Re depreciation needed for competitive edge

1. Re depreciation needed for
competitive edge: Rajan

2. Contd…
RBI governor Raghuram Rajan has said the rupee needs some depreciation so that
other economies do not gain an edge over India, even as the central bank
continues its fight to reduce inflation. “Until we bring inflation down -our objective
is to bring it down to lower levels -there will be a certain amount of depreciation
(of the rupee) which is necessary to ensure that we don't become uncompetitive,“
Rajan said at an event organized by the Federal Bank to commemorate the 14th
memorial of its founder K P Hormis here.
The governor, however, said the intent of the RBI is not to depreciate the rupee in a
steady manner. “Our focus is on bringing down inflation so that people will not
have to ask why the rupee is weakening,“ Rajan said. “If you look at the real
effective exchange rate, it (rupee) is flat. In other words, we haven't really
depreciated in real terms against the global currencies. We have been very , very
flat over the last couple of years. The bottom line is don't just look at the dollar,“ he
explained. On Thursday , the rupee had hit a fresh 29-month low of 68.30 -which is
close to the figure it had touched on August 28, 2013 at 68.83 -though it recovered
by 6 paise on Friday .

3. Contd…
The pain on the rupee follows a massive pull-out by foreign investors from the country
since the beginning of the year. While FPIs have pulled out over Rs 83,000 crore from the
domestic market, mostly equities, they pulled back over Rs 23,000 core in the first 11days
of this month.
The fund outflow started after the US Fed increased its lending rates by 25 basis points
(100bps = 1percentage point) after seven years of near negative interest rates that began
following the 2008 global financial crisis.
The pain in the global financial markets is also driven by the troubles in the Chinese
economy which has decelerated to 6.7% last year, which is the lowest in 25 years. This has
pulled down crude and commodity prices by over 70%.
Similarly , the benchmark sensex had crashed 807 points to drop below the 23,000mark on
Thursday -its lowest level in 21 months -on concerns over the global economy and
mounting bad loans as also weak quarterly earnings of state-run banks.
So far this year, the sensex has lost over 12% and over 23.5% from its lifetime high of
30,028 points scored in mid-March 2015.

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