Rupee depreciating against US dollar but appreciating against Euro, Pound & Yen on a weighted basis: Sanjeev Sanyal

On the rupee depreciating against US dollar
The rupee is obviously depreciating against the US dollar but do note that it is appreciating against every other currency whether it is the Euro, the British Pound, the Yen and so on and I think on a weighted basis it is appreciating.

We need to be a little careful about judging a currency in that context, I think the Reserve Bank quite correctly is allowing that adjustment to happen. We have plenty of reserves which they are using to smoothen the course, but it would be unwise to try and defend a level in a situation where the US dollar is clearly strengthening very rapidly.

Do you think we should mentally be prepared for that 80-level mark, in fact some foreign analysts are saying, economists are saying that in fact 81 should not be a surprise?
We have already hit 80, so that is not the issue. My main contention here is this is related to US dollar strength. I am not in the business of predicting where the US dollar will go, all I am trying to say is we need to maintain monetary discipline at home and to allow the rupee to adjust to wherever the market will take it.

Given the context of what other currencies are doing because in the end remember that we compete with those countries, we export to those countries and even when you are taking the US into account, do remember that the US is an open market where we will be competing against all these other countries for goods, services etc.

In that context, we need to maintain a certain level of flexibility in allowing the rupee to go where it will. What is important is that this happens in an orderly way and for that management we have more than adequate foreign exchange reserves to smoothen the way Reserve Bank is leaning against the wind in both directions it does when it was appreciating, they were also accumulating reserves and now quite correctly they are using some of the reserves to smoothen the way. But eventually the market must be allowed to play itself out.

RBI took several measures recently, what do you think when will the impact of those measures be visible and are these measures enough?
It depends on what you mean by those measures. There were some shorter-term measures to sort of facilitate short term flows, at the margin they will be beneficial, but I think the really big measure that they announced which is relating to internationalisation and allowing of rupee-based settlements for our external trade I think that is a very major measure in the medium to long term. I do not think that it has too many short-term implications but yes, allowing for the rupee to be used for international trade settlements is a big step in the direction of ultimately converting the rupee into a hard currency.

As an emerging economic power, we should aspire to having the rupee being used as an international currency at least for trade with India if not for even other countries, we should aspire for it to be a reserve currency, we should aspire for the rupee to be a part of the IMF’s SDR basket, for example.

Is there a level of rupee that will worry you?
Not if the rupee’s movement is happening in the context of a global strengthening of the dollar so it will only be in the context of what is happening with the wider landscape of exchange rates.