RBI may let rupee fall further to make exports competitive

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RBI may let rupee fall further to make exports competitive

  • RBI might allow further declines in Asia's worst-performing currency.
  • A weaker rupee would boost export competitiveness and help bridge gaps likely widened by leaping oil prices.

Current Position of Rupee

  • Since February 21, the rupee has lost 2.17% to the dollar(at 76.17).
  • Reserve Bank of India (RBI) likely deploying its record forex pile to cushion the shock.
  • A declining rupee helps enhance India's export competitiveness.
  • Higher oil prices could accentuate the impact of imported inflation if the currency were to slide further.

Trade deficit and Inflation factor

  • India's trade deficit has been high (about $20 billion a month for the past six months) on a broad-based import surge.
  • Union budget estimate FY23 CAD (current account deficit) at 2.8% of GDP at $90/barrel average crude, present crude price is way higher which will impact it.
  • Retail fuel prices in India have remained unchanged even while global crude prices surged past 3-digit marks for the first time in 8 years.
  • With the present crude price of US$110/bbl, the govt. will have to raise prices by ₹14-15/ltr (12-15%).
  • The impact would be approx 60-80bps on CPI.

Rupee fall in past

  • 2001(US Twin Tower attacks): rupee dropped 1.32%.
  • Gulf War: the rupee fell 0.39%.
  • 1998(nuclear tests): the rupee slid about 6% in a month.


  • Such unprecedented volatility due to any geopolitical turmoil has never been witnessed.
  • Even during the Pokhran/Kargil event, instability in the markets was much less than what it is today.