Rupee hits new 20-months low, FIEO expresses anxiety

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SME Times News Bureau | 05 Jun, 2015
Rupee breaching the 64.28 mark, hit a fresh 20-month low against USD, could be moving towards a corrective given the increasing rupee's real effective exchange rate (REER) eroding export competitiveness, said exporters body the Federation of Indian Exporters Organisation (FIEO).

The domestic currency continued to witness a downward trend on the back of sustained capital outflows by foreign funds and consistent dollar demand from importers and banks.

FIEO's President, S C Ralhan while commenting on the rupee breaching the 64.28 mark per US dollar in trade Thursday stated that it had hit a 20-month low and although there are several confabulations on the reasons thereof including the policy stance; impact due to delay in divestment of PSU companies, dollar demand from importers concerns due to El-Nino on monsoons, RBI's own analysis an increasing REER of 112.55, 124.41 and 125.22 in March 2014, February 2015 and March 2015 which implies decreasing international competitiveness.

"...or that an increase in the real exchange rate means people in a country can get more foreign goods for an equivalent amount of domestic goods skewing the balance of trade in favour of competitors in the international market," he added.

FIEO chief stated that the data above is for 6-Currency Trade Based Weights which includes US, the Eurozone (comprising of 12 countries), UK, Japan, the Chinese yuan and the Hong Kong Dollar which command a major market share in global trade explaining somewhat stagnant export performance.

For the 36-Currency Export and Trade Based Weights which include: Hong Kong SAR, Denmark, Iran, Kuwait, Qatar, Russia, South Africa, Sweden and United Arab Emirates, with the inclusion of the Euro zone, the new 36-currency indices include all the twelve countries that have Euro as common currency.

Thus, the revised 36-currency REER indices effectively represent 47 countries where the position appears to again be skewed but to a lesser extent at 103.82, 112.01, 113.23 for March 2014 , February and March 2015 respectively.

Given the increasing values of REER an eroding export competitiveness is evident from data itself.

President, FIEO remarked that that most brokerages feel that if the Rupee breaches the resistance point of 63.70, Rs 65 in the short term and Rs 66 to a dollar may be a possibility by the end of the year which may also be a corrective given the supporting empirical data furnished by RBI.