Mint Explainer: Why the risk of further rupee depreciation may be overblown

livemint.com:

₹83.13-83.18 to the US dollar. But this must be seen in a broader perspective. In 2022, the rupee saw an 11% slide, plunging from ₹74.21 to ₹82.61 by year's end – the most significant drop since 2013.

Market experts estimated that the Reserve Bank of India (RBI) drew nearly $100 billion from its reserves to bolster the rupee. Comparable currencies faced similar, if not worse, devaluations. After plummeting to a low of ₹83.18 per dollar in October last year, the rupee had rebounded to ₹82.30 by July 2023.

The RBI's believes that the rupee's current valuation is consistent with its long-term trajectory. The steep fall in 2022 was largely attributed to global incidents: the ongoing Russia-Ukraine conflict, successive interest rate hikes initiated by a bullish U.S. Federal Reserve, and the subsequent ripple effect on other central banks.

Furthermore, escalating crude oil prices and halted supply chains as economies scaled back on trade openness further destabilized the currency. Add to this mix, the smorgasbord of geopolitical crises across several countries. But latest economic data prints and government estimates indicate that India’s economy is strong and resilient.

So the underlying question is: what’s the cause for concern? Crude oil prices in global markets have surged from $78.35 at the end of 2022 to nearly $93.70 as on 16 September. Market experts expect prices to hit $100 due to supply cuts announced by prominent producers like Saudi Arabia and Russia. Earlier, there were expectations that the US dollar would weaken, which meant the rupee and other currencies would strengthen.