As the rupee continues to be volatile against the dollar, short-term stabilisation and long-term reform measures will help the rupee reach an equilibrium level, according to Rupa Rege Nitsure, Chief Economist, Bank of Baroda. She spoke to Business Line on the road ahead for the rupee
What are the reasons for the massive fall in the rupee?
The primary factors that have contributed to the current panic and nervousness are the fears about the US scaling back its quantitative easing programme, continuous increase in global oil prices fuelled by the likely western military intervention in Syria and the anxiety about India’s fiscal outlook.
A combination of short-term stabilisation measures and long-term structural reforms as is being done currently is the only key. The recent move to clear 36 stalled infra projects worth Rs 1.83 lakh crore was a good move and more efforts in this direction would greatly help in improving policy confidence.
How much and to what extent will this affect interest rates and inflation?
Currency depreciation will definitely create an upward bias in inflation and interest rates but it is difficult to quantify the exact impact at this stage due to its current heightened volatility. A credible analysis is possible only after the currency stabilises.
Are you seeing a hike in the interest rate cycle? Why?
I would rather wait for the currency to stabilise before taking this call.
How long will this depreciation trend last? When can we expect stability?
The recent fall in currency has definitely improved the prospects for several export-oriented industries, if one goes by their order books and inventories. Once we start seeing favourable prints on trade account balance, the currency will surely and significantly recover. It does not make sense to forecast the outlook at the current stage when sentiment has taken precedence over reasoned analysis.