For the first time in history, the Indian rupee has hit the 70-per dollar mark. The Indian currency has been among the hardest hit in Asia from the recent Turkey-led sell-off in emerging assets.
A weaker rupee could complicate the Reserve Bank of India’s job of keeping inflation in check.
The RBI’s monetary policy committee has increased interest rates twice since June to curb price pressures, while using foreign reserves to check currency volatility.
The central bank doesn’t target the exchange rate and attributes any rate moves to its goal of containing rising prices.
Principal economist at ICRA Ltd. in Gurugram, Aditi Nayar said: “Broader emerging-market currency movement, dollar strength, and the trend in crude oil prices will drive the outlook for the rupee in the immediate term.”
Nayar added that the RBI is likely to assess the trend in the rupee vis-a-vis the EM currency pack.
“If all EM currencies are depreciating, the rupee must weaken to protect export competitiveness.”