No magic wand to reverse Indian rupee fall, says SocGen economist: ‘Crisis-time measures can only ease pain a bit’

• Shubham
• 19 July, 2022

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By: Shubham Ghosh

WHILE economic experts were not feeling too convinced over the government’s assurance over the tumbling Indian rupee, an economist at the Societe Generale, France, said recently that there is no magic wand to address the currency’s fall.

In an interview with Moneycontrol News, Kunal Kumar Kundu said about the rupee, “One measure that is likely… is bilateral currency swap agreements to ward off pressure on the currency. That is one weapon in the RBI’s arsenal that has not been utilised. We can see some NRI bonds come in. Possibly a little more can be done but we do not think there is a magic wand here. The only thing the RBI will possibly need to do is to try and ensure that the currency does not weaken too much and too fast because that will have its own consequences.”

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The RBI or the Reserve Bank of India, along with the Indian government, have taken a slew of measures in recent times to help the rupee turn around. But on Tuesday (19), it fell below the 80 mark vis-a-vis the US dollar, reaching a new low.

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Investors have been selling Indian equities for months while elevated inflation and growing trade deficit have added to the rupee’s woes.

‘Crisis-time measures cannot be magic wand’

Stressing on overall macro-economic stability in the current context, Kundu said, “Measures taken during the crisis period are unlikely to act as a magic wand that can suddenly change the situation. These can only ease the pain a bit. Given the steps taken thus far, the depreciation pressure on the currency may ease a bit but we do believe that the RBI needs to be aggressive on the policy rate front to be more effective.”

The SocGen economist also said that foreign investors are unlikely to look at India at this point if the risk-off sentiment continues. He, however, predicted that the situation was likely to change in the second half of 2023 when the inflation situation could be relatively better and growth slowly coming back on track.