Strategy To Outplay The Rupee Slide
5/17/2012 9:00 PM Thursday
The worry of a rapidly declining rupee has been haunting us for quite some time now. We, at Dalal Street Investment Journal, have always kept a very close watch on this very critical factor, updating our readers from time to time on the course that the rupee is likely to take at least over the foreseeable future.
Just like the stock market, the movement of the currency reflects the happenings in the economy. While things did seem to improve from when we last covered the rupee’s movement, it seems to have been just a minor respite. In the last one year, the Indian rupee has depreciated by as much as 19 per cent. Now, it has gone downhill once again and rather sharply this time, breaching its all-time lows to hit a nadir.
The rupee has been the most underperforming currency in the last one year as compared to currencies like the Chinese Yuan, the Brazilian Real and the South African Rand. All these currencies have appreciated this year, thanks to the current account surpluses and the relatively steady economic fundamentals of these countries. India, on the other hand, has been facing pressures on all fronts. Economic growth has slowed down, inflationary pressures are just not ebbing, and to top this, government inaction on the policy reforms front has been hitting hard.
While the economy seems to be under pressure overall, the declining rupee is adding to the worries. Is this scenario likely to change any time soon? Well, we don’t think so. Here are some reasons why we feel that the rupee could continue to remain under pressure, at least for some time going into the future.
The Global Scenario
On the global front, there is nothing that points towards economic stability in the near future. The Euro zone problems just don’t seem to be getting over. Greece has long been holding off stability in the region. The problems there have once again reared their head, though expectations of the economy coming out of the woods are still alive. After France voted in Socialist Francois Hollande, who has promised economic growth and not austerity, there is now yet another major concern looming large on the European front.
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