Sajjid Chinoy: ‘The rupee is a better-performing currency against the dollar on a trade-weighted basis’ | Explained News,The Indian Express
In this edition of Explained-Live, Sajjid Chinoy, Chief India Economist, JP Morgan and part-time member, PMEAC, speaks on tackling challenges of rupee depreciation, getting rid of the obsession with the rupee-dollar rate and RBI’s role.
Sajjid Chinoy, Chief India Economist, JP Morgan and part-time member, PMEAC, on tackling challenges of rupee depreciation, getting rid of the obsession with the rupee-dollar rate and RBI’s role. The session was moderated by Executive Editor P Vaidyanathan Iyer.
On how the rupee fared in the larger global perspective of currency markets
Before the global financial crisis, it was Rs 40 to a dollar. A year into the crisis, the rate jumped to about Rs 50 and then in the taper tantrum of 2013, the rate swung between Rs 55 and Rs 70. Then in 2018, the rupee moved down further by 10 per cent because of US exceptionalism, Fed rates and oil prices going up. In short, as the global environment gets more adverse, the rupee tends to gap down. But this is the narrow view because it concerns a relative price and we deal with hundreds of prices in the goods and financial markets. Yet this gets everybody animated.
First, the US dollar is the reserve currency of the world. The US economy has an exorbitant privilege and has actually strengthened 15 per cent over the last year against advanced economies. As a consequence of the strengthening dollar, all emerging markets and advanced economies have weakened. The dollar has strengthened because the US Fed got into a pretty aggressive rate hiking cycle. The notion that inflation was transitory in the US proved untrue and once market participants understood just how sticky and broad-based inflation was and how much work the Fed had to do, the dollar began to strengthen. I’m going to use the beginning of 2022 as a marker and you will see India is actually one of the better performing currencies against the US dollar. So, when we say we’re down six and a half to seven per cent, it’s against the backdrop of a dollar index that’s up 15 and you know most emerging markets, including China have weakened further.
Second, India’s trade basket is very diversified (we export and import from the European Union, China, the UAE and 40 countries), so why are we so fixated on the dollar? We need to look at how our exchange rate has done vis-a-vis all our trading partners. The US constitutes about 12 per cent of our trade weight and 18 per cent of our export weight. Now a lot of goods are invoiced in the US and maybe the weight of the dollar in the basket needs to be higher than the direct share but we should not get so obsessed with one currency. The rupee has moved down only as much as our trading partners have against the dollar.
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