodus (mass departure).
This makes it imperative (crucial) for the RBI to keep the powder dry (to be prepared to act with little advance notice) on its dollar reserves, without expending them too early to defend the exchange rate. For some time now, the rupee has been significantly over-valued on a REER (Real Effective Exchange Rate) basis relative to its trade partners, blunting (weakening) the competitive edge of domestic exporters. A pass-through of rising oil prices to Indian consumers may also have the desirable side-effect of curbing consumption. Given the circumstances, it is best that the RBI allows an orderly correction of the exchange rate, stepping in with market interventions only if it needs to fend off (avoid) speculative volatility.


1. Marked (Adjective) – Clearly noticeable (साफ)
Synonyms – Pronounced, Decided, Distinct, Striking, Clear, Glaring, Blatant, Obvious, Palpable, Considerable, Remarkable, Prominent, Significant, Great, Substantial, Conspicuous, Discernible, Apparent, Evident
Antonyms – Imperceptible, Inconspicuous, Indistinct, Insignificant, Obscure, Ordinary, Unnoticeable, Unremarkable, Vague, Ambiguous, Concealed, Dull, Unclear, Unapparent

2. Knee-jerk (Adjective) – A quick reaction that does not allow you time to consider something carefully (स्वभाविक)
Synonyms – Automatic,  Response, Involuntary, Impulse

3. Cue (Noun) – Sign (संकेत)
Synonyms – Clue, Hint, Suggestion, Catchword, Idea, Indication, Inkling, Innuendo, Intimation

4. Reminiscent (Adjective) – Tending to remind one of something (याद दिलाने वाला)
Synonyms – Evocative, Redolent, Similar, Bringing to mind, Implicative, Mnemonic, Recollective, Remindful
Antonyms – Forgetful, Oblivious

5. Taper Tantrum (Economics) – The term used for the 2013 surge in U.S. Treasury yields, which resulted from the Federal Reserve’s use of tapering to gradually reduce the amount of money it was feeding into the economy (धीरे धीरे कम हो जाना )

6. This time round (Phrase) – At present

7. Bloating (Verb) – Increasing (फूलना/सूजना)
Synonyms – Inflate, Swell
Antonyms – Compress, Contract, Shrink, Abridge, Lessen, Lower, Reduce, Deflate, Shrivel, Tighten

8. Spiralling (Verb) – Continuous and dramatic change (सर्पिल गति से जाना)

9. Stockpiling (Verb) – To accumulate a large stock of something (एकत्रीकरण)
Synonyms – Accumulation, Buildup, Hoard, Inventory, Reserve, Stash, Stock

10. Vicious (Adjective) – Violent (उग्र)
Synonyms – Brutal, Cruel, Dirty, Evil, Fierce, Intense, Malevolent, Malicious, Murderous, Rancorous, Savage, Spiteful, Venomous, Vindictive, Violent, Wicked
Antonyms – Decent, Gentle, Mild, Moderate, Moral, Nice, Peaceful, Tame

11. Drawdown (Noun) – A decline in an investment or fund (आहरण द्वारा कमी)

12. Coffers (Noun) – Repository (तिजोरी)
Synonyms – Exchequer, Treasury, War chest, Casket, Strongbox, Treasure, Chest

13. Exodus (Noun) – Mass departure (निर्गमन)
Synonyms – Evacuation, Migration, Withdrawal, Egress, Exit, Retreat
Antonyms – Stay, Arrival, Entrance

14. Imperative (Adjective) – Crucial (अत्यावश्यक)
Synonyms – Compulsory, Essential, Immediate, Important, Indispensable, Inescapable, Obligatory, Pressing, Urgent, Vital
Antonyms – Inessential, Insignificant, Nonessential, Optional, Trivial, Uncritical, Unimportant, Unnecessary, Voluntary

15. To keep the powder dry (Phrase) –  To be prepared to act with little advance notice

16. Blunting (Verb) – Weakening (अशक्त बना देना)
Synonyms – Cripple, Dampen, Debilitate, Sap, Soften, Undermine, Attenuate, benumb, Deaden, Desensitize, Disable, Enfeeble, Numb, Obtund
Antonyms – Aid, Assist, Encourage, Help, Strengthen, Enliven, Increase, Needle, Sharpen

17. Fend off (Phrase) – To avoid something (बचाव करना)
Synonyms – Avert, Deflect, Rebuff, Rebut, Reject, Repel, Repulse, Resist, Spurn, Ward off
Antonyms – Approve, Attract, Let in

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