Data dive: Should RBI let the rupee fall?

livemint.com:

Subscribe to enjoy similar stories. The depreciation of the rupee has always been a political hot potato even though it is a natural trend for an emerging market. The rupee’s value is currently at a low, triggered by the strengthening of the US dollar since Donald Trump’s victory in the presidential election.

The president-elect’s anti-immigration stance and call for higher trade tariffs have caused nervousness worldwide and is reflected in major emerging-market currencies. The rupee has depreciated 0.4% since 5 November, holding up better than its emerging-market peers. Even as Trump’s victory has led to volatility and uncertainty, his previous administration saw moderate weakness in the rupee.

During Trump 1.0, the rupee depreciated only 6.7%, milder than the 15.3% weakness seen during Joe Biden’s presidency. To smoothen the fluctuations in the rupee – either a sharp appreciation or depreciation – the Reserve Bank of India (RBI) has often intervened in the markets with its massive kitty of foreign exchange reserves. However, with markets volatile following the rate cut by the Federal Reserve and Trump’s victory, forex reserves have declined after hitting an all-time high of $704.89 billion in the week that ended on 27 September.

Also read | The week in charts: Climate maths, rising inflation, crypto price Several experts including the former chief economic advisor Arvind Subramanian have questioned the RBI’s intervention, while many economists have argued for a weaker rupee to boost trade competitiveness. However, the flip side is that a weaker rupee could induce inflationary pressures and a sharp fall could worsen India’s fiscal and current account deficits. The rupee will keep depreciating, with its value expected to