Economist foresees further slide in ‘over-valued’ Indian rupee
Former World Bank economist feels the Indian rupee should be at about 70-71 to the US dollar. It is currently trading at 68-69 rupees to the dollar
Even as the Indian rupee continues to fall against the US dollar, a globally-renowned economist has said the Indian currency remains over-valued. Kaushik Basu, former chief economist of the World Bank and former chief economic adviser at the Indian finance ministry, said the fair value of the local currency is between 70 and 71 rupees to the dollar. It is currently trading at around 68 to 69 rupees to the greenback, Press Trust of India reports.
He said that, despite some recent corrections, over the past couple of years the rupee has tended to appreciate. This means the right level for the rupee is 70-71 to the dollar, Basu reportedly said. He also raised concern over poor employment growth in the country.
The widening current account deficit and higher interest rates have made the rupee the worst performer among its Asian peers so far this year. Since June, the Reserve Bank of India has hiked interest rates twice by 50 basis points to 6.5%.
The rupee has been the focus of widespread concerns about the nation’s steadily growing trade deficit and a current account deficit that hit 1.9% of the GDP in the first quarter. Observers are also concerned about short-term debt coupled with rising protectionist tendencies on the global front.
According to Reserve Bank data, the country has to make provisions for US$ 222 billion of forex loan repayments this fiscal year. This represents nearly 52% of current foreign exchange reserves, which stand at a little over US$ 404 billion.
In contrast, Indian stock markets continue to hit record highs, with investors optimistic about corporate earnings on the back of robust first-quarter figures. During the month of July alone, foreign investors poured over 23 billion rupees (US$335 million) into local equities.