`Rupee closer to its fair value, unlikely to see any further depreciation’

The Indian rupee is “tracking closer to its fair value” and a further rapid depreciation (of the rupee to the dollar) appears unlikely. However, appropriate policy intervention is required in the short term to anchor negative sentiments, Shubhada Rao, Group President & Chief Economist, Yes Bank Ltd, said.

While the Indian rupee on Friday closed at 71.85, recovering 34 paise from its previous close of 72.19 against a dollar; the Central government took some measures and a broad policy decision to curb non-essential imports and increase exports.

More interventions could possibly be underway, she said adding that gold can be one of the items that the government looks into as a short term measure.

Overall the dollar has been strengthening against currencies of emerging countries. Moreover, there is also some outflow of portfolio from emerging markets. Hence, a policy intervention, Rao said, is required in order to stem “negative sentiments” about the economy.

“The government and Reserve Bank can make policy interventions now. If it does not, the expectations get un-anchored. It is very important to anchor the expectations and time is appropriate to do it,” she said on the sidelines of an event organised by Merchants’ Chamber of Commerce and Industry.

Citing a study, prepared by Yes Bank, Rao pointed out that the recent phase of relative depreciation has reduced the misalignment of Indian rupee from fair value based on real effective exchange rate (REER) rebased to FY12.

Estimated overvaluation is likely to have reduced to 3.7 per cent in August 18 from 9.9 per cent in the same period last fiscal.

COMMENT NOW