As the rupee touched a new 2-year low, State Bank of India (SBI) chairperson Arundhati Bhattacharya today said it must fall further to help domestic exporters.
“It (further fall in the rupee) is required, otherwise exports will become absolutely unviable. It is important to maintain parity. It can be achieved only if the rupee is allowed to depreciate further,” Bhattacharya told PTI when asked about the impact of the yuan devaluation on the country.
The rupee today fell by 36 paise, or 0.54 per cent, to close at 66.82 against the US dollar.
The RBI officially does not enter the forex market to set a price for the rupee but intervenes only when there is excess volatility in the market.
The last time the country devalued the rupee was in early July 1991, following a balance of payment crisis and the country sought a $2.2 billion bailout from the IMF as forex cover dipped to just three weeks or about $500 million.
Following this, the rupee was devalued twice in a week to the tune of around 20 per cent. The first official devaluation took place in 1966.
Since China officially paired down the official value of the yuan in July by close to 5 per cent and since then allowed it to fall further in the market following a massive route in the stock market which has lost more than half of its value since June, the rupee and the domestic stock markets have been under stress.
Mirroring the continuing woes in Chinese market, the Sensex sunk to 15-month low today to close below 25,000-mark, shedding over 306 points. The main index has lost all its gains in the year so far.
The markets are also in a bear grip as the US Federal Reserve is yet to speak its mind on whether the world’s most powerful central bank will increase its historically low rates in September or will wait till December.
Noting that the rupee fall has been mainly against the US dollar only, the SBI chief said the rupee has been doing well compared to many other currencies and is still trading higher than its actual REER (real effective exchange rate) value against many of its global peers.
Admitting that there could be short term pains if the rupee falls further, she said the short term difficulties will arise for those exporting raw materials like iron ore and cotton yarn to China.