With the rupee breaching the 72-mark to the dollar on Thursday, a State Bank of India research report said policy makers should be mindful of the costs of rupee depreciation. It warned that rupee will continue to face pressure in the foreseeable future.
In this regard, it underscored the possibility of roll-over of India’s short-term debt obligations (for the second half, assuming that rupee depreciates to an average value of 71.4/US dollar, the debt repayment amount would be ₹7.8-lakh crore), adding a significant cost to the Government. Further, oil import bill could go up manifold.
Referring to yields (on government securities) increasing, the Ecowrap report felt that this could add up government fiscal costs. “On all these counts, the costs could add up to 0.7 per cent of GDP. It may be noted that the yields are already under pressure as unlike earlier years, the government borrowing programme has been evenly distributed between two halves in current fiscal,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
Pointing to the RBI estimates, assuming a 10 per cent depreciation, the report assessed that this could add up to 50 basis points on inflation number.
“In fact, continued rupee depreciation could result in rate action by the RBI in October policy, even as headline CPI will decline meaningfully to 3.6-3.7 per cent in September. This could be thus the biggest predicament waiting to unravel.”