RBI’s effort to prop up economy becoming a bane for the Rupee: Bloomberg report

Is the Rupee falling as a consequence of the Reserve Bank of India’s efforts to revive the economy? A Bloomberg report seems to suggest so. The report says the Indian Rupee has been the worst preforming currency among the emerging Asian economies and this could be because RBI is pumping in dollars into local stocks and bonds.

Bloomberg says the RBI has made purchase of $18 billion worth of foreign exchange between the end of September and now and during this period the Rupee has weakened by 0.7% against the US dollar.

The report is basing its conclusion on these figures that the foreign exchange inflow has been quite substantial but the Rupee, instead of gaining has been losing. The inference is that with the economy slowing down, a stronger Rupee can only hurt the exports and the least the RBI could do was to let the currency remain weak and prevent the exports from slowing down.

The report has gone on to quote some experts from the foreign exchange firms who also feel that part of this could be done on purpose to keep Rupee competitive in the international market.

However, the report says that RBI has said it does not operate with any fixed rate of exchange for the Rupee. Its objective is to ensure that there are no wild swings in the currency’s rates and intervenes only when such variations occur to curb and steady the currency.

As of this morning, the Rupee was quoted at 71.38 against the US dollar even as the Indian stock market indices are reaching record highs. There have been heavy investments in Indian equities by foreign funds, to the extent of $4.6 billion while investing in debts also of $600 million.

The Indian economy is however not likely to make a comeback as the latest GDP figures may indicate a 4.6% growth down from 5% the last report had said.