FM Nirmala Sitharaman says INR is weakening because the USD is strengthening. Experts agree
Finance Minister Nirmala Sitharman last week remarked that the Indian Rupee hasn’t weakened but in reality, it is the US Dollar that has strengthened.
“The Indian Rupee has performed much better than many other emerging market currencies,” Sitharaman said at a media briefing in Washington D.C. on Friday. The Reserve Bank of India (RBI) was working to contain the rupee’s volatility, she said, adding that the “Rupee will find its own level.”
Social media and the opposition didn’t take too kindly to the minister’s claim, but data shows that the minister’s views are accurate. The US Dollar has been on a roll in 2022.
“With the aggressive hike in interest rates, the Dollar Index (DXY) continues to remain strong to its 20-year high, trading at 112.89 levels. This has made the Indian Rupee depreciate against the US Dollar,” said Megh Mody, Commodities and Currencies Research Analyst, Prabhudas Lilladher Pvt Ltd.
“Domestically, RBI has utilised $100 billion of reserves just to save the slide of the Rupee against the Dollar,” he added.
The greenback bull run
Stung by decadal-high inflation, the US Federal Reserve promptly turned hawkish. This, coupled with US economic strength and haven demand, has helped the US dollar notch multi-decade highs against prominent peers while the Indian Rupee and pound are languishing around record lows.
The US dollar is currently at its highest level since 2000. It has gained 22% against the yen, 13% against the Euro and 6% against emerging market currencies since the start of this year.
“Such a sharp strengthening of the dollar in a matter of months has sizable macroeconomic implications for almost all countries, given the dominance of the dollar in international trade and finance,” the International Monetary Fund’s Gita Gopinath and Pierre-Olivier Gourinchas wrote in a blog recently.
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