{"id":44606,"date":"2025-01-19T11:26:05","date_gmt":"2025-01-19T05:56:05","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=44606"},"modified":"2025-05-06T12:56:11","modified_gmt":"2025-05-06T07:26:11","slug":"rbis-new-strategy-on-rupee-depreciation","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rbis-new-strategy-on-rupee-depreciation\/","title":{"rendered":"RBI&#8217;s New Strategy on Rupee Depreciation"},"content":{"rendered":"<h2><strong>What\u2019s in Today\u2019s Article?<\/strong><\/h2>\n<ul>\n<li>Key Developments in Rupee Depreciation<\/li>\n<li>Impact of Depreciation<\/li>\n<li>Factors Influencing the Rupee\u2019s Future<\/li>\n<li>Conclusion<\/li>\n<\/ul>\n<h2><strong>Why in News?<\/strong><\/h2>\n<ul>\n<li>The Reserve Bank of India (RBI) appears to have <strong>eased its control over the rupee, allowing it to depreciate <\/strong>against the US dollar over the last month.<\/li>\n<li>This marks <strong>a departure from its earlier stance<\/strong> of tightly managing the rupee to curb sharp declines, a strategy prominent until late 2024.<\/li>\n<\/ul>\n<h2><strong>Key Developments in Rupee Depreciation:<\/strong><\/h2>\n<ul>\n<li><strong>Significant depreciation:<\/strong>\n<ul>\n<li>The rupee, which hovered around <strong>84-85 per dollar,<\/strong> hit its historic low of 86.70 on January 13, 2025, marking its steepest single-day fall in two years.<\/li>\n<li><strong>Since November 1, 2024, the rupee has depreciated by 2.6%.<\/strong><\/li>\n<\/ul>\n<\/li>\n<li><strong>Possible shift in RBI\u2019s strategy:<\/strong>\n<ul>\n<li>The RBI\u2019s reduced intervention points to <i>an increased tolerance for rupee depreciation<\/i>, <strong>aligning it with market forces and easing pressure on reserves<\/strong>.<\/li>\n<li>Analysts suggest the RBI\u2019s approach of allowing a wider range for the rupee is <i>prudent<\/i>, <strong>reducing resource expenditure<\/strong>.<\/li>\n<li>Market experts, however, believe it is too early to attribute this change to the new RBI Governor, Sanjay Malhotra, who took charge on December 11, 2024.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Reduced intervention:<\/strong>\n<ul>\n<li>The rupee\u2019s fall indicates a potential recalibration in the RBI\u2019s intervention strategy, driven by the strengthening dollar and the <strong>overvaluation of the real effective exchange rate (REER).<\/strong><\/li>\n<li><strong>REER <\/strong>is a measure of a country&#8217;s currency value relative to a group of other currencies, adjusted for inflation. It&#8217;s used to assess a country&#8217;s external balance and economic health.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><strong>Impact of Depreciation:<\/strong><\/h2>\n<ul>\n<li><strong>Forex reserves:<\/strong>\n<ul>\n<li>India\u2019s foreign exchange reserves <strong>declined <\/strong>by $79 billion since September 2024 to $625.87 billion by January 10, 2025.<\/li>\n<li>The fall was attributed to <strong>dollar sales to manage the rupee<\/strong> and foreign investor withdrawals amounting to over \u20b91,43,000 crore.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Market liquidity deficit: <\/strong>Strong RBI intervention since Q4 FY24 caused a drain in domestic liquidity, pushing the system into deficit despite efforts like cash reserve ratio (CRR) cuts and bond purchases.<\/li>\n<li><strong>Inflationary concerns:<\/strong> A weaker rupee may exacerbate imported inflation, especially for oil products, adding to inflationary pressures projected at 4.5% for Q4 FY24.<\/li>\n<\/ul>\n<h2><strong>Factors Influencing the Rupee\u2019s Future:<\/strong><\/h2>\n<ul>\n<li><strong>Dollar strength:<\/strong>\n<ul>\n<li>The rupee\u2019s trajectory depends on whether the US dollar strengthens further or stabilizes.<\/li>\n<li><strong>Expectations hinge on the impact of Donald Trump\u2019s presidency<\/strong>, with potential policy shifts on immigration, taxes, and tariffs influencing the dollar\u2019s strength.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Predicted levels of rupee: <\/strong>Analysts expect the rupee to <strong>depreciate further <\/strong>to around 87 per dollar by March 2025, depending on global market dynamics and Trump\u2019s policy actions.<\/li>\n<\/ul>\n<h2><strong>Conclusion:<\/strong><\/h2>\n<ul>\n<li>The RBI\u2019s recalibrated stance on the rupee <strong>reflects a strategic shift to balance market stability and resource conservation.<\/strong><\/li>\n<li>While the long-term implications remain uncertain, this approach could allow for better alignment with global currency trends while addressing liquidity concerns domestically.<\/li>\n<\/ul>\n<figure class=\"media\">\n<div data-oembed-url=\"https:\/\/www.youtube.com\/watch?v=9v_mVJVZ1NI\">\n<div><iframe src=\"https:\/\/www.youtube.com\/embed\/9v_mVJVZ1NI\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/div>\n<\/div>\n<\/figure>\n<hr \/>\n<h3><strong>Q.1. What is the nominal effective exchange rate (NEER)?<\/strong><\/h3>\n<p>NEER is a measure of the value of a currency against a weighted average of several foreign currencies. An increase in NEER indicates an appreciation of the local currency against the weighted basket of currencies of its trading partners.<\/p>\n<h3><strong>Q.2. What is a managed floating exchange rate?<\/strong><\/h3>\n<p>A managed floating exchange rate (or dirty float) is an exchange rate regime in which the exchange rate is neither entirely free (or floating) nor fixed. Rather, the value of the currency is kept in a range against another currency (or against a basket of currencies) by central bank intervention.<\/p>\n<p><strong>Source:<\/strong> <a href=\"https:\/\/indianexpress.com\/article\/business\/market\/in-calibrated-move-rbi-loosens-grip-lets-rupee-depreciate-against-us-dollar-9786279\/\" target=\"_blank\" rel=\"nofollow noopener\">In calibrated move, RBI loosens grip, lets rupee depreciate against US dollar<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The RBI appears to have eased its control over the rupee, allowing it to depreciate against the US dollar over the last month.<\/p>\n","protected":false},"author":5,"featured_media":44607,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-44606","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/44606","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=44606"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/44606\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/44607"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=44606"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=44606"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=44606"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}