Central Bank says rupee won’t depreciate

In response to the forecasts made by certain factions over the value of the rupee in the near future, indicating a steeper loss in value in relation to the United States dollar, the Central Bank believes that the rupee will hold steady.

Among several reports forecasting devaluation of the rupee in the medium term, First Capital Research (FCR) gave the bleakest outlook for the rupee, putting its value at between Rs.240 to 270 by the year end, assuming the full float of the currency. 

This works out to a 33 percent decline in the value of the rupee against the dollar in 2022 alone. 
But Central Bank Governor Ajith Nivard Cabraal refused to concur. 

“It won’t depreciate,” was his response to a question whether the currency would take a beating anytime soon. 
However, various parties are coming up with requests for special rupee/dollar rate by the government to keep them afloat amid tighter operating and business conditions caused by the pandemic and the foreign exchange crunch at home, similar to the Rs.10 extra offered to the migrants, who repatriate their earnings. 

Worker remittances get Rs.210 instead of the official Rs.200 for each dollar converted via official channels to encourage migrants to use official banking channels whenever they remit 
money home.  

For instance, the rubber industry recently joined the chorus demanding a similar incentive for the export industries, which are also struggling to stay above the line, due to numerous challenges stemming from the supply chain disruptions, elevated freight rates, shortage in commodities required for value addition and shortage in foreign currency at home to bring down what they need to make 
their exports. 

A section of economists and analysts are calling the Central Bank to float the currency to end the shortages of both commodities and foreign exchange. 

However, the Central Bank may be not willing to go down that path, due to the negative consequences such an action could have on the country’s consumer prices and the foreign currency-denominated debt portfolio, which will go up in rupee value exponentially, exacerbating the foreign debt troubles. 

Another section calls for steeper increase in interest rates to rein in foreign currency outflows by way of imports but such an action could also suffocate the economy, which is just beginning to show some recovery after two years of pandemic-driven set back, which caused many people to lose their livelihoods.