Rupee Touching 80

· Interest Rates Rise, US Dollar Goes Up as Dollars Flow Out

· WPI is at 15.01% which is not a comforting factor at all. 15 consecutive months of double digit WPI will feed into our consumer price inflation and that is a bigger worry for us

As the rupee goes into a freefall, the response that is coming in from the government is that it is not a rupee problem, it is more of a dollar strengthening problem. Is that the way to look at it?

The RBI has always said that they are not so concerned about the level of the rupee and rather they are trying to control volatility. Yesterday, the Bank of Canada, the Central Bank of The Philippines, the Monetary Authority of Singapore all raised their interest rates. So there is only that much countries can do as long as the US dollar strengthens.

We have this peculiar situation where the USA says it is heading into a recession but the dollar is considered as the safe haven. That arises out of its international reserve currency status and as a result, when the dollar is flowing out of countries like India, the rupee is going to weaken. So yes it is largely correct that the rupee is weakening mainly because the dollar is strengthening but that does not make life any easier for us unfortunately.

But the rupee depreciation is relatively much more recent.

So to think of the rupee value as reflecting the weakness of the Indian economy just because it might touch Rs 80 to the dollar would be a very simplistic way of looking at it. In macroeconomics, we do not have these neat one to one solutions. You have the irony of the US perhaps heading into a recession or perhaps already there and the US dollar being the safe haven precisely because of its international reserve currency status.

It is a fact that the rupee has weakened primarily against the dollar but not against other currencies and every currency has weakened. It is a fact that we have substantial reserves though that has fallen as the Reserve Bank has tried to defend the rupee.

So all said and done I do not think we need to look at Rs 80 to a dollar as though the skies have fallen. They have not; but yes, it does create problems for us, particularly as far as inflation is concerned because imported inflation will rise at a time when inflation is already very high. WPI is at 15.01% which is not a comforting factor at all. 15 consecutive months of double digit WPI will feed into our consumer price inflation and that is a bigger worry for us.