Indian Rupee depreciation against Dollar

[trackwhack]

Our foreign exchange reserve ratio as percentage of GDP has come down from 15% to ~8% due to flight of FIIs and lack of FDIs in recent times. As a result we are seeing rupee fall down. Also there is lot of speculation in the forex market which is making the rupee to fall down.

You are measuring it against PPP. The wise ones here will do a face palm against that.

Our FX has been stuck in between 280 bn and 320 bn for more than 3 years now. Also the FX reserves are most impacted by remittances into India. The FDI FII component is small compared to remittances which exceed 50 bn a year. The government has been using that money to make defence purchases, offset trade deficits and fill their respective Swiss accounts.

Since 2008, there has been close to 200 bn in foreign remittances into India. Where do you think that money disappeared?

 

[Yusuf]

I made a pretty decent transfer today without waiting to see if it falls further. Dollar has always made a mess of my costs. The drop from the highs means I saved 50,000!!!!

Earlier we heard that the rupee will bounce back but then all that hope vanished and talks were to stop the slide to 58. So the recent drop in dollar price is a big relief, for me at least.

 

[trackwhack]

I made a pretty decent transfer today without waiting to see if it falls further. Dollar has always made a mess of my costs. The drop from the highs means I saved 50,000!!!!

Earlier we heard that the rupee will bounce back but then all that hope vanished and talks were to stop the slide to 58. So the recent drop in dollar price is a big relief, for me at least.

You got to play it smart Yusuf. Good Luck. Traders are the hardest hit, especially with demand dropping and currency losing value together. Hope things get better soon.

 

[Yusuf]

You got to play it smart Yusuf. Good Luck. Traders are the hardest hit, especially with demand dropping and currency losing value together. Hope things get better soon.

You cannot play smart much as you try. Its more like trying your luck and also deciding what is the risk you are willing to take in terms of a drop in price of the rupee.

I have lost enough money trying to do that. So for some time now, I just make my payment at a price I feel is feasible and then not worry. But drop this year has been baffling and hit real hard. I use to bear a 50 paise loss sometimes per dollar in the hope of rules strengthening but then that meant a loss of 25,000 per transaction for me.
But this years 18% depreciation has ruined a lot of my plans.

 

[nrj]

FIIs will play no role unless industrial growth picks up & interest rates are slashed.

 

[trackwhack]

You cannot play smart much as you try. Its more like trying your luck and also deciding what is the risk you are willing to take in terms of a drop in price of the rupee.

I have lost enough money trying to do that. So for some time now, I just make my payment at a price I feel is feasible and then not worry. But drop this year has been baffling and hit real hard. I use to bear a 50 paise loss sometimes per dollar in the hope of rules strengthening but then that meant a loss of 25,000 per transaction for me.
But this years 18% depreciation has ruined a lot of my plans.

Maybe a little late in the day but since there are talks of Rupee at 58 a dollar, have you thought of hedging some money?

 

[Yusuf]

Maybe a little late in the day but since there are talks of Rupee at 58 a dollar, have you thought of hedging some money?

No. Hedging is a two way sword. Plus banks don't give good terms for hedging. The deposit required to hedge is prohibitive. The terms to break the contract if the dollar falls are not good and the bank charges are pretty high. I think hedging is more beneficial for exporters who can see their margins itself wiped out whereas importers can adjust the price they sell at factoring the rise in input cost.

 

[nrj]

16-18% depreciation while sitting on 60 billion $ current account deficit. Smell the coffee.

 

[Yusuf]

India may face its worst financial crisis in decades as rupee retreats

The Times of India on Mobile

 

[nrj]

^ Thats media pressing panic button ostentatiously to grab some hits.

 

[Yusuf]

I don't think the assessment is off track. Signs are not good. Culprit is bad policies at home and worse abroad in Europe!!

 

[nrj]

Signs arent good agreed. Euro SDC & populist measures screwing.

But this is a pinch to industries relying on imports. Too bad their margins will reduce. On other hand at least agri exporters will get fair price for their output.

 

[Yusuf]

Agri exports not big enough to be happy about depreciating currency. It is only doing more harm. Oil is key.

 

[nrj]

They are not big enough thats the sad part of the story! This can work as encouragement for them.

And why should currency manipulation benefit only certain sector? IIRC even at 48 rupee is overvalued.

 

[Yusuf]

They are not big enough thats the sad part of the story! This can work as encouragement for them.

And why should currency manipulation benefit only certain sector? IIRC even at 48 rupee is overvalued.

No I read a report quite sometime back that the rupee is grossly undervalued and the real value should be around 12-15 to a dollar.

 

[p2prada]

US complains about China. But Rupee is overvalued big time. The increase in Repo rates, forcing investors out and reduction of FDI reserves is all aimed at artificially keeping the Rupee overvalued. Helps exporters, not importers.

Yusuf, I heard Rupee is overvalued by 40%, not by the amount you say, but I am not 100% sure.

 

[aerokan]

Signs arent good agreed. Euro SDC & populist measures screwing.

But this is a pinch to industries relying on imports. Too bad their margins will reduce. On other hand at least agri exporters will get fair price for their output.

Agri exporters aren't a big deal now. If u take rice for example, export was banned currently despite having reserves more than even the limits set by the govt. When rice can get good price outside, why couldn't govt sell it and take a big cut and give something atleast to farmers.. If not atleast take the profits and construct cold storage and other facilities for the farmers and for eff sake, they can take all the credit for giving the farmers better facilities out of the money they can make.. But the stupid govt can't even do that

And yeah rupee devaluation doesn't fetch much to the farmer even if the exports are allowed. But the inflation caused will surely cost everything more for the farmer. So it's a net loss

 

[aerokan]

US complains about China. But Rupee is overvalued big time. The increase in Repo rates, forcing investors out and reduction of FDI reserves is all aimed at artificially keeping the Rupee overvalued. Helps exporters, not importers.

Yusuf, I heard Rupee is overvalued by 40%, not by the amount you say, but I am not 100% sure.

U mean undervalued???

 

[cir]

US complains about China. But Rupee is overvalued big time. The increase in Repo rates, forcing investors out and reduction of FDI reserves is all aimed at artificially keeping the Rupee overvalued. Helps exporters, not importers.

Yusuf, I heard Rupee is overvalued by 40%, not by the amount you say, but I am not 100% sure.

If rupee is overvalued by 40%, then India's economy in PPP terms is less than $ trillion.

 

[pmaitra]

US complains about China. But Rupee is overvalued big time. The increase in Repo rates, forcing investors out and reduction of FDI reserves is all aimed at artificially keeping the Rupee overvalued. Helps exporters, not importers.

U mean undervalued???

Rupee is not overvalued. Rupee is just about correctly valued but not entirely convertible.

Here is a report on the number of times the rupee has been devalued to help exporters: http://www.ccsindia.org/ccsindia/policy/money/studies/wp0028.pdf



p2prada, rupee devaluation does not help importers, it only hurts them but helps exporters. The people who lobby most to keep inflating our currency are the software giants like TCS, Infosys, Wipro etc..